Animal Spirits Podcast - Invest in What You Know (EP.268)

Episode Date: August 3, 2022

On today's show we discuss the recession debate, why the economy is so confusing right now, calling a stock market bottom (or not), the tech stock comeback, earnings season 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 our friends at Whitecharts. Michael, I've mentioned this before, but one of the features I've been using a lot on white charts lately is the gray bars to signify a recession. That's not a feature. That's a bug. Well. People say that all the time. Yeah.

It's also a feature on Y charts, though. But so I pulled this up. We're going to talk about this a little bit today. This U.S. real GDP quarter over quarter goes back to the late 1940s on Y charts. And you can see it go all over the place and you overlay the recessions there. You see, the latest one came down a bit. It was down 90 basis points with a quarter of it, two-quarterly GDP prints that were negative. There actually was a time where this happened before, and it's on this white charts chart, the very beginning. In 1947, GDP contracted two quarters in a row, and there wasn't a recession. I didn't realize this. I had no idea.

Second and third quarters of 1947. The interesting corollary here is that happened after World War II, when there was a ton of government spending and all these supply chain shifts. we're going to get into a lot of that stuff today. I know this chart is a showstopper. It's pretty good, right? That's not a bad chart. Look at the 2020. I mean. Yes.

The quarterly change that goes down and then up. And maybe that's the best explanation for why the economy is so confusing right now because we had this massive downturn, this massive upturn. Fast forward 50 years when this line's got some more squigglys on it. If you didn't know anything and all you saw was this line, you'd be like, what the hell was that? Yes. Economic charts are broken forever. So if you want to check this out, do your own recession indicators.

Go to Y charts, tell them Animal Spirit sent to you and get 20% off your initial subscription. 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 Ritthold's wealth management may maintain positions in the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. I'm going to start the show off with one more plug. Is this the final plug? I'll make this the final plug. Last and final because it's already August 1st. We're recording on Monday afternoon. Future proof is in a couple of weeks. So if you don't have your tickets now, it's probably not for you.

But last plug, last ditch effort. If you want to come hang out with us and a lot of other people, 2,000 other people, maybe more, probably more, go to Future Proof, Huntington Beach, California, September, fun, mingling, learning, hanging, schmoozing. I just learned, me and you were going to be emceeing this thing, part of it. Yeah. No one tells me these things. We're going to be emceeing some of it. We'll be the two guys with microphones in for our mouth with Hawaiian shirts on. Oh, man.

We're going to be in California, sipping on, I don't know, some fruity drinks. It'll be fun, right? Miami Vice. Yes, Miami Vice. In our hands at all time. It'll be fun. Just Google Future Proof. It's a long website.

Just Google Future Proof Festival. That's easy way to find it. All right, Michael, I found this. I read this a long time ago. I can't remember which book I read it, and I did some research. And this is from this foreign policy. It's a little older.

But the entire concept of GDP, gross domestic product, really didn't come about this. Simon Kuznets guy, an economist at the National Bureau of Economic Research of all places, started this concept of national income and like he figured it out from 1929 to 1935 because back in the day there was no

such thing as like the economy it was just kind of they didn't know it was kind of like one of those things if the economy's in a depression I think we'll know what we see it so it wasn't until after world war two and it's there's this history of it that GDP became like the standard tool for sizing a country's economy so the whole concept of the economy and GDP hasn't been around that long 1944 basically that's when the economy was invented more or less yes So this stuff is still pretty new. A lot of people have been arguing that we were ahead of the game in this. We said it was going to happen.

Actually, you know what? Actually, you deserve a ton of credit because I believe it was you who foreshadowed this upcoming fight that GDP would have gone negative in the second quarter, which it did. Oh, not to brag. Cash to my bet on Cal Shee. I should have filed you into it. 20% two-day return. No big deal.

But Ben, you were right. You were right. Thanks for the pet on the back. The funny thing is, as he has been for a long time, Jason Zweig was, like, the original financial blogger back of the day. He's just been doing it for the Wall Street Journal. He said that he first asked this of Enber back in 1987 when he first started becoming a reporter. And he asked, like, how do you figure it out?

And they gave the whole thing. And I know a lot of people think it's a conspiracy theory and all these things. And it's the whoever's in the White House, half of the people would be unhappy if they're trying to do this. I really think in one way, it seems like this is all semantics. Like, who cares if it's really recession? If we're arguing whether or not it is, that's probably not a good thing. because it means the economy is slowing, whether someone calls it a recession or not. But I also think the other side of me, like the market's economy person that we follow this stuff,

I think it's fascinating. It's like the confirmation bias economy right now. If you wanted to find a recession, you look at certain parts of the economy. You see obviously GDP and retail and inflation and all these things in real wages. And you go, yeah, it's a recession. This is the grandmother of all Vorshack tests. Yeah. And if you want to look at travel and services and some of these other things,

and the labor market, you'd say, no way. There's no way this can be a recession right now. In both groups feel like they are right. Somebody responded to us on Twitter, serious question. Why is it that controversial? It seems bonkers to me, meaning like the fact that it's not technically two declining quarters of GDP that's not a recession. And what did Jason's why say in 1987? Which part here?

Did you read this already? I didn't read it. So what part do you want to read? In 1987, Jason was talking to an economist and said, why doesn't the committee accept the two-quarter definition. This is 1987. The goalposts haven't been moved. It's just that nobody really paid attention.

Nobody really cared. Because usually those things lined up. Yeah, exactly. I remember writing about the definition of a recession that on Enver's site, they didn't even, it wasn't two quarters. I don't know if I wrote about it in 2016 or I spoke. So to most people, most people think that it's two consecutive quarters. I don't know why.

But anyway, so what's interesting is Bank of America, global research showed a chart. And they looked at the six variables used. by the National Bureau of Economic Research to determine whether or not we're in a recession. And this is the percent change basically from the beginning of the year. They look at real personal income, less transfers. Hmm. That less transfers is throwing me. What does that even mean?

I don't know what the transfer thing is. What type of thing is? Forget about that. Let's just say real personal income. Non-farm payroll employment, household survey employment, industrial production, retail wholesale and retail sales, plus real consumer spending. And all of this is positive from the beginning of the year. All six.

So again, it seems fairly clear, Ben, that we can say, we're getting into all this for the first half of the year, despite the GDP, we were not in a recession. That got solidified in my mind last week when we heard about the earnings companies. June was a record quarter for Apple, biggest most important company in the world from April May, June, okay, not a recession, labor market, not a recession. So that's true. We were not in a recession in the first half of the year, despite. write that readings. But we could be going into recession. The weird thing could be, what if we get

like a positive third quarter and then a negative fourth quarter? So we have three out of four that are down. It's going to be bizarre. Because again, this is not going away. That's the thing. Because we're having this debate, it means that it's definitely not a good thing, but this is what the Fed wants to happen. I don't know. Because what if conditions now are too loose and what if the things that they were trying to damp and reinflate again? What if housing picks up again? Because mortgage rates have come down so much. It's too early to spike the football. Yes. And there is no equilibrium here where you pull one lever and then another one goes up. Remember when Deshawn Jackson, that jackass, I'm a Giants fan. He's still mad about the punt return. Remember when he let the football go at the one-yard

line and did that flip? Yes. We don't want the Fed to do that. It doesn't seem like they are. It seems like the markets are at this point more than the Fed. That's the part where you see a lot of this potential back and forth coming up is the market gets better, rates come back in, and then the Fed goes, okay, if inflation is still high, we can keep raising rates. And then that means the market goes down again and rates go back up. And it's going to be a weird, it feels like push and pull of this where the Fed, if things get better, then they can keep raising rates more if they want. I don't know if they want to. It's a very bizarre situation. So they did 75 basis points again on Wednesday. Market was up going into it, but screamed. And the market was higher going to that

after Apple, Google, Microsoft, all reported decent to good quarters. And then after Powell started speaking, everything went vertical. Thursday, Friday, there was follow through. So maybe things weren't as bad on the earnings front and then were less hawkish on the interest rate policy. But then Neil Koshkari said in the New York Times on Friday afternoon, I'm surprised by market interpretation. The committee is united in our determination to get inflation back down to two percent. And I think we're going to continue to do what we need to do until we are convinced that inflation is well on its way back down to 2%, and we are a long way away from that.

Now, we'll never know, but I would love if there was some truth serum inside of Jerome Powell, if he could look at the market reaction, be like the WTF meme, right? What are you guys looking at? Yes. This is the problem with markets is everyone says, well, they're forward-looking.

So the markets are already looking past... How far are we looking forward? Till Powell's next statement, I guess. That's the problem. It's hard to decipher. How far into the future is the market looking? And guess what? Sometimes the market's wrong.

60 to 90 days. Inflation was rising for months before the stock market decided, okay, we're going to fall in January. Like, inflation really started taking off in like April 2021. Hey, did you hack my blog post draft? Why? Is that what you're saying? I was writing about that this morning. We talk about markets being forward looking.

And they are. And they're not always right, obviously. I mean, by definition. But did markets get a pretty damn wrong like stock market investors? Because CPI first went about 5% of May. Okay? And it didn't slow down. and only kept accelerating. And the S&P 500 didn't peak until January. So what the hell? Was the market

debating? The market thought it was transitory and then it realized that it wasn't. That's the thing. The market is right sometimes, most of the time, not all the time, though, that's for sure. You can say the market got the COVID stuff right. It's got inflation wrong. How's that? Counterpoint would be, well, but talking about the S&P 500. If you want to look like underneath the hood, the non-profitable tech sector peaked in February of 2021. So maybe that got it right. I think the perfect scenario here, just to really make everyone mad, would be we actually do go into recession in 2023, right as the stock market is hitting all-time highs again. I hope that doesn't have. Don't do it. My brain would explode. Come on. Would that be just the perfect? You would get so many people so angry. Oh, I'm already angry. And I want stocks to go up and I'm angry. Although, here's what I would say. I would say that soft landing back on the table, 30% chance.

Okay. Every week you give us probabilities. I'm going to start keeping track of them. Yeah, 30%. Got to keep a consistent. Wait, did I say 30? I meant 40. Every time, 42. Lizanne Saunders, who followed on Twitter, she's always posting great stuff in the morning. She tweeted, rare to see.

The Fed is actively hiking rates while GDP is contracting. You usually don't see that. Usually, when GDP is going down, the Fed is easing. Oh, we got to grease the wheels a little bit. So this is the thing. Everything is backwards right now. Everything is so freaking confusing. The Fed is removing liquid.

liquidity and the S&P 500 is 13% from its highs. Does that make sense? So Eddie R. Denny says because durable goods orders and all this stuff is continue to go up, no recession, people are still buying stuff. Well, here's another signal that the market, the economy was not in a recession during the first half of the year. I think that's people talking past each other. We're not in a recession does not mean that we're not going into a recession. We were not in a recession during the first half of the year. Like hard stop, soft stop. We could be.

But maybe. Did you put this in from Crohn's Indiana? I can't remember. That goes you. Oh. Bank of America. The recent debate about whether the U.S. is already in a recession is a distraction. I mean, I would, it's not a distraction for us.

We're podcasters. We love it. Let's keep going. Rip-wearing payroll, strong GDI. I don't know what GDI is. What's GDI? God damn inflation. There you go.

Rip-foring payroll, strong GDIT. goddamn inflation and strong final sales, all suggests recession is still a forecast, not a reality. Here's one from Dean Baker. Fun facts. Usually fun facts are not very fun. We have to admit, come on. In the first six months of 1981-82 recession, we lost over a million jobs. In the first six months of the 1990 recession, we lost 690,000 jobs. In 2001, we lost 761,000 jobs. 2007 to 2009, we lost 705,000 jobs. In 2022, we gained 2.7 million jobs. That's probably the easiest way to refute it. I don't know. The funny thing is to me that there's a lot of people who are very certain about this. And they probably have never looked at the history of this stuff

and they just, it's a recession or it's not a, I think it's okay to be living in the gray area right now and be a little confused. I've never been more confused. It's fine. There's a lot of people saying, this is the bottom or this is not the bottom. It's like, it's okay to just say, I'm just going to sit this one out because it's way too confusing to know. Because so much of what happens is really determined by the Fed right. now. Don't you think? Yeah. They hold a lot of cards. But I mean, eventually, come on, the Fed's going to ease eventually. Whether it happens this year or in 2023 or 2024, they're going to have to. Well, they know it. We know it. There's a million questions when now one of them is

this is a federal to go too far. Are they going to continue to push when we're already, and maybe they will. That risk is huge right now. Credit to you guys, all credit to you guys, because Jason Furman tweeted, and we've spoken about this before, but he said, stepping back from the ultra-high frequency debates about this. This picture from the Wall Street Journal, it's just, you know, the shade of recessions. This picture is a great reminder of just how much better economic policy has gotten over the last 80 years compared to what came before. The 1800s to the 1930s was basically...

It was nothing but it was recession followed by a breath of air. You put your lips above the water. We're out. It wasn't just recessions back then either. It was... Depressions. They called someone panics. Like, there was actually a thing called a panic back in the day that was like 20 or 30% GDP

drop, even though they didn't know what GDP was back then, as we learned earlier. I believe it was gross national product. Okay. That sounds right. This is from Axios. This is interesting. One of the few benefits of inflation, besides holding debt, year or your change in U.S. workers' real earnings.

So most people who switched employers between April 2021 and March 2020 saw an increase in their real earnings despite surging inflation, according to Pew Research Report. Every time I hear it, the Pew. Pew. Pew, Pew. Right? Yeah. 60% of people saw an increase in real earnings.

after they switched employers compared with 40% of those who remained in the same job. And you can see, if you remain in the same employer, you're losing on a real basis now. If you're with a new employer, it keeps going up. There's probably never been a better time to switch jobs if you're unhappy than right now and leverage it for more money. I think that's what this is saying. That this is like one of the few benefits of inflation is that, especially when the labor market is on fire, that you're in demand. And if you have skills, now is probably the time,

especially before we potentially go into a recession and people do start losing jobs in wide swaths. Now is the time to do it. If you haven't done it now, what are you waiting for? Go in there and quit. All right. From JPMorgan, signs of capitulation. This is something people have been looking for a while now. Percentives of companies trading below cash and short-term investments going back to 1990 was the highest it's ever been. This is using crisp all-cap data. So all the stocks, more or less. Do you think that there's, I'm trying to poke holes in this. Is there something here. It seems like it's, I think that's higher than it was in 2008. Is there a reason for this? Yes, but I can't think it off the top of my head. I don't buy it. Sorry. Okay. I've got my

reasons for the bottom and reasons this isn't a bottom. I'm going to run them by, okay? Let's say this is the bottom because inflation is peaked. Fed might slow rate hikes if inflation comes down. Labor market remains strong. Even if we are under recession or go into one, it'll be mild and the market is forward looking. All good points. Reason this is not a bottom. Inflation might be sticter than we think. Fiscal and monetary policy are both tighter than they've been in years. Housing market could easily roll over. Housing is a huge part of the economy, as we've learned, and the labor market will probably slow in the coming months. It's probably already beginning to slow. You can make good at the prosecution of defense. I'm 4060. I think 40% reasons for a bottom

makes sense, but I'm overweighting. This isn't a bottom, and I hate to say it. And I would love to be wrong. But I think that, and this may be as a cop out, but people got overly pessimistic too early. People priced a recession too early, didn't come to fruition. Earnings are better than expected. Less hawkish fed. Now we get the bounce. But I think we will see data soften. I do.

So this is from Apple. The stock was down actually 29% at its lows. So Apple was underperforming for a while. It went down. Wait, it was? Look at it. I'm going to fact check. Do Y charts.

A mid-podcast fact check coming up. When are we talking about? Like recently? No, in this downturn, Apple was down 29%. Now it's down 10% or so off the highs. You look it up. Credit to you. Yes, I'm right.

I looked this up before. It's on my blog this weekend. There is no obvious evidence in our data that there is macro-reconomic effect on iPhone sales. Wait a second. 29%. Yes, I have the chart. Yes, I have the chart. Apple was down 29%.

That's surprising, isn't it? It was down more than I thought. Now, I think it's up 25% from the lows. Ben, I'm seeing it, but I'm not believing it. Yes. It is surprising. Huh. Man, I told myself when Apple felt 28% I was going to buy it.

Okay. Someone sent this to us. And this is the entire bear market from 1978 to 19. So this is monthly data from 1978 to 1986. From 1980 to 1982, the stock market is down 27%. I think this is from Tom Lee. The entire bear market was erased in four months. And I think his point was, well, if inflation is finally gone, the market can take off like a rocket chip. And then we have their V. My one counterpoint to this is the market went nowhere for like 15 years back. then. X dividends. So there was, yes, that was death of equities. I think that's a much different scenario than words. And also, inflation was high for like 15 years in a row. We've now had inflation for like 18 months. So I don't think you can make that same comparison. Although I stand

by this statement that I think the only variable you need to know, isish, to predict where the market's going to be in a year from now is what is inflation? So if it's August, if, I don't know, if by February, March, inflation is under 5%. Stocks are higher from here. Yes, I think it would have to be. If a year from now, inflation is 3%, we're back at all-time highs. Probably. Time stamp it.

3% or lower, we're back at all-time highs. Unless we're living through deflation and we're in a really nasty recession. Yeah, prices come down because demand's right up. Stocks are way lower. This is harder than I thought. This is harder than I thought. All right. So interest rates are coming down as well. Now, why are interest rates coming down so much? Is this because people are now pricing the recession? What the hell is going on, Ben? I think it has to be it. Right. So the 10 years back at 2.6%. And if you look at U.S. government bond yield, the one year T bill is at 3%. The 10 year treasury is at 2.6. That's a little bit of a divergence. So you have a one year T bill now yielding more than the 30 year government by a few basis points. But still. Yeah, I don't know. I'm confused. What are you believing?

Short-term rates or 10-year rates? I trust no one. I guess you could say 10 years are falling because they still think the Fed has more to hike, but then we go into recession because of it. I don't know. The bond market is just as confused as everyone, I think. There was an article in the Washington Journal, data from VandaTrack. The net purchase among retail investors is a basket of tech stocks.

You know the SpongeBob, uppercase, lowercase, uppercase, letter thing? Like not a bottom. You need like capitulation from retail. Retail's not capitulating. What? I know all the cool kids do SpongeBob memes. I've never watched SpongeBob before. I don't get any of them.

Me either. Well, you're too old. I think I'm borderline. You're definitely too old. I'm borderline. Okay. But the net purchases among retail investors for Facebook, Apple, Amazon, Netflix. So people are still buying tech stocks.

Why is AMD in here? Why is AMD always on that list? I don't understand. That's bizarre. I don't get that one either. Is that an all-time high? So maybe the retail investor is getting smart. Ben, credit you.

You were ahead of the trend. The Wall Street Journal. said, they quote Jeff Durbin. Who's Jeff Durbin? Who's Jeff Durbin? Jeff Durbin is a 59-year-old investor based in Naples, Florida. He said that he regrets missing out on buying big tech stocks decades ago. And Ben, I was reading this article. I scroll to the bottom. I said, aha, I got it. I got it. We want to hear from you. We want to hear from you. Where did they find you these people? They're not. The people are finding the Washington Journal. So at the bottom of the article, they said, we want to hear from you. What's your

investing strategy for 2022, has a recent market total model change your approach. Tell us about your experience here. They've got all these drop down, income level, name age, occupation state. I want to fool them. You think we can do it? I'm going to fill one of these out now. You think you can get yourself into there? Yeah, champ kind. Would you give a fake name? No, but the thing is, you can't do it because you need to verify your email address. Ah, okay. But that's where they're coming from. So here's the thing. I know there's been a lot of pain in tech growth stocks. If, let's say, okay, that's the bottom. Rates are going to go back down. If that was it for like the value growth thing, that seems really short for me as far as that cycle goes.

I feel like even though like a lot of those growth stocks got hammered, if that was the length of the cycle and it lasted 15 months, that to me seems very, very short. It almost feels like that can't be it. Can't be it. I mean, can be it. When you have one of these cleanouts, it usually lasts a lot longer. Markets are moving faster these days, as I pointed out before. But that to me seems there's no way that can be it. Here's what normally happens. Before markets bottom, you usually have estimates getting cut.

Earnings estimates. Earnings matter a lot. And you might not have retail investors capitulate, but you usually have analysts capitulate. So again, Bank of America showed in the dot-com bubble, earning estimates came down by 8%. In the GFC earnings estimates came down by 36%. In 2020, it was over before it started. So estimates only came down by 3%. Analysts are still expecting 7% growth for the next 12 months. Well, now, obviously analysts don't forecast inflation. They're just doing earnings. Like, that's the thing. Earnings tend to remain strong during inflationary environments.

Yeah, but wait, but inflation has to eat into margins at some point, if not already. So it has to impact earnings per share. Bespoke, there's a nifty chart. So the NASDAQ was up 4% one day last week. They said that about half of all 4% days occurred on the way down during the dot-com bust. Wow. Ouch. 48% of all 4% days occurred between 2000 and 2002.

So I've showed that chart a million times of all the bare market rallies from 2002, brutal. So I'm not saying that this is a bare market rally, but it might be. The biggest up days and the biggest down days tend to occur during a downtrend. Listen, maybe I get overly pessimistic. I don't think a bottom is in. I would, again, really and truly love to be wrong. I don't gain anything from the market going lower.

it's not good for me or for anyone. I'm not shorting stocks, obviously. Let me take the middle ground here. I'm not saying it was a bottom. You're going to take the middle. That's a surprise. So back in college, when you used to play drinking games, the easiest drinking game in the world is higher or lower. Higher or lower. I know I said Flip cup. That just shows that I wasn't a college drinker. Flip cup was not an easy game. Okay. So it's two people in a deck of cards and you flip a card over and say higher or lower. If you're right, the other person drinks, if you're wrong, you drink. It's pretty easy.

A fun game. But there's not a lot to do. in Michigan. Mentally stimulating. Okay, but sometimes there's four cards that could be the same. So I had a friend who would just say same, just because he wanted to be right. So what if you said, well, I'm going to pick same, meaning, I'm not the same guy. We're not going to go lower, but we're not going to hit new highs either.

We're just going to chop up you up in the middle for a while. It's going to be a same market. We're just going to go back and forth a while. No, that's like the person that bets snake eyes at the table, not me. I'm picking sides. Or not roulette, craps. Craps? Ryan Dietrich tweeted, the S.P. 500 gained 3.9% on the day.

the Fed hike and following day. That is officially the best rally after a hike going back to 1970. So investors, they smelled something. Listen, the market's, it's hubristic to say that the market is wrong and this bald asshole is right. But I'm just saying it. I think people are overly optimistic. I looked at it the other day. I think the stat was there's been five months this year so far, maybe four of gains or losses of 5% in a month. It happened once last year. Dry was just up 9% or something. The other three were down. It's been an enormously volatile year so far. Was it a coiled spring?

Did we get that one right or not? You did. I can't remember right. Okay. So Ed Clisshold from NDR tweeted, there has never been a recession without a four-quarter earnings per share decline. In most recessions, earn an EPS growth has been less than negative 20%. So he said that's critical because the market tends to go up faster when EPS.

P.S growth is down. I'm sorry, I'm not fault. I know I put this tweet here, but I can't fall. I lost the thread. I lost the thread. What's going out here, bed, save me, I'm drowning. What I think he's trying to say is, well, because there's hours in the tweet. I think what he's saying is, if we think this is really recession, earnings have to come down.

Thank you. That has to be a tell, right? That earnings would have to come down. That makes sense. Gina Martin Adams is saying, well, actually, actually, EPS expectations are coming down. For next year. So good.

There it is. There it is. I don't know exactly what's going on here, but I feel like somehow you're arguing against yourself. Definitely. I'm telling you, I'm confused. All right. This is pretty good from Ryan Peterson.

Proceeds from IPOs of technology companies have amounted to $512 million down from $58.7 billion last year. That's just a touch lower. Just a 10. Is that 99% lower? It's got to be close. I can't believe any tech stocks were able to come public this year.

We talked last week. That's chutzpah, coming public in this economy? I think it was two weeks ago. We talked about Roku being down like 90% and then Redfin. And I was thinking about, remember the Peter Lynch thing? Once upon, what's it called? Once upon a time. Wait.

No, one up on Wall Street. One up on Wall Street. Okay. Once upon the time. I was trying to. That was like one of the first books that I ever read. And it made sense where he's like, I bought Haynes because my wife said the pantyhose that they make are fantastic.

I bought limited because my wife said she shopped there at the mall. And I think he probably got pigeonholed there. I bet he wouldn't mind taking that one back because I'm sure a lot of people say, well, but you know, look what I bought this. I just wanted to show a little of the things like in the last few years that I've become interested in.

If I bought what you know, I would be absolutely racked. In Peter Lynch's defense, he didn't say buy what you know and pay 100 times sales. He didn't say that. This is true. Well, he said,

and I think part of the buy what you know means like do a little research. Yeah, yeah. But so here's the thing. You and I both bought a Peloton. I wrote my today. I don't know if you could tell. I wrote my capes look big.

I ride my Peloton multiple times for weeks still. I love it. Especially with kids, it's easy. Kids are watching cartoons. I hop in the Peltown and ride for half hour. Stock is down 95%. I've been rewatching a lot of old movies lately. And the best, by far the best system for finding movies and TV shows is Roku enabled TVs. I don't know how they make money off of me, but it's easily the best remote control of ever. The remote control is like this big. It has like five buttons on it. It's so simple to use. What are you watching that's old? I'm trying to go through some old movies. I never watched The Shining Citizen Kane. Oh, ooh. Wait, did you see the Shining? No, they're on my lips. Oh, you haven't seen either of those. No, but I'm searching for these, and it tells you which apps have them or if you want to buy them. So you're preparing to watch old movies? Yeah, I'm getting it.

Yeah, that stock is down 87%. Redfin, we mentioned, fantastic research on the housing market. We've been using them for years. Stock is down 91%. I'm not going to lie. I enjoy buying clothes, but I hate going to the store. So I started using Stitch Fix like a year and a half ago. Do you still use it?

Every other month, they send me, it's like Christmas. They send me a box of stuff. It's shoes, clothes. You pick what you like. Do you have like a six-room mirror where, like, like you're going like this you're like turning around but you do you know the stylist no do you no you email the stylist and you say I want a new swimsuit or I want to you have a stylist I have my own personal stylist at stitch fix you pay like $20 per box and if you buy everything then

they take that off so it's like Christmas every time you open a box it sounds like a lot of fun it is that stock is down 95% the buy what you know for ben portfolio is down an average of probably like 92% I'm just saying it's a lot harder than it sounds let's do real estate fast because we still have to get the good quarter guys decent quarter guys not terrible quarter guys all right from bill mcbride the most frequent way we enter in a recession is the fed raises race to fight inflation and the leading indicator for this type of recession is housing he said this in a fortune piece and it meaning housing is not the target but it is essentially the target and he showed that home building like single family housing starts have already started

roll over and we didn't come close to getting to the peaks that we did before so he's saying housing rolls over that's a pretty good sign of a recession coming and we're not quite there Yeah, but we're getting there. Isn't the economy slowing? Why aren't stocks down, damn it? All right. One more. From Dan Green, who puts out some really good content for home buyer, which is a company that helps people, younger people, get access to mortgages. Pending home sales index, this is back to our confusing part of the economy, which measures the number of purchase contracts written between buyers and sellers plunged to its lowest level in 10 years. And that's taking out like then taking out the March 2020 or whatever, April 2020 when it really stopped. But homes that did sell in June

sold in an average of 14 days, which is the fastest pace ever. So contracts are slowing, but houses that are selling that are selling at the fastest rate in history. Okay, good. I'm starting to see home prices cut in my neighborhood. Okay. The one across the street? Or continuing to see it.

Not yet. Now, that's coming down. There's a few houses by me that I drive by every day when I drop my kids off to school. There's been a house for sale for probably two months now. It's almost weird to see a house for sale for that long. You should be able to bet on that. That would be cool.

Oh, when will this house sell? I would bet a ton of money that the house across the street from me will lower their price. I'd bet it all. So this house will sell for less than 500 stops. Less than it's listed for. I bet my kid's college fund on it. It's going down. That's pretty good.

Okay. All right, Ben. I listened to a lot of earnings calls last week, not to brag on the quarter app, Q-U-A-R-T-R. What do you have coming up this week? We've got, what we have this week? A lot of companies. Airbnb, that should be an interesting one. Starbucks, so far.

Robin Hood. Oh, can't wait for Robin Hood. Robin's a fan favorite. DoorDash, Draft Kings. There's a lot. It's overwhelming. There's so much coming out. All right.

We're going to start off with Apple, which at first blush, I'm looking through the numbers, and I'm like, huh, why is the stock up so much? And I'll tell you why. Because this tends to be a slow-ish quarter. This is their best June quarter ever. There's a site called Six Colors that does a great breakdown. You've got the iPhone, Revenue by Kickstarter. category, 49%, but Ben, as I just mentioned, the year-over-year total revenue change in the iPhone,

2%. We're due for a new one. You know how you do the thing where you paid off monthly? Yeah. And it's like a 24-month contract. Ours came up two months ago. I was like, hey, you're done paying yours off. If you want to buy a new one, go ahead.

I haven't really felt the need to buy a new one yet. I'm sure I will once they start, now that I said that, they're going to start draining my battery every day. Yeah, you're done. I haven't needed it. But services, iPhone, iPad, Mac, Mac, lowest. quarterly profits and it's Q4, 2020. So again, just looking at the numbers, because you've got a quarterly adjust, but you wouldn't think that the stock was up that much. But I guess it

was better than expected. Yes, it's expectations. The conference call, listen, there was super bullish. We've never done better. Slow down in China, never done better. So sometimes it's watch what they say and not what they do. It's like the opposite. I did not listen to the Amazon one, but there's a company called Geekwire shows the worldwide employment. What a chart this is. Good grief. But they overhired like everybody else did. So Amazon's direct workforce declined by 99,000 employees from the first quarter to the second quarter, they employ 1.52 million people, which is a hilarious large amount. It's amazing that they could get rid of that many employees or they could scale up this fast and then scale down that fast as well. I know these businesses

cannot be any different, but Facebook is like 100,000 people less, I think. Probably. They just put a brand new Amazon fulfillment center by my house. It hasn't opened yet. It is just massive. It looks like a mall. It's huge. They took a $4 billion loss on Rivian. The total loss in Rivian, wait, on Rivian or on investment this year? Either way, they lost a lot of money on Rivian. So, Ben, you asked me last week, you're like, I don't think Snap matters. And you know what?

You were 100, again, credit to you. Snap is completely irrelevant. It has no relevancy in anything. Snap got killed, so Facebook was down in the after hours. Google was down. It does not matter because advertising is probably one of the most economically sensitive areas in GDP in economies and markets. Can we say at this point that Apple, Google, and Amazon, those three companies, maybe Microsoft,

are just like their own economies at this point? Yes, but. What happens to other companies does not matter to them. Well, that's true. But I also would not go as far as to say they're impervious to a slowdown. There's certainly not. No. But ad revenue at Amazon was up 18% year over year.

At Google, it was up 12% year over year. So the advertising market, oh, I listened to Snap, by the way. What a disaster I recall that was. suspended guidance, low switching costs, hard to monetize. AWS is still growing 33% year-over-year growth. Did you know that? Rivian is still a $31 billion market cap. I know it was like $100 billion when it came public.

That still seems way too high to me. So this seems like a year ago, but Josh and I were talking about this. Google revenue had the slowest growth, I think it was 11% since 2015. So there was a slowdown there. And Tavi Costa tweeted, meanwhile, the median real, uh, Oh, I didn't see real. The median real revenue growth for the fang stocks has officially turned negative for the first time in almost two decades. Okay, I'm not saying real revenue doesn't matter, but in this case, strip it out.

I want to see nominal. But even still, nominal revenue growth is coming in a lot. But bespoke said, give those mega caps a ribbon. They tweeted that this earning season, they're on pace to be the first time since 2015 that Apple, Amazon, Google, and Microsoft all reported in the same week and all four had positive reactions to their report. show how negative investors were. Yeah, people just got too negative. You mentioned a lot of these stocks were down way more than the market, even Apple. And so you've seen a huge snapback rail. I think Amazon's up 20 or 30% from the lows too. So Microsoft, look at this chart. How many people do they have? Microsoft had 221,000 employees as of June 30th, an increase of 40,000 people or 22%

from the same point in the prior year. So maybe companies got out over their skis. And oh, this is the point that I wanted to make. We're getting to earnings season. This is over overly simplistic, but I think it's the truth. Some companies have been either hard or hit by macroeconomic conditions or had their own idiosyncratic reasons for underperforming, like retailers. They just overdid it with the inventory. Yes, it was their fault. Obviously, the COVID did it? So it's hard to paint with a broad swath. What else did Microsoft say? Did I listen to that one? I can't remember. I don't think I did. It's also hard to paint with a broad brush, too. What did I say? Broad swath. You mixed them up. You did your own

simping there. That's not English. Oh, I did listen to Visa. Revenue is green. 19% year over year, travel-related cross-border volume was 104% of what it was in Q3, 2019, or Q2 2019. So they're saying that's a strong recovery in consumer and commercial traffic. I think Hilton said the same thing. They've never been busier. But here's a quote that I pulled from the call. We're not economic forecasters, so I'm not going to predict the future or a potential likelihood

of a recession. Instead, let's focus on the facts. from the numbers I just reviewed, relative to 2019 levels, growth has been stable or improving an overall domestic payment volume, credit, debt, card present, backwards, and volume. And card backwards, I'm sorry. And this indicates the most of 2022

with no indication of any slowdown, including in more recent weeks. And this was a good one. What's card backwards mean? That's a good question. If you put your card in backwards and you have to take out to the card out, swipe it again.

they looked at affluent restaurants spend was running 160 to 180% versus 2019. So again, stripping on the pandemic, before the pandemic, people are going out and eating at expensive meals. Maybe that's pent up the man. They talk about European lugger hotels here. 25% of my timeline on Twitter has been vacationing in Europe for the last month, I feel like it's everyone.

Everyone's going to Europe right now. Yeah, not me. I wish. I feel like we got to wait until our kids are a little older to Europe trips. Yeah. They said based on our numbers, we haven't seen any evidence of consumer pulling back spending in our markets. That's from Visa.

People love to spend money, something we're never going to give up on. Remember for like a month people thought the pandemic is going to make it so people become more frugal and they cut back like they did in the Great Depression? That was kind of fun, huh? That's never happening again to us. I'm sorry. I don't think so. We love to spend money.

I listened to Spotify and things look very bright and okay there. They said, going forward, while the macro environment continues to present uncertainty, we're currently not seeing any material impact on our expectations for users or subgrowth from the economic downturn. In fact, we're seeing several markets trending ahead of our forecasts. That said, in anticipation of a potential slowdown, we already share that we are proactively reducing our hiring by 25%. I've said this before, but I do believe that only the paranoid survive and we're preparing

as if things could get worse, but it's hard to be anything but optimistic given what I'm currently saying. You know how bad the stock is right now, off the highs? What's your guess? Spotify? Yeah. 70? Pretty much.

Close to 70. So looking at Q3 and beyond, as Daniel said, we continue to monitor the global macro and outlook to date, but we've seen no real impact on our user or subscriber outlook. They got it higher. They're looking at accelerating MAU. Okay. I guess that's the kind of thing. I know you think, well, subscriptions, but Spotify is the kind of thing that feels stickier

to me than like a Netflix subscription. There's not people who subscribe to 12 different music services, right? No. If you're a Spotify user, you're you Spotify and it's hard to get you to get rid of that. They're the leader. So, okay, Facebook. Now, are they just using the economy macro as a blanket for, really, they've just sucked. So here's what Zuckerberg said.

Engagement trends on Facebook have generally been stronger than we anticipated and strong real growth is continuing to drive engagement across Facebook and Instagram. That said, we seem to have entered an economic downturn. that will have a broad impact on the digital advertising business, and it's always hard to predict how deep or how long these cycles will be. But I said that the situation seems worse than it did a quarter ago, okay, or, or, or TikTok is just kicking your ass. Because Amazon didn't say that, Spotify, Google, Microsoft. I might have said Amazon, but Amazon again. You've been paying attention to the whole Instagram story, right? How people are mad. Even the

Kardashians complained that Instagram is trying to turn into TikTok and make it more algorithmically based. and people are really upset about it. I've never been a big Instagram user. I was never a fan of watching people post how great their lives are and pictures and look at me. It just didn't do it for me. I don't know. Do I need to see someone else's picture of a sunset again?

But the fact is, if they really feel that that algorithm is going to be better for their business, it's kind of scary for humanity that they say, we don't really care what you think and what you want. The algorithm is going to make us more money, and the algorithm is way easier to get people to do stuff for us. So we want the algorithm and too bad. It's a little scary where they just, they know, like, sorry, the algorithm knows you better than you know yourself, and that's better for business.

Ben, you don't care what you want. You want the truth? The truth is, quote, Reels doesn't yet monetize at the same rate as feeds or stories. So in the near term, the faster Reels grows, the more revenue that actually displaces from higher monetizing services. It's tough. I hope they blow themselves up. I hope they piss off all their, this is a company that I just do not like.

The CFO said advertising revenue growth slowed throughout the second. quarter as advertiser demand softened. Maybe that's true, but maybe advertiser demand softened on their platform and on SNAP's platform and not on other platforms. This sounds like healthy competition and they're losing. Which is kind of hard to believe. So again, maybe we just put too much weight into some of the bad news when they were just idiosocratic stories. Oh, here it is, here it is. So Justin Post, credit to you, analysts of Bank of America said, in the headwinds, you didn't mention TikTok. And then Cheryl said, we exist in a really competitive advertising market, where advertisers have brought opportunities.

So whatever, it's TikTok. I think that's my read. It's TikTok. And they didn't want to mention it, huh? Okay. This is a pretty good one from Connorson. Hilton Worldwide reported. He said, I guess this is the first recession

where leisure hospitality companies are doing earnings beats and raises, I guess. This is another thing where if you looked at just the travel sector, you would say this is a booming economy. So I think, Ben, again, you were right, and I think I was wrong, believing that retailers were, and again, I think they were impacted by inflation. Of course they were.

But I think a lot of it was overordering it for the inventory. Shopify was not good. Revenue was only up 16% year-over-year, gross merchandise volume of 11%. Again, for a, I'm using air quote, it's growth company, which they are, that's not nearly enough. Quote, while a normalized rate of spend online, which is where most of our merchant's order occur, has reset certainly higher than where it was in 2019. The rate is lower than we had planned for. In short, we overshot our prediction.

So credit to them for coming out and saying that, but so they did a bigger laugh, which we discussed last week. I don't know. Not great there. Again, these are all idios and credit stories. I forgot to mention, Ben, Facebook is down. The stock is down over the last five years. Not relative to anything.

If you bought Facebook five years ago, you're down. Really? Is that crazy? That is kind of crazy. All right. I'm like full on earnings calls. We've got another busy week, but listen, that's important now. You got to hear what companies are saying.

Real quick, though, I want to talk about this. I got something to the bank the other day. So Fed funds rates now at 2.5%. Is that physical mail you got? Yeah, physical mail. I took a picture of this. Money market accounts. 15 basis points up to $19,000, $25 basis points from $20,000 to $50,000, and 30 basis points

$50,000 and above. Banks aren't even trying to care anymore. Banks are the worst. Credit card rates shut up to 20%. Mortgage rates shut up to 6%. Now, we're going to give you 30 basis points on $50,000. They don't care. I had to pay my handyman over the weekend. I went to the bank at 8.45 in the morning to take money out. Could only take out $1,000. What the heck? It's my money. You working with the Goodfellas guys here? Who takes only cash?

I had to wait until the bank of debt nine to get my fee at. What are you paying cash only for? What was I paying for? Oh, they painted a few rooms in my house. What do you mean? They like cash. Are they going off the books here so they're not paying taxes? Don't ask too many questions.

All I'm saying is they wanted cash or gave them cash. All right. So what was this email that we got? We got an email from someone who works in refrigeration, I guess. Bob Vance, Refrigeration. Michael doesn't get that because he never watched the eaves him. office. He said he's visiting clients today because we're talking about Walmart and he said he saw the Walmart news. He says that he sells and ships mini fridges. And right now he's looking at

Walmart and they're selling them below cost. So that's how bad their inventory problem is that he says they're losing like $20 per fridge. If you need a mini fridge for your son or daughter going to college this summer for the first time, go to Walmart and get one. You buy it under cost. So he's saying that's how bad the inventory problem is right now that they're just giving stuff away basically at a loss that's a channel check we just did there for you how you like that? We got people doing channel checks for us

Oh, I'm excited a little excited Ben you know I'm a sci-fi guy Big Monster guy On August 5th The new Predator movie Geez did they need another one I'm here for it

Listen is it going to be bad There hasn't been a good one since the original Come on Well that's true Even the second one with Danny Glover was just not good. No, that's terrible. I'm a huge AVP guy, though.

Of course you are. Aliens and Predators, although Alien versus Predator Requiem was legitimately the worst movie of all time. But you're excited for this one? Come on. I'm excited for this one.

I think you're going to prove on that? Have you watched Blackbird yet? No, I haven't got into it. We're still trying to catch up on the Terminal List and a few other shows. Haven't been watched much TV lately. I've got good news for you and the listeners. It's only six episodes.

Oh, I like it. Do I have your attention now? Okay. You finished it? No, the six episode is coming out on Friday. can't wait. The first five have been very good. It's on Apple TV. But you mentioned watching old movies. I'm still filling in some of the blanks first time. So I guess after Nope, I was felt compelled to watch Close Encounters of the Third Kind. You probably never seen that one, have you?

I don't think I have. Dreyfus? Dreyfus. Yeah, Billy Dreyfus. Not Billy Dreyfus. I know what I call him Billy. I'm talking about Billy Crystal next. That's why I call him Billy Dreyfus. Close Encounters of the Third Kind. In 1970, whatever that came out, I'm sure that was like beyond mind-blowing. Because some of the special effects are pretty good, even 40 years later, or however many years it's been. 40 years, almost 45 years. A little bit slow for now. There's some like iconic scenes. I get it. I get it. I get it. But so Richard Dreyfus was the star in that movie. And we spoke about some MEP show that I said I don't like coming of age movies, but I like coming of middle age movies. City Slickers with Billy Crystal. So Billy Crystal Richard Dreyfuss, they don't make

movie stars like that anymore. True. They're gone. You got Chris Evans and Ryan Gossling and that's it. Your everyday looking kind of guy is not leading. You think Richard Dreyfus had a six-pack? Billy Crystal had a gut. Come on. A little gut, but he got one. Anyway, I don't know why we watched City Slickers. I think it was on HBO Max.

I was just flipping through. I haven't seen that movie since I was six years old. What's the cow's name? Norman? Norman. The first hour of that movie was excellent. Like really good. I still can't believe the guy went an Oscar for that.

The Jack Palance guy won an Oscar for that movie. It's funny you mentioned that. It's funny you mentioned that because, so have you seen this movie recently or this was like a staple for you growing up? I've watched it once growing. It's been a long time. Okay. It's seriously good. Like, seriously. I've watched a number of times. That guy was in the movie for 15 minutes.

Yeah, he went on Oscar. How was that even possible? Back in the day, they must have been able to just buy them or something. Lastly, Creed got delayed. So we said that was a 23 movie. I'm a 22 movie. It's not, 23. Okay, thanks for the update. You're welcome.

So there will be blood was on the Rwatchables last week. And that's the kind of movie. I watched it when it came out in like 2007, 2008. I remember thinking like, okay, it was a pretty good movie. It's dark. They made it sound like it's a masterpiece. So I'm like, I've got to rewatch this movie. It is a very good movie or very good film, I guess, if you want to say.

It's not a great movie. I've come to realize I can't rewatch movies that are too dark. Like, it has to be a movie for me that is a little lighter. And the stuff that I rewatch is mostly comedies or something with an uplifting ending. I can't watch a really dark movie again. It's kind of like I'm one and done with those. So it was like, oh, my gosh, you're right. This was a very good movie I forgot.

But you don't feel good coming away from that movie. Like, I need to watch that one again. I don't mind feeling like shit, but I was wondering, am I being too hard on PTA? So I rewatch a movie within the last six months. And listen, I get it. I get it. It's like an achievement or whatever the hell. Great technical director film, blah, blah, blah.

It's just not a fun watch. It just kind of stinks to watch. It's not fun to watch. It was very good. I will say it. It's a very good movie. You know what it could have used? There should have been like aliens in the wells, in the oil wells.

Not you're talking. I rewatched the worst person to the world my wife this weekend because she'd never watch That's the Norwegian one It's a Norwegian movie You wouldn't like

Another coming of age one I really liked it It's kind of sad at the end actually But in the middle of the movie They take mushrooms And they have a weird Like trippy drug scene Why do TV shows and movies

Do drug trips and dream sequences They never work They never move forward The dialogue or the story or the plot It seems like a waste of time in space that you would do someone tripping out on drugs. I think the only time it's ever even been entertaining maybe is the Big Loboski, the bowling scene.

But I don't get why. Why do they have those? Yeah, that part. All right. There is a new podcast with Craig Kilbourne. He was, I came up with a list here, my favorite sports center anchors of all times. When I was in grade school all the way through high school, my favorite show of all time was SportsCenter.

Craig Kilbor was like six times ago. He was great in old school. Yes. Good talk. See it there. Yeah. So, Dan Patrick was number one. Yeah, of course.

Kilburn was two. I loved him. Stu Scott 3, Rich Eisen, 4, and then back in the day, Robin Roberts was one of my favorites. But he is... Russ and peace, Stuart Scott. I thought he was very corny. Yeah, he grew on me over time, though. But his new podcast, he had Ryan Rissill on the first episode.

He's interviewing a lot of sports people. His personality is either you find him hilarious and endearing or you hate his guts. I really like him. He tells a lot of the same stories over and over again. but I remember watching the original daily show with him when he left SportsCenter because I was such a big fan of his and he had the five questions thing at the end of it

and I loved him. His stuff was great. I'm a big Rucilla guy. You know, some people are afraid to get people credit. I like Ryan Rousillo. What's wrong with that? You know what I'm getting defensive? Because my friends were giving me shit.

I'm like, he's like right down the middle. He's not a dude. He's like I like him. I like him. He's good. So my friend texted me the day. I have a confession. I've been listening to some of

Priscilla's pods recently, and he's growing on me. I think I've concluded that Simmons stink rub it off on him. Whoever really doesn't like Bill Simmons. Oh, okay. I feel vindicated. Okay. Anyway, if you are Craig Kilbourne fan, you'll like it. If you don't like his style of humor, I think he's got a bunch of great Hollywood stories because he did that late late show for a while. What has he been doing for the last 20 years? That's the funny thing is is that he went out on top and just decided to retire. I'm sure he banked a few million buck because he was doing the late late show. But how many millions is he possibly have If we're doing five questions with Craig Kilburn, my first one is, who's your financial advisor?

Because he hasn't done it to him. He said he went on top. He retired in like his 40s, maybe. He was fired before. It was cool. Yeah. So anyway, I'm a big Kilbourne fan if you like him for the Sports Center days. All right.

So in conclusion, Ben, what do we learn? We're still confused. Yeah. That might have been the bottom, but it might not have been the bottom. Here's what I'll say. Could you imagine just like investing by the seat of your pants right now? It would be tough. You know what?

I'm back. No, I'm out. I'm in. If my investment plan was predicated on guessing if this was the bottom or not, that's a thing. How many clients have ever come to us and said, you know how I got successful? I guessed all the bottoms and tops in the market. No one has ever said that.

It's never a part of a successful investment plan, which is kind of freeing in some ways. Amen. That's a good place to end. All right, Animal Spiritspod at gmail.com. Thank you for listening. We will see you next time. Thank you.