Animal Spirits Podcast - Inflation at Disney World (EP.243)

Episode Date: February 9, 2022

On today's show we talk about the huge moves after earnings, why people don't change their consumption habits, Ben's trip to Disney World, 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

Today's Animal Spirits is brought to you by Masterworks. Michael, yes. Last week, I got a nice surprise for Masterworks. As you know, Masterworks paintings are not trading on the stock market every day. You don't see the change in value. They update their values of their art, contemporary art, quarterly. And some of the paintings that I bought, I don't know, I guess a year or so ago, were updated.

I got a Cecily Brown that's now up 43%. I have a... Where do those marks come from, you think? Bosquiat. I'm sure it's market-based. Basquiat that was marked up 39%. It's kind of nice because for the majority of the time, these paintings were held at cost, and then they do a fair market value. And you see a pretty nice lift. I also got that Cecily Brown. Isn't that nice? It's just like a really nice surprise to go, oh, it went from cost basis to I'm seeing a 40-some percent gain. And it's kind of nice to have that piece of your portfolio that just, you don't have to see it every day. It's just

You know, I bought my Picasso? Yes, I joined it. It hasn't been marked yet, so one Picasso is still worth one Picasso. That's right. If you would like to invest in contemporary art with Masterworks and see your portfolio change on a quarterly basis, this is a slow part of your portfolio, which is kind of nice in these fast moving markets. Go to Masterworks.com.i.o, backslash Animal, and then go to Masterworks.com slash Disclamers for more. 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 Rit Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rit Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben.

Michael, you got the Bairns treatment last week. I can't tell. The picture they included in there, is it an actual picture of you? Do they, like, do a rendering of you? No, that's the picture on our website. That's where they grabbed that from. Ah, okay. It looks very nice.

Who's the guy who did the profile of you? Steve. I'm going to tee up again. Thanks. Steve. Steve. Steve, okay, in my defense, Steve Garmhausen. I know it was with a J.

Steve Garmhausen. I've spoken to before, a very nice guy. I actually loved the, sometimes the titles for these things don't really match, but killing it with content. Crushing it. It was great. I was very proud of you for this. It was very cool.

It was very well done. And for some reason, my brain thinks strangely about these things. You talk about, and you've told this story before about how it was like circumstance and maybe karma or something, some crazy serendipity. moment where you kind of got linked up with Josh and Barry and then took this opportunity and ran with it. But I think about that kind of stuff all the time. One fork in the road or one path. If you and I had tried to do what we're doing now 20 years ago, it's possible that we never get the careers that we have right now. Obviously, we took the opportunities we had. We love what we do. We have hard work.

But I always think about that happenstance part of the equation so much of we kind of got lucky, too, that we were in the right place at the right time. The internet was doing what it was doing for us. Does your brain ever go down those sorts of rabble? All the time. Dude, if Mario Chalmers didn't hit that shot against the Knicks, I probably, not probably. I would never have met Josh. I mean, I've told this story before, but I got a job at E-Trade. And I was so excited.

I was so excited to have that job. The managing director, whoever it was, the hiring director took a chance on me. And there was like a ding on my credit report. Because unbeknownst to me, when I got sent home from Indiana, I was still paying rent. I was a waiter working full-time and paying rent to a place that I never lived in because I signed the contract and I owed the rent and so I had to pay it. And unbeknownst to me, one of the guys that was living there trashed the apartment. I didn't know about it, never paid the damages.

And so that went on my credit report. I didn't even know about it. This is the importance of having a good credit score. So I got held up in the hiring process while they were waiting for a credit report check. and in between that time, the guy that hired me left. And so the new hiring manager wouldn't hire me. It wouldn't even give me an interview, all because of that. And it turns out, in 2013, I got an email.

I'm like, oh, this name sounds familiar. This name sounds familiar. The guy that hired me went to work for Goldman Sachs and became an external wholesaler. Oh, that's right. And was covering us. And I was like, do you remember me? Do you know what you did to my life? Anyway, yes.

should have been thanking him. Yeah, I should have been thanking him. There were a lot of moments in the road that lead you to where you are, whether it's me or anybody else. I think about that too. Like, there was so many jobs in the past that I applied for and didn't get. And at a time, I was devastated. And now I look back and think, there's an alternative life of mine in some other universe or metaverse or whatever. And I'm at a job where I am miserable. And I'm thinking to myself, well, I guess this is what happens. Sometimes you get a job you don't like. So yeah, it's kind of cool that we're lucky to do what we enjoy. And you talked about how you put in a lot of work and effort, and because we're always constantly studying this, but you're like, I don't have a lot of hobbies outside of

this. This is kind of my hobby. And it's hard for me to go away from the screen. You do the stuff with your kids and your wife, and then you go back to the computer. Before you transition, let me just say one more thing. I'm glad that I did this. I don't know if I told you this, but I was talking to Josh about should I do this? And my first inclination was, I'm going to pass. It's weird because obviously I'm fine with attention. As long as it's on stuff that we're talking about, I'm not a private person at all. I'll share with the audience anything in my personal life. But it's weird to have the camera turned on you as a person and what you're talking about.

So my first reaction was very nice to them through chat, but I'm going to pass. And he was like, dude, come on, just do it. Rob will be proud of you. Your kids will read it someday. So I'm glad that I did. The outpouring of support was really overwhelming and amazing because most of the time When you're getting attention on the internet, it's not for a good reason. And to see so many people say such nice things about me was very nice.

I'm glad that I did it. I have a hard time talking with friends about the podcast or about stuff we do because I feel weird talking about myself too. But yes, as far as like unplugging, I am down at the most magical slash awful place on Earth right now. Michael Antonelli, cover your ears. We're two days in and we did Magic Kingdom today. and I don't know how Disney is not the greatest inflation hedge on earth because inflation has to be 10% per year for the last like 40 years here or something. I will caveat this before I complain or anything. Everything that we've gone through and done for this, seeing how pumped my kids are, so I have twin four-year-olds and a seven-year-old.

And they're having the greatest time in the world, like their smiles and their laughter that they've already had just one or two days in has been just totally worth it. But this is, to me, this is all personality driven. This is a check-the-box kind of play. This is like a bucket list kind of thing. Like, you check it off your list, and then you don't do it again. Okay. I haven't been to Disney in a while, but I'm about to say I love Disney. 11-year-old Michael loves Disney.

I don't know if 36-year-old Michael will love it. I suspect I will. Like, I love all of that shit. I love feeling like a child, so I think I'm going to love them. Maybe I won't. It is fun. I enjoy the rides. Here's the thing.

It's a job here. So my wife has done, granted, I'm complaining. My wife has done everything. Like, you wake up, though, and from 7 a.m. until you leave the park, you are planning, what's the next ride? What's the next meal? What's this? You're doing it all on your phone. And it's hard to be very present in it because you are constantly planning. Like, if you go into Disney without a plan, you are screwed. You have to have your meals planned out. You have to have your rides planned out. Otherwise, you're waiting. It's kind of like, I mean, either way, you're hurry up and waiting. But here's another thing I can't believe. Maybe it's just because the Omicron stuff is peaked and it is packed. I mean, slam packed. My personality is more. my vacations are, I like to be beach, pool, outdoor adventures. I'm not a wait-in-line kind of guy. I don't have a lot of patience. But again, my kids are having the time of their lives and my four-year-old daughter,

the first roller coaster went on today, she was freaked out and, like, bawling. She was so scared. It was a tiny roller coaster. And we're like, oh, great, the whole trip, she's not going to like it. And then we went on the bigger roller coasters, and we psyched her up, and she was, like, trying to pump herself up the whole time, and went on it and had her hands up, and screamed for joy the whole time

and was so proud of herself and that was like an amazing moment. She's like the little scaredy cat of the group and the other two are like really adventurous and the fact that she did the big roller coaster she did the Thunder Mountain and the seven dwarves or whatever and loved it.

That was very cool. Man, I'm jealous. I can't wait to go to Disney. I cannot wait. It's a one time trip. But again, holy cow, is it expensive. How much is it a day? Is it like 500 bucks a day or is that too much?

Well, for four of you, maybe. If we're talking park passes, hotel, food, you have to pay up to skip the line now. It's got to be more than that. Way more. It's expensive. If people in the country right now hate inflation, they don't mind that much at Disney because they're still paying top dollar for stuff. That place just rakes up.

How are you doing being completely unplugged? Do you feel sweats or what? Are you happy to be unplugged? I can't shut it off anymore. We've broken ourselves now in this content machine we've created. But kids go to bed early. I can catch up at night and whatever it is. You know what I did today while you were in Florida?

I went the best buy. Okay. Did you find your charger? What charger? Oh, I didn't get one. I bought a TV. Oh, you replaced your 80 inch with a line? I caved.

You know why I caved? There was a line and now there's three. Yeah, that's too many. So... Your line is three instead of two. Yeah. Okay. All right.

I don't know what happened in the markets today, but I want to talk real quick. about how psychology changes when markets start to fall, how it like seeps in after a while. So on, this was inspired kind of by your and Josh podcast on Friday on the Compound of Friends with Peter Bookbar. And you guys spent most of that episode, like looking at the other side of here's how potentially bad things get worse. And I feel like this is what happens. Like we had that first leg down in gross stocks where it was 20 or 30% for a while. And then it kind of evened out. And then we had another leg down and then a really nasty leg down recently. And I feel like for so many months there, probably 15 months, everyone was telling stories about

how these elevated multiples, how they make sense. And that happens when prices go up. But then when prices go down... I'm not sure that I said that, like, this will continue definitely, but we understood how multiples got where they were. Yes. But yeah, and that's the thing. But you tell yourself the story of, this makes sense.

Here's how it can last longer. But then once prices start going down, it's... okay, there's no floor here because these are so elevated. I just think it's interesting. Like, that's how this stuff happens when it's all psychologically based. And that's what happens when so much of the market is now tech stocks. And it has to be more psychologically based. And I think that's why we're seeing such wild swings. And I know a lot of people are saying, oh, it's index funds and there's no price discovery and all this stuff. But I think this is how you can see the fifth biggest stock in the S&P 500 lose 26% in a day because the psychological

shifts of those valuations not mattering anymore. And it's just like, how do people really feel about this when the range of valuations is so much wider? Not to nitpick heavily, but I don't think Facebook is a valuation story. I think that's a fundamental story. We'll talk about that when we get to earnings. Probably, but yeah, it's also, has there ever been a company where more people that you know are rooting for it to fail?

I think everyone was doing the casket dance with Facebook when it was falling 26%. Unless you were holding on to Facebook, I think no one was sad about that happening. Does that sound about right? Like people are rooting. So, hot take, within five years, Zuckerberg is out. Is that a possibility in a world? What are the odds of that happening? He's gone.

What would have to happen for that? He owns almost 20% of the company. They can't push him out. He has like the voting shares. But could things get so bad that he says, I'm taking a step aside and I'm out of here? Could things get that bad? Yeah, I don't say it. Only because he's still a very young person.

What would he do? I guess things would have to get so bad. I don't know. I don't see it. You saw this chart I shared that since like beginning of 2016, Facebook was outperforming by like 120% as of September 2021. It's now underperforming the S&P for a very long time. Obviously, falling 26% and then getting killed.

Me being a paper trader right now because I retired from stock picking last week, which let's be honest, I'm going to come out of retirement at some point. I mean, let's not get ourselves here. But I'm still like 60-40. This is probably a buying opportunity. I know it seems like this is it. Facebook's really coming. And I think they are the biggest stock

that is most at risk of like being knocked down a few pegs. I still think anytime this has happened, they still have like 2 billion daily users. Put it this way. This gets under 200. I will be a reluctant buyer because I don't want to root for Facebook success. But I think if that happens, my hand will be forced. I will have no choice but to step in and buy the stock.

Wait, wait, what is it at now? Like, how far away from it is that? It's not that much lower, but at that point, I mean, Facebook stock wears it at $2.25. It seems like every few years they have these blips in the road. I know a lot of people said this time, well, no, it's different because TikTok is taking away from Instagram. I have thoughts on the fundamental, so we'll get into all that. This just hit the wires. The billionaire Peter Thiel and early Facebook investor is stepping down from the board of its parent company meta. He has said to be focused on backing Trump allies for the midterm elections in November. Great.

By the way, I tried to read his book, the book about him that you recommended to me. Oh, the contrarian? That was a good book. It was just very depressing to me, though. Oh, yeah, yeah, yeah, not a feel good book. I like business books that are, yeah, kind of uplifting and tell a good story. It wasn't a guy I aspire to be. No.

It wasn't like one of those. It kind of rubbed me the wrong way. Is this an economic situation? We had the job numbers come out last week again, and it was way, way stronger than people thought. I think isn't this a good explanation for how investing is supposed to, post-to-work typically, where 2020 was this terrible economic year, and people kept asking, why is the stock market going up? And shouldn't 2022 be the economy is kind of on fire? People are asking, why is the stock market going down? Except this time around, everyone kind of thinks

they know why. Isn't it a bizarre situation? So Jason Furman tweeted out, January 2020 will be remembered as the month the virus ceased to be boss. It wreaked havoc and death at a terrible scale, but the economy no longer cares. People return to the workforce, the economy had a jobs, wages rose. You would barely know it what happened from the economic data. Yeah, I think the explanation here is pretty simple that the market is forward looking because 2021 was an amazing year for the economy. And now the market is voting that things are going to not look as great next year, maybe comps. Who the heck knows? The market might be wrong, obviously. The stock market could be very wrong right now. But don't you think this is just an inflation story and nothing else? Because it seemed like

the economy, like people were worried about stagflation in all these things where we're going to have growth sputter and inflation, but that's not happening. We're having the inflation, yes, but growth is crushing it right now. Economic growth. You mean economic growth? Yes, economic growth. Yeah, we're just in a re-rating of growth stocks. I think that's all this is. I don't mean to minimize it because that's huge. But I think higher inflation, rising interest rates, I think that's all this is. I don't think we need to overcomplicate it. This is a stock market story, not necessarily an economy story. So is the potential bull case then? Inflation slows a little bit. Growth is kind of fine and everything takes off again. Could easily happen. Could easily see a scenario where in six

months people are saying, all right, interest rates rose hasn't really cooled off anything and investors overreacted. I wouldn't be surprised. Obviously, alternatively, inflation stays a little high and people go, oh, crap, this is going to stay with us for a long time and stocks get killed. Or, Chris Cliffassness tweeted or did a post an update on like the valuation spreads, or we're in the first inning of a return to normal multiples, and this lasts a lot longer than we think, which would not surprise me either. Sorry to be a wet blanket, but nothing would surprise me at this point. Which would be harder environment for stock pickers than it would be for the stock market, probably, which is kind of what we've been in. If you invested in the U.S. stock market as a whole,

this has been a very minor correction. If you invested in hypergirls, stocks. This has been borderline depression. And just growth stocks. I can't believe that over the last five years, the S&P has outperformed Facebook. Is that right? I think so, right? We were just talking about that? I had it since the start of 2016. So this is more than six years. It's five years. Six plus years. So more than five years. Yeah, six years that the SP has outperformed Facebook. And again, the majority of that underperformance now has just come recently, but still, it's true. Well, how about this? Over the last three years, Netflix is barely up. And the other S&P is up like four or five times of that.

What do you put it at like the fact that these big stocks, it almost feels like crypto, where it was kind of like we thought, hey, once crypto gets bigger, the volatility won't go away as much. And we've seen, that's not the case because Bitcoin fell 50% twice in the last year. Do you think there's anything weird going on that we're seeing huge stocks like this? Like Netflix. Anything weird. 10% in a day, 56.

Snap was down 30% the day of its earnings and then was up 50% in the after hours. And I don't know what it finished the next day. Yes, this is very weird. Do you think this is just the new normal of more tech stocks, more information, faster information, and... More leverage options? But what if all those retail traders who pour in, and we've got 25 million new retail brokerage accounts, what if they're all getting hammered and they're pulling back now? And pulling back that liquidity is actually making these markets more volatile. Is that possible?

Yeah, it is possible. All those people who are buying and now they're pulling back and we're seeing like these air pockets just, it is crazy. like a Facebook. So you, I think you had the number, right? That it was the largest market cap loss in a day was a $230 billion or something. And then the next day, Amazon gained $200 billion in market. That was a great meme that you did, sir, forgot to give you a pat on the head. And I saw multiple people ripped it off. It was none too pleased about that. Ah, yes, the Leo. Yeah. Yes. That one gets me every time. On last, wait, did you actually, did you rip that off? No, that was right here. That was all me. Come on. So I love the Bill McBride when he compares prior troughs in the economy. So he did a new one now. It's a percentage of permanent job losses. So he compared 2001 recession, 2007 recession 2020. And we're almost back to even now. I know the inflation stuff really angers people and people think this is the worst thing ever. But as bad as that seems, and everyone thinks that like that economic.

experiment we did was a failure. As far as jobs go, this thing was a resounding success. And there's no way you could look at it any other way. Of course. Well, there is a way that you look at another way. I mean, maybe objectively you can't, but people's opinions are not always the same. Wisenthal did a post where he took a quote from somebody, the Dallas Fed Manufacturing Report. This is a quote from that. I suspect the workforce pulls its head out of its rear when a correction or recession makes jobs scarce and people start to feel the pain or fear of not providing for their family and loved ones, assuming the government doesn't jump back into the fight and pay them to do nothing again. A great lesson you taught the

workforce, politicians. So I understand from the point of view of somebody who is a buyer of labor, this sucks. If you're a smaller, mid-sized business owner, this ain't fun. I just feel like you had, especially after 2008, we had 12 years of you could treat your labor like crap, not pay them anything, and it didn't matter because people had to a hard time finding a job. Now we have the opposite where the worker has the upper hand. And it hasn't really happened since the 1970s. And so I understand that makes it tough for some people in businesses, but it's especially good for people on a low end of the income scale. Finally, taking aside the inflation stuff, they can make more money and lock those

higher wages in potentially forever. Matt Klein wrote a post on how hot the job market is. This is a good quote. He said, the U.S. job market isn't simply hot. It's arguably the the greatest seller's market for labor in decades, if not ever, meaning workers finally have the upper hand. He wrote, no matter how you cut the data, wages are currently rising at the fastest rate in decades. And what's interesting is he breaks it out by construction, great chart. I didn't see this. Manufacturing, restaurants and hotel, retail, nursing and residential care, all groups of workers that have never had it this good. It's kind of crazy. I'm seeing the construction one like really spike up in the early 2000s bubble. And right now,

it's just dwarfing that. It's not even close. Obviously, we're in the midst of a housing boom as well. Great for workers, not great for people that are buying the labor. So you're never going to have everybody happy, obviously. We've touched on this a few times. But maybe that's just the point is that you can never make this like economy in balance where, okay, I want low inflation. I also want low interest rates, but I want wages to rise. Tradeoffs. And I want to Tradeoffs. Yes. All of this stuff.

And unfortunately, especially now in this weird economy we're in, those tradeoffs are like amplified and magnified. And it's much harder. Here's the thing. I think out of anyone, the group that is having the easiest time right now with this current situation is corporations. Because they can handle paying people more money.

They're passing along higher prices and supply chain stuff to their customers. This is from Bloomberg. S&P 500 companies had 2.4 trillion in cash and short-term securities on the balance sheets as at the end of third quarter of 2021 compared with $1.6 trillion at the same time in 2019. Alphabet had, dang it I call it alphabet. I said I was never going to do that. That's okay. You were reading. You were reading. Google had $142 billion alone going in the first quarter of 2021. It's final quarter of 2021. Microsoft, $131 billion. Amazon 79. Obviously, some of this money has been spent now. Corporations have it so easy right now. They can complain and say, oh, inflation and supply chain. Like, They've never had it better than they have it right now. This is an amazing chart. They were able to borrow low forever. Yeah, this cash and cash equivalence. And it's showing that their net debt to EBITDA ratio has never been lower than it is right now.

They've just cleaned up. They can complain on their earnings calls and you see inflation mentioned 46 times every earning call or whatever. But they are not feeling the pain at all. When you took off for Florida, Bitcoin was under $40,000. Now it's at 44. Must be because I'm really close to Miami. It does kind of feel like every time this happens, people don't freak out as much anymore. It's just kind of par for the course, isn't it?

I don't think anyone was losing there. Where are you getting it from your Twitter feed of Target Date fund holders? I'm going off of sentiment readings here. I just feel like, I mean, yeah, some people said, uh, it's a crypto winner again, but like it's, I think like 50% crashes in Bitcoin now are just people see it as normal and you get the leverage is sucked out of the system and then it slowly builds back up and then it takes off again. It just doesn't seem like people are that worried about it going away anymore.

I feel like that is completely the, it's, don't put any money in. You don't think you can go to zero or whatever. Like, that's off the table. There was two good reports that were linked to that came out last week, one from Fidelity, one from J.P. Morgan, both very digestible. I can't remember where I saw this on Robin Hood. I'm like $250,000 something on the waiting list to get my money off. What happens?

Oh, for the crypto wallets. You got to think that that money's coming out of Robin Hood. That's what I'm saying. If they don't incentivize people and give them a good reason to hold it there, and pay them something, which to me sounds like it's probably going to be hard to do if they don't have that through the regulators already. I agree. There's probably better places for that for people that people can move it to. Yes. I don't know what would incentivize someone to say, I'm going to move all my crypto from Coinbase to Robin Hood. What would be the point? Consolidate your holdings,

I guess, in one place if you want to keep your stocks and crypto in one place. I don't know. I'm grasping. I say my strange finance brain thinking of the crypto Web 3 universe stuff as I'm walking on Disney, again, it is packed. The last time we came here, we think, oh, it's kind of off-season a little bit. We came in January last time. This was three or four years ago. Now we're here in February.

Just wave after wave after wave of people. Just never ending. I cannot stand being around so many people. Because you get in front of people and some people are moving at different speeds or slower, faster. I can't take it. But this is the one thing that I go, you know what? This kind of makes me bearish on Web 3 Metaverse stuff. Because people still want to be out doing stuff.

I know that there's room for the online world. But I think in our brains, we still, we need to be out there doing stuff around people. But who's saying that we're just going to live in digital reality? I don't think anyone's saying that. Both things can be true. Metaverse Web3 could be a thing. Is it a thing? We'll be a thing.

Yeah, people aren't real world experiences. Should we tease our NFT or now? Is it too early? Just plant the seed right there. Okay. But animal spirits, we're putting something. But wait, wait, wait, fine. We'll give more details.

There will be utility. And we will be giving all the proceeds to charity. Yes. We're not growing down and selling out. We couldn't look ourselves in the mirror. No, we definitely are selling out. We're just not growing down. Okay.

All right. Did you see this Chanel thing? No. From the Wall Street Journal. This Chanel thing? I did not see it. Okay. I've got a new rule for the mega rich people.

If you're a mega rich person, you don't get to complain about inflation anymore. Ben's new rule. All right? Chanel's small classic flat bag was always a luxury item. But after three price hikes last year, it is selling for $8,200. That's up from $5,200 in 2019. And the Chanel people said, basically, we've regularly adjusted our prices and no one gives a crap.

They increased this thing by $3,000, a purse that was already probably, frankly, way overpriced from what it costs. And it's funny, they were saying, hey, we regularly adjust our prices to take account inflation and supply chain stuff. It's like, yeah, okay. But this whole article was basically saying, listen, here's someone from this Michael Corr's Jimmy Chu, Versace person. We've seen absolutely no consumer resistance to any of the price increases that we have

taken and there will be more. I think this is the problem with inflation. This is like a watch what they do, not what they say kind of thing. What do you mean? What do you mean? In sentiment readings, everyone says, I hate inflation. It's crushing me. And obviously, there are people who are having problems right now.

But the people that complain most who have all the means that are complaining about it, they're not changing their actions. They're still spending a ton of money on stuff. So you complain about it and you say, I'm spending $3,000 more on my purse or whatever, but I'm still buying it. That's what they're saying is like, we could probably increase these costs as much as we want and people will still buy them because

they're flush with cash, they have so much money and it's a status symbol. So that's the thing like people will say, I hate inflation. It's killing me and then spend their money anyway. So I don't think it's really changing consumer behavior all that much is what I'm saying. I think it has to stay around longer. At the very, very high and it's not, but of course inflation is changing consumer behavior. You don't think so? Show me where in the data consumer behavior is changing. Data Shmada. So personal savings rate has been crashing. People are spending down their money. People are still spending, that's my point. It's not like people have decided to like change how they consume. I think that's what happens after inflation stays around for a lot

longer. I don't think it's been here long. Maybe this is the point. How do you change your consumption behavior? You're just not going to be bacon because it went up 13%. You cut back because Disney's daily inflation is like 7%. And you don't go there. You skip a trip or you don't buy the boat or you But this is my point. Inflation sucks because you don't just change your behavior. And that's what I'm saying. You just have to eat the higher prices. What are you saying? I'm saying the idea is that inflation invites psychological changes by our behavior. And that actually makes inflation stick around longer. But we're not seeing consumers make changes to what they're doing it yet. I'm saying it hasn't been around long enough to really force people

into changing. And if it does stay longer, I think it's going to take a while for it to really seep into people's spending habits. We're going to cover today. on the Great Quarter segment. By the way, we keep getting emails on this. Apologies for not being clear. The app that we're listening to these conference calls on is Q-U-A-R-T-R. See what they did there? Very sneaky.

There's no A-Q-U-A-R-T-R. You did a blog post about this, which is nicely done. So let's include a link to that. People can read that. You kind of gave the story about how we got in touch with them. You said, I thought we'd been talking to these guys since 2020. It's only like nine months. I can't believe it.

I was going through our old emails, and Sammy and I were last. laughing about it last night. The email that's in April, now they are advertising in the New York Times and on CNBC. It's amazing. Yeah. Very proud of what they're doing. All right. We're going to talk about Spotify. We're going to talk about UPS. We're going to, hey, Google, Amazon, PayPal, face of sure, we got a lot to cover. I can't believe that Amazon was a week ago. Yeah, that does. It feels like that was three weeks ago.

We were on spaces last week on Wednesday, and a bunch of people were saying they wanted to talk. And finally, we had Rachel come up. who's one of our loyal listeners, and she said, guys, what's going on with Facebook right now? We weren't really paying attention. And Facebook had just gotten demolished. And we got the Michael live reaction on Facebook getting demolished. It was down 20%. I didn't listen to Spotify.

You tackled that one. I listened to Spotify. It was pretty good. Here's the only thing that really was interesting to me. They said that they want to go from 11 million creators right now. And I think that they didn't really specify. I think what they were talking about was podcasters. I don't know if that included musicians.

But either way, they want to go from 11 million creators to 50 million. and they also said basically right now they have more demand from advertisers for podcasting than they have supply like they don't have enough podcasts to meet all of the demand that they're getting for advertisers advertisers are so thirsty to invest on podcasts because I think it just it works so well it's like you're right there I don't really understand the business model exactly how many podcasts do they have they basically said we don't have enough we need more creators and we need more podcasts so I would imagine like they need to buy more podcasts or create more podcast? I would be shocked if they didn't start buying more and having more exclusives.

And I'm sure they're trying to get people to start them more. But it seems like Spotify is like, listen, this podcast means me big. Plus, I think they're doing the thing with advertising where they know their listeners better. They have targeted ads that go specifically to someone in a certain age range or region or whatever it is or career path or whatever. And they target the ads to you on Spotify. Like they have an algorithm. So obviously Spotify is a good business. 11 billion dollars in revenue. Wow, that's a lot actually. I didn't realize that high. $11 billion in revenue over the last 12 months and growing.

The company got as high as, it was worth $70 billion at one point? All right, now it's $32. Half that. This seems reasonably valued, actually. And I'm just looking at two metrics, but anyway, still losing money, of course. Listen, investors have low tolerance for money losing companies these days. It's true. All right, UPS.

Sales are up 11.5%. 13.7% operating margins. That's what they're projected for 2022. Despite worker shortages and supply chain constraints, highest margins since 2013. Daily shipping volume decreased 4.8% internationally, but revenue per piece shipped rose 11%. Costs being passed on. This is interesting. They height their dividend 49%. Largest increase since the IP. P.O. Look at this dividend chart. The thing is, I ship stuff so infrequently. I wouldn't notice it

enough if they raise prices a little bit. Like, I wouldn't really notice that much because it's like different weights. I would never notice that increase. I'm sure people who ships up all the time notice it, but that's one of those things to me like I would never even notice. All right, Google. Google came out before Facebook. Ooh, filled the gap. Not what you want to say. So Google was up 7% the day after it reported earnings gave it almost all back. So that's like bad juju if you're following technical analysis? Well, just following common sense. It was up 7% after its earnings report and maybe more gave it all back. Here are the numbers. 257 billion dollars in revenue, 257 billion dollars, 41% annual growth. This is an amazing chart. So YouTube ads

We're up 25% 8.5 billion for the quarter. Advertising up 33% to $61 billion on the year. Google cloud growing like crazy. Profits up 36% year over year to $20 billion. They announced a 24 on stock split ostensibly to get into the Dow. I don't know why else they would do that.

Look at this chart of YouTube ad revenues versus Netflix total revenues. YouTube ad revenues are now larger than Netflix revenues. Wow. It's a good chart. When you buy Netflix right now? I know you were tired, but. Ben Thompson had a good bearish take that basically Netflix has to keep churning out

like really high quality stuff. We're going to get to that later. They're not. To get new people to come on board. Don't you think getting back to the Facebook thing? So Google and Amazon and Microsoft, all of the cloud stuff. And then Apple has all the hardware people that are people are all integrated with. Isn't this the reason why these four companies seem like they're in a different cloud?

in Facebook. Facebook always seems like it's just kind of a rung down. And we talked to the guys from Harbor Capital this week on Tucker Book. And we said, listen, wasn't the pandemic bad for a lot of these companies? And they said, yeah, for a lot of them, it actually was because expectations got out of sync with reality. But a lot of these companies, it has been great for because it not only pulled stuff forward, but it pulls stuff forward that's going to be recurring. And obviously, that's probably the thing with why these cloud numbers for all these companies are so amazing and, like, kind of mind-boggling for companies that are this big. I don't think I realized how big PayPal was.

Ooh, stockless rank. It was bigger than JPMorgan. Significantly bigger, I think. Let's see where it is now. Let's take a look. Just one sec. Bear with me, listeners. That's not true.

That is not true. False. False, false, false. Why do I think that? No, Bing of Goldman. I'm sorry. I know as much bigger than Goldman. Not bigger than J.P. Morgan.

It's still bigger than Goldman, even after this decline. So PayPal, $426,000. accounts? I feel like this is the company that I get once a week in email saying your account has been locked. Please reset your password in. It's a scam, you know, those things. That's one of the problems. They said that it closed 4.5 million accounts and lowered its forecast for new customers after finding bad actors were taking advantage of its incentive and rewards program, which, by the way, they had that issue when they were starting the company. Jeez, this is a $350 billion market cap company in July. Now it's at 140.

Holy smokes. Here's what the market didn't like, amongst other things. 2020 EPS, they were projecting 523. Now it's down to 460, 475. It is interesting how a company could be like, hey, you know those numbers that we were projecting? We're going to get like 96 to 97% of the way there. And the market's like, cool, we're going to take 25% of the value of your stock away. Right.

Yeah. Thanks anyway. All right, Facebook. This was all good. This is really, really ugly. I did a post on this, and they mentioned on the call. They mentioned Apple 14 times. They mentioned TikTok a bunch.

They used the word headwind. Could they be sandbagging? No. You don't think it's a sandbagging at all. They used the word headwind 34 times. They blamed, not blamed. Apple is crushing them, making a lot of their data throughput, a lot harder to see for the advertisers. After the 31st time of using headwind, wouldn't someone say,

hey, let's put a thesaurus and like try to find a synonym, maybe. So they're talking about competition all over the place. They don't know how they're going to monetize reels. They're saying that Apple costs them $10 billion. Daily active users declined for the first time ever. I don't think that's a big deal, though. Like that had to come in eventually. Like that?

But it did. I think that's more ceremonial than anything. Metaverse costs him $10 billion. This is bizarre. pull the P chart on Y charts. This is a stock trading at 16 times trillion total ones earnings. That shouldn't be the case for a company this big that's growing this fast. You could easily, easily, easily, easily make the case that it's cheap.

On a forward basis, it's now 15-ish. I don't think it's ever been that low. This is weird. They repurchased $19 billion worth of stock. And somebody's like, well, yeah, look at all the stock options. It's like, no, no, no. $19 billion worth of shares. They bought back a lot of stock.

And guess what? They knew this was coming. They had to have known that the market was going to crush their stock. So that was a weird decision. And lastly, this is the Qudigra. So Kevin Dugan wrote a piece in the New York. It was it the New Yorker? I can't remember.

We'll link to this. Mark Zuckerberg said, the balance of content that people see in feeds has shifted a little bit more towards stuff that isn't coming from their friends, which they may discuss with their friends, but it's kind of shifting towards more public content. So Kevin Dugan said that the. voyeuristic behaviors that made social media, as we know, it's so profitable. What were my friends talking about?

Who did my high school ex-Marry? We're actually starting to fade. That is massive. That social media is no longer really social. And Ali Ahmed made the point on a podcast last week about venture capital saying he's kind of bearish on Instagram because it's not like YouTube where the creators that are and influencers that are putting out in those content are getting paid a ton. or on Instagram, they're not making as much money.

And so if you're more heavily reliant on other people to do the heavylifting for you, that's one of the reasons I never got on Facebook, frankly, because no offense to them, I didn't want to know what was going out of my old high school friends. I find that to be weird. And maybe commendable? It's not like I did this on purpose. I think I just missed my window for it and I just never got on the train.

Okay, got it. That makes sense. I thought, like, I would rather have my own filter and follow people that are going to, like, actually, because we all know people who, like, are just really terrible posters on social media. I don't even want to know that about people that I know. I'd rather have it out of sight out of mind and not know that like you're a maniac on social media,

even though I've hung out with you before. All right. So lastly, Amazon sales up 9% year over year, first quarter of single digit growth since 2017. That's not great. AWS, revenue up 40%. And this is interesting. Operating income from AWS was $5 billion,

which accounted for all of their total operating profit. AWS did $70 billion worth in sales last year. If you slap a 10 multiple in it, that's bigger than Facebook. How much do you think after hours trading impacts the way that we view these reports? Like, let's say these companies reported after hours, but there was no after hour trading. Because I don't know what the liquidity is of these companies after hours. Facebook falls 20%. Everyone goes, oh, their quarter was crappy. What if we didn't see the stock price move? Or Amazon was up 15 percent. We go, oh, they killed it again. What if we couldn't see that? Would the reactions be completely different? Because that's honestly,

how I view these things. Facebook was down 26%. Their quarter was awful. No, I'm going to give the market credit. It does a pretty good job. You think so? Okay. The funny thing is, though, that Facebook fell 26%.

And then after our Snap was down 20% because they're worried about how Facebook's results were going to look badly on Snap. And then Snap was up the next day. I think you're right that the masses judge success or failure based on the stock price. But I think usually the stock price does a good job. Facebook's quarter really, even though it was record revenue,

There was a lot of in that report that was really treacherous. And I'm saying I'm one of the masses, though. Like, I use the stock price move to color my opinion. And it seems like those moves are getting bigger. I said that Amazon web services would be bigger than Facebook as a standalone company and you just steamrolled me. Do you have any thoughts there or no? No offense to you. I feel like people have been saying that for a while, like how this is a massive company.

But I just gave you the numbers. Yeah. They used to not break that out. And I'm saying just like even at a modest. Okay, yes. All right. So, okay, Amazon spins it out now. Better buy right now.

Amazon Observos or Facebook. AWS. What did I say the growth was? I think 40% year over a year. I think that's easy. All right, credit to us, did we call this Amazon prime increase or did we call it? I mean, that was pretty easy.

I think we called it. I keep seeing all these polls online, Twitter's saying, asking like, hey, Amazon increased their prime by $20. Nobody cares. But 25% of people are saying, I'm going to cancel it. No, you're not. No way.

You're not canceling Amazon. You know the Jurassic Park meme? See, nobody cares? Oh, yes. That's a good one. Okay, so we've also been talking about Peloton as a buyout opportunity. And I think last week we said, isn't that the biggest bagholder stance of all time? Hello, Wall Street Journal article comes out.

How much power did the authors of that article have? Peloton was up like 27% after hours. We've talked about like takeover candidates. And I think we mentioned Apple and Nike as a takeover candidate. I never thought about Amazon. It actually makes sense. Oh, make the case. Okay.

Let's say we bundle Peloton's something. subscription with Amazon Prime. And let's also say Amazon has the ability to track the workouts of their people. And hey, guess what? We're going to get into health insurance soon. Doesn't the more you work out, the lower your health insurance is with Amazon? Like, tying all that together makes a ton of sense to me. Did you come up with all that on your own? Did you take it from the article? I think I kind of came with my own. Can I take credit for that? Makes sense to me. Let's roll with it. Let's say the Amazon Prime plus Peloton is a little bit more, but it's not as much as your Peloton you're paying now, you're 40 bucks a month or whatever it is, I think it kind of makes sense.

I wrote this morning. Can you tell? Yeah, you look great. Thank you. So one of my favorite lines from Dumber, all the time with my friends, man, that John Dender was full of shit, man. Got me every time. Rockies. Okay, this is no offense to the man, but I think based on all the research that I've done from him, I think that Robert Schiller was full of shit, man, but his real estate stuff, no harm intended. But all the research I've ever, and I included this in my first book saying real estate is not a great investment. I mean, you take all the costs and taxes involved. It's not a great investment. In his numbers, I'm starting to change my mind that it can be a very good investment at times. How's that?

I will violently disagree. Go ahead. Make the case. All right, this is from this housing theory of everything. Well, first of all, America's housing market gains $6 trillion in one year, the total value. This is from Redfin, obviously, easily the biggest jump in history. Nothing came even close in like 2005. I think the biggest was $3 trillion. All right. Average New York City metropolitan housing prices are up 700% since 1980. 376 more than U.S. consumer prices, 326% more than U.S. wages. San Francisco's rise is 930%.

London housing prices are up 2,100% in that period, 1,500% more than wages. Sydney, 1450, 1,450% in that period. Ireland, they're about 800% driven by Dublin. What's your point? I was always of the mindset. yes, that there's too many costs involved and it's hard to really tell. But I do think something shifted and changed. And obviously, timing and location and all these things are part of it, real estate can be a fabulous investment at certain times for certain places.

There's recency bias. Definitely. But I'm saying the recency bias following 2008 was Robert Schiller had all this data saying over the last hundred years, real estate has done nothing after inflation, basically. And I think that was recency bias because a lot of the data comes from like the Great Depression and before, like, I think since 1990, 1980 maybe, I think the real estate market is way, way different than it was before then. Fair. It means way more to way more people. You know why real estate's a great investment to the extent that it is and I don't

think it is? Because you're a forced to hold. It's because you hold it for 30 years. Yeah. But I just got pounded with costs of repairs. There was a leak in my kitchen. There's leaks everywhere. And we're like, oh.

You should have your plumber like just on call. What the hell is this? We were upstate and we come home and the house was freezing. There was no heat in the house and there was a leak. Turns out that the heat froze, pipes broke and there was a leak from that into one of my closets through the kitchen. Is insurance going to take care of that? No. Why? Why not? What title insurance? No, it doesn't cover that. No, housing insurance. No, because what's why the doctor? You don't think your insurance will cover that? I didn't even check. I would call them an ass. I wasn't that much money. I mean, it was more than I would have liked to spend. But, okay, fine. What about taxes? I don't know about you. My taxes are stupid. It depends. But real estate will not be a great investment for me. I'm telling you that right now. There's no way that my house will compound at more than maybe 1% over the rate of inflation net of cost if I'm like quite lucky. There's just no way. Okay. Even with call it like a 40% increase in over the last three years or something that you've gotten? Even with that. I'm not saying, like, buying a house is better than buying stocks. I still think I would much rather take the stock market over, like having, I'm just saying, I don't think it's as bad as I once thought it was.

I've changed my tune on that. I think there's probably a greater percent of the population that has gotten rich on real estate in the last 30 years than I would have thought possible based on like historical data. Well, listen, the fact that it's an asset, even though it's really a liability. Well, it's both. Yes. It's a form of consumption. The fact that it's an asset that you are forced to hold is.

a good thing. There's no doubt about it. So maybe we're saying the same thing. Yes. All right. Recommendations. We'll skip listening to questions this time. Do you watch anything on the plane? Oh, what did you watch on the plane? You know I love airplane movies. We took the low cost like Allegiant. So it's the first flight ever for my four-year-olds. They've never been on a flight because we haven't gone anywhere in the last couple years. You're a value guy. Well, because there's not that many straight through flights from Michigan. We did not want to do a changeover with four-year-olds in a seven, right? No way. And so we brought their iPads, but my son goes, where's the movie? I've seen movie on airplanes before on TV, and we took Allegiant, which is like the

low fare, whatever, and they don't have movies on it. They have no screens. And he was totally devastated. Like, where's the movies? And I'm like, dude, you can watch a movie on your iPad. He was not having it. What did you do? Did you read a book?

I read a book. What book? Jack Racher? No, I read my Alex McKnight, private investigator in northern Michigan, the Upper Peninsula. Another good one, actually, that I really liked. I told you, Nightmare Alley, we tried this weekend. it came out in the theater. It's like a totally Oscar-bate movie. It's a movie that you would consider a film, not a movie, where a ton of great people in it. Bradley Cooper and Kate Blanchett and all these really great actors and actresses. But it felt like the kind of movie that took itself really seriously, even though it was very visually well done. It's a movie that just takes itself way too seriously. And it was a feel like a movie they made for the critics, not the audience. Even though I liked it more than I probably should have. I told you, I am so out on Guillermo del Toro. I know a lot of people love Pan's Labyrinth.

Did you like that movie? I think I never saw it. Okay. I don't think you would like it. Maybe you would. I didn't like it. He did the shape of water. Wanted an Oscar for that?

People hated him. Yeah, that was awful. This movie felt like it was like we're making this. He did Hellboy. I never saw that. I don't know. I'm out of this guy. Not a fan.

Splice. You ever see that movie? Junk. Yeah, you're right. Those are all pretty bad. All right. That's pretty much it. I saw on somebody's recommendation.

I watched Awakenings. We spoke about that recent. that it was in the best picture class. I haven't seen it in a long time, but I feel like I liked it. Well, you know what? I love spending time with Robin Williams, and I miss him.

So I wouldn't necessarily recommend it. It was an absolutely fine movie. It was fine. But best picture? Well, that movie won best picture? No, no, no, no. Dances with Wolves one. We spoke about this.

Dances with Wolves, which I have not seen. It's on my list. It beat Ghost and Goodfellas. Yeah, that's tough. Costner was huge, though, back in the day. Costner. He was so big.

I rewatched, although I might have to say that I watched Full Metal Jacket. I've seen the first half of that movie with Private Pile, probably half a dozen times. And for whatever reason, to me, that's like when the movie ends. I've ever seen Full Metal Jacket? That's another one I have never seen that in Apocalypse now. You never saw Full Metal Jacket, not even in the beginning? I mean, I've seen all the clips a million times that people play, but I've never seen it actually. Okay, that is worth watching.

Absolutely worth watching. That was Stanley Kubrick. All right. So I finally saw it in full. It took me 35 years, 36 years. For some reason, I'm more inclined to watch a World War II movie than a Vietnam movie. Very interesting. We spoke about this last week.

In 1978, the Deer Hunter, which forgive me was shit, won Best Picture. Then Apocalypse Now came out a year later, way better, not even nominated. And then in 1986, Platoon nominated for Best Picture. Full Metal Jacket, one year later, better movie. No nomination. This is a blog post for you. Michael's biggest Oscar gripes. You've got a lot of them.

Shape of water? That was really bad, yes. When are you coming home? I'm here for a week. Epcot Senator Marl was supposed to rain all day. I am so jealous. Epcot is truly magical. Really?

That's the worst one by far. What? You like Epcot? Who likes Epcot? The countries? Isn't there like a future land or something like that? Tomorrow lands at Magic Kingdom. Honestly, we're sitting at the Polynesian a nice resort.

They have the water slide and stuff. Like, I'd be happy just sitting at the pool all day with the kids and playing the water park. So what are you doing at night? I mean, everyone goes to bed early, so not much. Dinner, fireworks we can watch on the beach. But, I mean, the kids are in bed by 8.8.30. So.

But, like, you can't go out. Like, there's no, like, bars, right? No. We got a drink by the pool yesterday. 12 ounce, call it. Miami Vice is my favorite vacation drink. It's half strawberry, daugree, half Pinacolada. $40 for two of them.

That sounds about right. Yeah, I felt like I was in New York. And still, like, you don't think inflation is a problem. It is at Disney. That's for sure. Are you going to change your consumption patterns? I have no choice.

They have my credit card tied to my wristband. I'm clicking all day and I'm just put it on my tab. Put it on my tab. Well, it's fun. Memories, right? Can't put a price on that. Yes. I complain because it's kind of fun,

but these smiles and laughter for my kids today, I will never forget in a million years. Totally worth it for one time. You're to look back on your trip to Disney when inflation was 7%. I can't believe it. All right. Send us an email Animal SpiritsPod at gmail.com. We'll talk to me.