Animal Spirits Podcast - It's Very Different This Time (EP.188)

Episode Date: January 27, 2021

On today's show we talk about the wild moves in Gamestop, why this is now a young person's market, why the SEC is probably going to come calling for some YOLO investors, why this is and is not like 1999, how hedge funds got beat by retail traders 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 interactive brokers. Interactive brokers charges margin loan rates from 0.75% to 1.59%. Their clients can also earn extra income by lending their fully paid shares of stock, which we're going to talk about later today. Join interactive brokers, clients from 200 plus countries and territories to invest in stocks, options, futures, funds, and bonds globally. Minimize their costs to maximize their returns. Rate subject to change. Learn more at I-B-K-R.com slash compare. 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 investments decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. All right, Ben, it is 215 on Monday afternoon. GameStop is up and down and up and down again. I can't get any work done. This has been one of the most distracting days

in a long, a long time. For everyone on finance, Twitter, it has to be. Yeah. We're going to bury the lead a little bit. We're going to get to that in just a minute. But I think before we do, a good place to start today's show is to look back at some of the work that Verdad Capital did on investing in a bubble. I'd never seen some of these before. They gave some quotes from a pensions and investment article in 1995. This is Ray Dalio. I think we're approaching a blow-off phase of the U.S. stock market. Price acceleration on the upside is preceding a significant correction, 20% beginning over the next 18 months. Peter Lynch in the same article echoed his concerns, warning not enough investors are worried. When was this exactly?

1995. It doesn't say exactly when, but... 95 is when the bubble began in earnest, right? I mean, the market was up almost 40% that year, I believe. The S&P 500 was up at least 20% in the next four years. 96, 97, 98, 99. It was up 20% or more each year in the NASDAQ, of course, was up even more than that. Howard Marks wrote in 1996, every cocktail party guest and cab driver just wants to talk about hot stocks and funds. I would imagine that if we were around in the late 90s, I would have been one of those people probably on the wrong side of this, depending on how old I was, I should say. Right. These anecdotes aren't to like shove it on their faces. These guys all did fine after

the fact. Better than fine. It's just that when you're in it, it is so hard to know where you are, what inning you're in. You're never going to know with this stuff. So they showed a chart showing the annualized returns from 1995 to the peak in 2000 from the first bubble warnings that we got from those legends. The NASDAQ did 43% for five years. That's wild. The S&P was up 26%. Even small value was up 22% per year. That's on total. That's per year over that time. And then of course, we know how it ended very poorly. And then they showed the full cycle. What happened from 95 until the bubble burst. And of course, the NASDAQ reversed almost all of the gains.

And what led the charge? What came up at the rear? Small and large value. The bursting of the dot-com bubble was the birth of smart beta and everything that we've seen since. Yeah, I'd say that that was part of it. That was a huge run for hedge funds as well who went long, expensive, short, undervalued. But the NASDAQ was down 75% peak to trough, and it still did 6% per year from 95 to 2002. That just shows how wild on the upside.

Anytime you're in a period like this, remember, gosh, it doesn't seem that long ago. In March, people were trying to figure out how much lower can it go. So I think with these extremes, I think you never want to like hop off too early or stay too late. And I just don't see ever trying to like pinpoint the exact date. You're never going to get it right. At those extremes, if you're trying to pick the bottom or the top, boy, that is tough. Things are getting so out of hand that even if you're looking at a log chart, it looks like an arithmetic chart. Yes, right.

So we can't have people chart shaming you anymore for using the wrong one. By the way, I can still never tell which one to use when. Come on. Don't be that newbie. I don't care. Whatever. I don't know. No, if something is up a lot, you cannot use an arithmetic chart.

This is all meaning. It's like looking at a chart of the S&P 500 from 1940 to today. It basically looks like it was zero the entire time until the last 10 years. Okay. Right. This is like a nine-month period. We bring this up to say that I think a lot of people think that they've seen this movie before and that they know how it ends.

At least that's what a lot of people are desperately clinging to. I would put Seth Klarman in this camp. At least I don't know what his returns look like. All I know is what I see publicly from snippets, anecdotes in the newspaper. He was in the Financial Times. And he's talking about how the Fed is distorting markets. He said with so much stimulus being deployed, trying to figure out. out if the economy is in a recession. It's like trying to assess if you had a fever after you just took a

large dose of aspirin. But as with frogs in water that is slowly being heated to a boil, investors are being conditioned not to recognize the danger. So then he goes on to say, the market's usual role in price discovery has effectively been suspended. The biggest problem with these unprecedented and sustained government and central bank interventions is that risks to capital become massed even as they met. Fair enough. But don't you think there's more to life than figuring out the price of a security? My take here, I'm not an ageist by any means, but the youths are beating the olds here. When you have people who are so ingrained in the way that the world used to work, and then we have this new regime shift in terms of monetary and fiscal

policy, and all they keep talking about is we're on a sugar high. And what happens when the Fed completely goes away? How does price discovery? Carmen said this literally in the Washington Yeah, my point is these old investors, as much as their experience has been helpful to them in their careers and they manage billions of dollars, so they're going to be fine either way. They're not going to be the ones who help you when a regime shift happens. And I think we are in the midst of one of those. Hang on. Speaking of regime shift, is that a V-neck, I say, on you?

We traded places today. No V for you. Look at that. I'm round in your V. Yeah, it's pretty deep. Before even like getting from the olds to the youngs, let's take an in-between. There's a step to be taken in between. and that is young-ish professional investors like Corey Hofstein, who have recognized that the

playing field obviously looks different today than it did in the past. And so therefore, it probably makes sense to adapt to the extent that you can. So Corey Hofstein, who is a friend of the show, was on the Oddlots podcast with Tracy Alloway and Joe Wisenthall. And we've mentioned Corey's work that he did last year, liquidity cascades was a brilliant piece. And Corey said, if hubris sells, I would hope that humility survives. And Corey's piece was great. So back in my day of working with money managers and allocated to money managers, I always found it so refreshing when someone would say either we're underperforming because the way that we invest is just gone out of style or we got something wrong. Whereas these days, if you've been complaining about

the Fed for 10 years and you're not going to change your style investing, that's fine. If you're being disciplined, but stop complaining about them then because they're not going away. Corey was saying, listen, the Fed has made things way tougher out there, but we've decided to change our style a little bit, and we're going to try to adapt to what we think is a changing world. And I appreciate him not saying we're blaming our underperformance on the Fed. He's saying we underperformed and here we think we know why, so we've decided to make these changes. It was refreshing because with a lot of the older investors, you just don't hear that because I think they're so set in their ways. So I think for now, where we are now, I'm not saying this is going to last. This is a young person's

right now for better or worse. I just read in the past year Michael Lewis's book Next. The future just happened. And it was about the internet bubble. I think he wrote it, I don't know, 2001 or 2002 just afterwards. And he wrote how anytime there's a technology shift, the old people will never get it. It'll always be the young people. So he said this. I thought this quote was perfect. He said, a child still has time to save himself. To a child, being on the wrong end of a trend is not a sign that it's time to dig in and defend the old position. It's a signal to cut and run. Progress depends on these small acts of treason. And of course, as Lewis has always done, the way he says it so great. I guess maybe using the word treason right now is kind of iffy. But that's kind of the way

I feel about what a market is shifting under us. And of course, that doesn't mean like, well, markets aren't going to crash. But things are happening so much faster now when fiscal and monetary policy is part of the markets that I don't see how you can just ignore those things and say, well, just wait until we go back to the way things used to be. It's not going back. It's never going to happen. So Corey wrote in one of his pieces, I think this was his fourth quarter commentary. He said, when do dynamics shift from prices reflecting the aggregate forward-looking expectations of the crowd to a simple ledger of transactions reflecting clearing prices driven by supply and demand imbalances? And he spoke about, I mean, obviously flows into

index funds. We don't even need to go there. But what about target date funds represent trillions of dollars and all the hedging that goes on? And the way that we have get access to markets, it is different today than it was in the past. Does that render past, data useless. I wouldn't go that far, but you've got to take into account that something has changed. On the podcast he did with Joe Wisenthal and Tracy Allaway, Tracy said flows over pros. And basically the flows are causing markets to move. And so in the past, we didn't have 401Ks and IRAs and target date funds and automated investing platforms that automatically rebounds. Free trading and social media, if you don't think that's changed the marketplace,

look at GameStop. I mean, this is a story. four weeks into the year. This is the story of the year, and it may remain. I don't know what else is going to happen, but this is like the opposite of oil going negative, I guess, GameStop. We'll get all to that in a second. One example that Corey gave in his piece about changing market dynamics, I can't imagine this is cherry picking. I mean, something fundamentally changed. He shows the chart of SPY of intraday versus overnight gains. From 2008 to 2017, they were neck and neck, meaning if the market gained 40 basis points overnight, so to the the S&P intraday. And it wasn't exactly tight, but it tracked pretty closely. And then for whatever

reason, that completely broke down from 2017 to today. I don't know what happened there, but Ben's theory of markets, everything is happening faster. So Ben Eifford and people like this have been talking about market structure for a long time. Something is different. So what's really interesting is that if what's going on in the Yolo trades starts to affect professional strategies. For example, Corey said, if you have these frothy situations where an individual security is not necessarily creating consistent gains, but you're seeing something like a gainstop or a plug that is dramatically jumping within a one-month period, well, momentum investors, if they're not careful, are going to start picking up on those names. And they may be able to ride the wave of

retail if that's truly what's influencing it, but they also may ultimately end up being the bagholders as retail moves out of these names and into something else. Ben, would that be insane? How many momentum ETFs are there that don't necessarily smooth that for price volatility, where they just do a three, six month of look back, whatever it is, and the top performing stocks, they get included. And to Corey's point, if by the time they're included in the ETF or whatever strategy it is, it could be an estimate whatever, the Wall Street bets people have moved on to something else, this could seriously have some impacts. I talked about Young's beating old's love late in terms of philosophy, but isn't it wild how the retail investor has basically beat the pro for the last

few years, the adoption of Bitcoin was all done at the retail level and institutions are just now piling in. So those early returns went to all individuals for the most part. Some of them were already wealthy in tech people, but the Robin Hood people beat the pants off of Warren Buffett and all the hedge funds last year in 2020 because they dove in and bought when everyone else was running away. Speaking of Warren Buffett, Jason Zwaite did a post on every Warren Buffett needs a Charlie Munger over the weekend. And I'm not exactly sure. I was sort of confused by the language. By the way, are you my monger or am I your Buffett or wait? Ooh.

Hmm. But so in the article, Jason mentioned something about the American Association of Individual Investors, which tends to be a much older crowd. I think they're shutting down. Yeah, this was kind of a throwaway line at the end. I mean, that's a big organization. And people have used that AI data for Bulls and Bears for a long time. And it sounds like he just said he learned they have a nonprofit, they have 154,000 members

notified its chapters last month. It would have closed down as of February 28th. So the fact that they're shutting as Wall Street bets, Fintock, you name it, is ramping up. That was a stark contrast. So this is happening all over the place. E-trade reported growth of 900,000 new self-directed accounts. Schwab's average client weekly trades. I mean, you could imagine which way this is going. It looked like it was... Schraub was down this morning, people were saying. Schwab was doing under 5 million trades back in October over 8,000. million daily trades today, which leads us to...

By the way, how many people at these places are calculating how much they're losing from zero percent commissions? Oh, that's a good point. I mean, obviously, that's helped them get new client anyway. Yeah. I bet you, if I had to guess that Schwab has more than made up the difference. I'm not giving out on the cash. All right, let's get to GameStop, the gorilla in the room.

Before we get into the details of this one, I just want to lay this out, GameStop itself in Wall Street bets for everyone making the comparison. This is not 1999. Explain. Okay. This is a company that has been around for a while. This kind of stuff was not happening in 99 where, think about it. This is a company that had more shares sold short than it had shares.

The hedge funds were betting against this. This was a stock that had been falling for years. And people were saying it's one of these stocks that's going to die in the mall like all these other retailers. I shorted GameStop in 2012. Wow. Not a joke. People were betting against this. This is a bunch of people who are betting against a company.

Okay. And then this other group comes in and they say, all right, we're going to use that against you and cause a short squeeze. 1999 was people betting on the new economy. I think you're splitting hairs. Listen, the S&P is flat today. This is not the market going insane and going on a tear and melting up. This is small stock.

GameStop was a billion dollar company two weeks ago. Now it got to seven today and back to five. It's moved around so much. But this is different than 99. This is more coordinated. This isn't like IPOs popping. We had that earlier. GameStop is not 99. This is something totally different and new. Well, you can make the case that with the message boards, it's exactly 1999. That's part of it. But in 99, people were holding on to these and it was going to be

life-changing money. These people are planning on trading it and saying, see you later. This is not people buying and holding this stuff. I think you're being pedantic. Okay. I'm just saying, if this was happening in 99, they would have been taking stocks that came out in the 80s and saying, let's screw with the short sellers for that. That is not IPOs popping 400% on the This is a different level of emotion that we've never really seen before. Granted, it's the message boards, like you said, but this was a company people were betting against. This is pessimism versus optimism and optimism one. Optimism, really?

Nobody's optimistic about GameStop. People are turning it into optimism now. All right. I don't know if we've ever seen a company more. I'm sure that there has been examples of this. Volkswagen, by the way, the short squeeze in Volkswagen made it one of the biggest companies in the world back in the day. But GameStop at this point, this is nothing to do with fundamentals. is completely supply and demand. Okay, so speaking of fundamentals, so back in my manager days,

I mentioned, we used to allocate the hedge funds. You have to ask these questions to sound smart. So you say, what are your risk management on position level sizing? And they'd say, well, we don't take more than 2% for a position in a short and we don't have more than 20% industry concentration or whatever it is. But one of the things that a lot of the long short funds would tell us is, we never short a stock that has a bar rate over X, call it 20%, whatever it is, because some of these stocks that are so overvalued. They're hard to short because you have to pay more and... What is the borrowing GameStop these days? I was wondering that today. I tried to short GameStop in our wealth-based paper account and literally it said there are no shares to borrow. In the paper

account, I couldn't believe it. But the other thing is these certain hedge funds had a threshold in terms of if there's more than 30% of the stock that is sold short, we will not take part of that because you could have a squeeze. So how do these hedge funds explain to their investors? What the hell were they doing? Why would you short a company that has so much, you were right for something like this? You were right for a squeeze. I almost blame them as opposed to blaming the Wall Street Betts people for this. It's almost their fault. You know what? This has eliminated. Remember like at Irisone when people would get on stage and do like a 100 slides short pitch? Can't do that anymore. That's gone. I wouldn't be caught dead doing that. All right. So let's get into the GameStop stuff

and then we'll circle back to some stuff that's going with short interest. All right. There's an account on Twitter that will link to market stream. They said the YOLO index, which tracks the short-term performance of Wall Street bets and other trading subredits, is up 916% since January 1st. Is there a YOLO ETF yet? I mean, since January 1st, Zero Hedge tweeted today, a basket of the 11 most short of Russell 3,000 stocks is up 100% today. Today. Okay, here's another one. GameStop has traded more shares today than the S&P 500 ETF. It's a mid-cap now. It was a small cap, basically. So not to brag. I did a post. I don't know if you remember this. I did a post in May 2018

talking about how GameStop was a deep value stock. It was trading at 0.15 times sales. And the irony here is that I forget who from Bloomberg did a deep dive into the history of GameStop and what actually happened at Wall Street Betts. The first post was a fundamental thesis. Here's a quote. My thesis is not contingent on a turnaround. or business expansion. This is solely a deep value play, which is incredible. That's how it started. We know how it ended. And here's a quote, Ben, that supports the fact that they're getting smarter. Somebody wrote on the message board, if you are long, GameStop, make sure to call in your shares from your broker and make sure they aren't being short lent. Call your brokers. Right. They planned this out. And apparently the people who did it the most, like the way that

they laid out the case for what's going to happen, they followed that plan to a T. They nailed it. This was precision. Okay, so here's the other side of this. The SEC is coming after their ass. I'm putting it down now. These message board kids, they better sell some shares and start a defense fund because there's no way the SEC can let this keep going on. We got a list of a question about the market manipulation, what's going on.

Two tweets from today that I thought are worth noting. Wisenthal tweeted. I hope regulators are watching Wall Street bets. Manipulating the market should be reserved for rich hedge funders with 200-paid slidebacks delivered to exclusive audiences behind closed doors. That's the whole thing. they're going after the 1%. That's exactly what's going on. Robin Hood is actually taking for the rich. It's incredible. Looking beyond that, can we just step back and appreciate like, there's nothing to do right now? We're in a

pandemic. Can we appreciate just the fact that this is kind of fun? The most fun. Last week we said Bitcoin was the most fun. Remember Bitcoin? That's so boring. GameStop has totally sucked the accident out of the room for Bitcoin bubble. I mean, a lot of people are like, want to play the tisk and wave their finger and say this is going to end badly, but I'm sorry. This is entertainment for it now and I love it. I don't even care that I'm not involved in this at all because it's just fun. I texted, I forget who, I said, I'm not even playing and I'm giddy. Yes. Dave Nadek tweeted, I see lots of traffic about GME and whether some law is being broken. Allow me to introduce you to 10B5 because I suspect we're going to be talking about it a lot. You think there's going to be prosecution here? Who do you prosecute?

The people on the message board, do you think they can't go after them? Michael Lewis's book next that I mentioned, the whole story revolved around a kid who was like 12 years old at the time or 15. I can't remember. He was pumping up stocks on Yahoo Finance Message Board, and they went after him because he was making so much money. Play the reverse in your head. If hedge funds were doing this to a retail stock that everyone had shorted, if it was the other way around and hedge funds, and obviously, you've got to imagine hedge funds are in this thing. We're not seeing this much volume and this much movement just from people in their retail account. There are professionals in this for sure. The smart money is following the dumb money. Oh, I'm sure. And you know, I talked to someone

from the Wall Street journalist this morning. They had some questions on this. They said, off the record, we've talked to some hedge-fell. Well, hold, hold on. If it's off the record, can you, you can't. Off the record in terms of them not wanting to say who they are. But they would say, we're paying attention to this stuff, but we just don't want to say it because we'll feel our sound like idiots, but you have to, just to know that you're not involved in one of these things, probably, right? Let's rewind. How did this all start? Back in August, Ryan Cohen, who was a co-founder of Chewy, disclosed a 5.8 million share state. in GameStop through, I guess, one of his funds. And share searched 24% on that day. Do you remember

that? I don't really remember that story. Sounds like that's what got the ball rolling. But at the time, this was a tiny stock that no one cared about. Yeah. It was at $4 a share or something then. Wall Street Betts took an internal survey. So again, we haven't vetted this. So let's just take it with a grain of salt. Apparently, they own almost 6% of GameStop. Okay. I would cut that in half, if we're being honest with the survey results. I'm sure they're always saying they own more than they do. but that's a big number. This is an age thing where if you're a young person, if you don't have a mortgage, if you don't have a lot of money, if you have all the time in the world to make up any potential losses, why wouldn't you be involved?

Right. Just having fun. So you wrote a good piece about this over the weekend where you said, like, if you have a family to provide for, you can't be Yolo trading. So last week, we talked about that Neo stock, the electric vehicle company, and we both said we had never heard of it before. And we got dragged big time on YouTube comments. We were getting dragged for being boomers, which, by the way, I thought that was kind of funny at first, like the boomer joke. I think it's kind of lost.

It's been beaten into the ground like everything else. You can't call us boomers. I mean, I'm 35. So they were calling us boomers. And because we've never heard of it, how do you guys do your job if you've never heard of this talk before, not understanding what our jobs really are? I guess, for the record, I have heard of it. I mean, I don't know what it is.

This is the good thing I think about getting older. You don't have to care about every one of these. It can just be something that you pay attention on the periphery. you don't have to be involved in everything. I think that's probably one of the dangers of being an investor today is assuming that you have to be involved in everything. And if you miss out on something, you are really missing out. There's so many avenues to invest in these days. We're going to dive into the Wall Street bets. We spoke about how this is young people go nuts. I was born 15 years too early. I would 100% be involved here. Probably would be short.

I was going to say, you would have shorting it the whole way up. So somebody posted, took my dad's life savings and yoloed into Blackberry. I told him it's either retirement on a yacht or food stamps for him. Okay, this is another reason. This is not 1999. These people are going after the crappiest stocks. So it's Blackberry and AMC movie theaters. They're looking for these stocks that are so tiny.

The junk was popping in 99 too. But this is different junk. These are old companies that are on their last legs, unless they start selling some equity here. It's AMC theaters, which is just teetering on bankruptcy and Blackberry, which hasn't been relevant in seven years or whatever. that's why this is not 1999. They're not betting on a future technology. They're betting on these old pieces of crap that they can move. With high short interest. By the way, short interest, like a factor now? Now it is. I'm sure it has been. But. All right, let's get to the message board. And there's some vile

language in here that we have to disclose ahead of time. So if you're listening with children, maybe fast forward like two minutes. By the way, people keep saying, like, you got to get on the Reddit message board. I still don't know how to do it. I go by screenshots. That's all I can do. All right. So here we go. Boys, it's pretty simple. If we're we break 115, we trigger another gamma squeeze on top of the short squeeze. How? 115 is the upper limit for calls. There are no calls available beyond 115. If we hit it, that means all calls will be in the money and market makers will have to buy more shares to hedge, initiate any gamma squeeze. So don't be pussies and just hold because we're just getting started. So, Ben, this goes to your point of like,

this is not a dumb person. I mean, the language aside, this is very much they know what's going on. Somebody replied, it's been a fun ride retards. I have to cash out pretty much all of my positions today because I'm putting money down on a home for the first time in my life. Hope to get back into the market someday. Somebody responded to him, double your positions and buy the moon. Somebody responded to that person. Literally wait a day, bro. Today is going to be fucking nuts in the market. Later on, somebody posted, greetings gentlemen. I just got back for my two-day ayahuasca retreat in Peru. I have found clarity and the answer to all my life's questions. He recommends GameStop and Pallantier calls. Anyway, so this is the type of language and behavior

that's happening on these message boards. So I'm just saying, this stuff is out there for the regulators to see. You don't think the hedge funds are going to be pounding on their doors saying, hey, we've been paying you so much money. Help us out here. But what do they do? Like, how do they prosecute all these people? I'm sure that they could take one of them and make an example of them. And that would quiet down the other ones very quickly. But what about if these people are all anonymous? I guess they could have their addresses. But that's why the blockchain fixes this. I'm sorry. You don't think that the feds can figure this out. I've said the story in the podcast, I think. I had a friend in college. He was

a freshman in college and they brought him up for pumping and dumping and dumping penny stocks on the Yao finance message boards. He probably had $1,000. And the funniest part of it was his lawyer told him to plead the fifth. So he had to plead the fifth like 112 times. But we were thinking in college like, why would they go after him instead of someone big, a huge whale who's doing something that actually makes sense and matters? But the point is you're making an example so other people don't do this because it's easier to prosecute the little guy like this than go off to the big guy. I feel like the upside is too rich that people will take their chances. We'll see what happens. Speaking of how it's different this time, sentiment trader tweeted, we're seeing the types of speculative

activity almost solely seen near your short to median term markets peaks. We're also seeing the kind of thrusts and recoveries almost solely seen near the beginnings of long-term uptrends. It's very strange. Markets are broken right now. Is that the general thesis here? I just think getting back to, we've talked with this for a while, the anecdotes in the sentiment indicators, I think you have to almost throw out the window in terms of trying to find the turn. Well, that's the key point. Dude, this is insane. We are surrounded by bubbles. But in terms of using these indicators as anything other than, huh, that's interesting. Huh, that's insane. They're not actionable. We got an email over the weekend. And this is just one anecdote of a

Bizzillion. Hey, Michael and Ben, first time, long time. I think my friend has gone completely off the Bitcoin deep end, but what your thoughts? He is a part-time MBA student and his grandma gave him $9,000 last week, which is to be used for his upcoming semester's tuition. He said that the tuition bill isn't due until May 1st, so he wanted to try to make a trade with it instead of letting it sit. I figured, okay, maybe I'll put it into SPY or something, but nope, he's going to take the 9 grand and put it all into Bitcoin in hopes to try to double his money between now and the end of April, and then we'll have essentially two free semesters of college rather than just one. So replace Bitcoin with anything. This is a

happening all over the place. I almost respect this strategy in some ways, even though it's ridiculous in nature, but to your point about not having responsibilities, when else would you take risks like this? If this person loses that money, then he'll have some debt, right? He'll have to take out a loan and pay for college that way. By the way, people saying this is going to end badly, for who? I mean, yes, that's ridiculous for who. How many people lost millions of dollars today up and down with the GameStop thing?

But that person that has a $10 million account on Gabe Stop or the guy that has $11 million, million in Tesla. It's not like they're taking the $10 million and buying more options. Like, they already won. Can they give it back? Some of it back, all of it back. But there is a lot of people that have already won the game. And it's not like they're selling naked options. I mean, again, some people will blow up spectacularly. But there's got to be tens of thousands of people that have already won. These people are cashing out. And they're saying, I'm going to use this money to buy a home or pay up my student loans. That's what I'm talking about, about the reflexivity of what's going on in the market. I think it all started inside the S&P 500.

they don't want to Bitcoin, they don't want to this, they don't want to that. And people are using the gains to a problem of other shit. You see what's going on with like NBA top shots, these freaking holograms? Like, I thought you could just watch these on YouTube. Apparently people are paying tens of thousands of dollars for a video clip. But here's the thing. GameStop goes to zero. There's basically no impact on the market overall.

That's the thing, why it doesn't matter in terms of like an overall bubble. We've talked about microbubbles. These little speculative names can go out of business. And it's not going to matter if it doesn't carry over to Facebook. in Amazon and Apple and Microsoft. Yeah. So what's going on in the market is so wild. Jim Bianco, this was going around, tweeted a chart of the Goldman Sachs Index of the 50 most

shorted stocks. It's gone vertical. I think we actually spoke about this last week. Jonathan Krenzky did this thing. Wait, should that be a log chart? Yeah, come on, Jim. You've got to like this. Is that what you're talking?

So this is one that should have been logged because it shows the line going straight up. No, but this is different because it's relative. It's a relative chart. So we've gone from companies that. don't make money to now companies that are shorted. Which are often the same type of companies. But Krenski said this index outperformed the S&P by 44% over the last 10 weeks, by far the largest move in this data sets history.

So this has to be a coordinated attack. It has to be, and there has to be some big money riding this, pushing it higher. So here's my take I gave you today. I think Michael Lewis's book, The Big Short, top ticked a generational top in hedge funds. I mean, Ken Griffin is still running around, making money off of these Robin Hood traders and such, but have any hedge funds over the last 10, 11, 12 years killed it? Well, no, because the Fed's been manipulating the market. But it's kind of crazy, though, right?

Michael Lewis's book basically marked the end of hedge fund industry dominance, and they've gotten crushed at every turn, it seems like. Look at these next two charts. This is showing the stocks with enterprise value to sales ratio above 20, which is extraordinarily not really expensive. It's showing the market cap and trading volumes compared with 2000. What's the Y axis showing, actually? I'm confused. The number of companies. Oh, the share of U.S. equity trading. This makes sense now. So this one is born 1999. Dude, this is a speculative frenzy. I think you would agree with that. But if you look at it, we're only in 1997, so we have

two or three or three, two or three years to go out. But that's the thing. When is this going to end? I don't think it does. Honestly, I think that there's going to be crash. is everywhere, but what's stopping these people from just moving on to the next thing? Maybe the SEC. Yeah, I think maybe that's it. But the thing is, I've been seeing some people blaming the Fed for this activity. Do you really think that these people are comparing their YOLO GameStop call options to, if they would have gotten 4% in their savings account, they would have put it there?

Like, no way. That's totally different. No, of course not, but here's the connection. Look at the next chart from Modest Proposal. This is a chart showing enterprise value to total sale. And this chart has been going vertical, probably as a result of real innovation in the whatever, Snowflake, Unities of the world, all of these companies. And maybe this is a result of interest rates, a Fed policy.

And then once this got going, the YOLO traders sort of jumped on and poured gasoline on the fire. Do you buy that? Yeah, that could be part of it. And I think it's also, again, part of technology being such a larger part of the market. So I did this piece for Fortune last week where I talked about how technology companies are just eating the market. So if you look at just the tech sector, like, you're still writing for boomers? Yeah, yeah, right. The tech sector, ETF, or the GIC sector makes up like 24%. But if you include companies that are like communications that are really tech and consumer discretion like Amazon,

it's probably closer to 40% in tech. I think when you look at some of these charts like this, you have to take into account just how massive technology is as a share of the stock market now. If you look at it from that way, it kind of makes sense. Not saying it's not crazy, but it kind of makes sense. I think some of it makes sense and some of it is totally insane. The funny thing is when we have these conversations, if you've got to go back and forth, we're always going to get from both sides where some people say, you guys are just fed apologists and you're just talking about the bubble as it's not going to pop.

And other people will say, like, oh, you guys are boomers and you're not in these stocks. So sometimes we just can't win with this stuff. That's how you know we're winning. We get it from both sides. So Zero Hedge tweeted IBM paid down billions in debt. and stock plunged. Why? Wall Street is hammering any company repaying debt. This is a fantastic chart. So this is showing different companies with uses of cash, capbacks and R&D, total cash return, buybacks, dividend growth, debt reduces versus issuers. By the way, this is kind of hilarious.

Look at the red square. So companies that are paying down their debt are getting killed versus companies that are issuing stock. So think about IBM versus Tesla, for example. But think about it this way, though. Debt reducers, companies who aren't allowed to take. on more debt, maybe you're probably in a worse financial position. Is that the way to look at it? No, I think it's all one story. If you're paying down your debt, what are you even doing? That means that you're not growing. Right. You have nowhere else to put that money. Right. So conversely, the one that's done the best is the high growth investment ratio. Again, it's all one big story. It's basically growth stocks over everything else. That's kind of funny, though, because for years we debated

why aren't companies investing back in themselves. So it looks from this chart, the companies that invested in themselves have done the best by far, right? Is that it? what this is showing? Well, this is high growth investment ratio. I don't know what the difference is exactly between this and CapEx and R&D. There's nuance here, but basically what's black and white is it's growth over everything. And certainly zero interest rates have something to do with it. To say it's only zero percent interest rates is insulting to all the people of building these amazing companies. Yeah. I know, man. I know. I've given up trying to guess this stuff because we could have six more mini booms and busts before this thing is over, over. Or,

it just keeps going and we don't really have another big technology.com crash. We just have a number of 20 to 30 percent shakeouts and then they come right back. By the way, short interest is a percent of market cap of the median SP 500 stock. It's plummeting. Not surprisingly, shorts are running for the hills. How could you be short right now if you were in one of these heavily shorted names? I don't know, go to cash instead maybe. If you were a long short fund, wouldn't you say like, all right, we're going to sit it out for a while right now? What's the upside here? This is one the craziest days I can remember. Yes, I agree. We're taping this again on Monday afternoon. There could be way that happens in the meantime. Ben and I were talking before. We're going to figure out a way

to go live. I don't know if Clubhouse is the answer, but on days like today, I want to do a Bill O'Reilly style. F. It will do it live. Yeah, if anyone has any ideas on that, maybe it's YouTube live something where we could do maybe once a week, a 10 to 15 minute live. No, I don't know. Maybe like once a month. Whenever there's something worth talking about. The last nine months, there's been something once a week. Easy, right? Yeah. I don't want to hold you to that. Okay. Are we done with the GameStop for a while? Have we sucked it dry as well? I think I got it out of my system. And if you didn't check out our video from last week, Dunk and our producer, video producer, put in the Independence Day scene with the aliens, and I thought that was the right analogy.

That was a nice touch. Man, I'm exhausted. All right. It is. Yeah. Okay. Let's move on to some real estate here. I'm sure there'll be more to say about GameStop in the coming weeks, whatever. Before we move off of stocks, I just want to say one thing, tangentially related. Arc Invest tweeted on January 22nd, just a very innocuous, big ideas, 2021 coming soon slide. And Balchun has tweeted, the level of engagement on this tweet is insane. It's just an event promo slide from the company handle. Most tweets from an asset manager get 10 likes if they're lucky. So this one got 800 retweets, 8,000 likes.

160 quotetes, God knows how many replies. And you and I were talking about this. I had a quick post about this. Compared ARC, which everybody says it's Tesla. Not really. I mean, Tesla is the biggest holding, but it's 10%. We compare it to like Ron Barron has like 40% of his fund in Tesla. And if you look at the growth in assets, Barron's at like 600 million or something like that and arcs at what? 20 billion. I don't even know what it is today. They're more of a brand than an investment company at this point. Their brand is off the charts right now. So people want to poo-poo sales. Listen, there are some bad ways to sell yourself and to promote yourself. But that's the name of the game. That's the business we're in. Yeah. And they're very good at it.

They've said, like, we're the next step, tech, high growth. We know what's going to come next. That's their brand. And people love that right now. You think DoorDash is going to start doing physical delivery of video games? Here's the crazy one of the week that I saw from Goldman. of DoorDash. Food delivery has received almost a quarter of VC funding over the last decade. So, they broke funding down to venture capital from 2009 and through Q3 of 2020. 60% of it is from food delivery and ride sharing in terms of the money that has poured into venture capital. Autonomous vehicles is like 10%. Isn't it bizarre that you would think self-driving cars are coming, that that would be where all the money is going. But no, it's food delivery.

You know what I think this is? I think it's an extension of Uber and Lyft. They saw the success there and thought they could duplicate it. I wonder if with the benefit of hindsight, they would have made those big investments because this is proving to be a challenging business model. Although, again, because why not? Look at the stock of DoorDash. Is that an all-time high? I'm just guessing it is. Yeah. It's just a weird way to think about the fact that technology is changing the world, but, oh, great, we get our food delivered to us now. Thanks. I don't know if I've ever been more excited for like tomorrow in the stock market. I just can't wait to see what's next. This is true. So, Netflix, Wall,

There was a story in the New York Times. For the first time, they're not issuing any new debt. They're good. Their cash flow is sufficient. It really is incredible. They did it. So this is from the story. They needed to borrow billions to scale up before Amazon and HBO and Disney entered

the arena in a meaningful way. And boy, did they ever. Amazon went all in. By the way, Amazon Prime, the movie selection is really like knocking it out of the park. Really is underrated. Just in the past few weeks I've noticed a huge uptick. All right, HBO Max is here. Disney.

And meanwhile, Netflix, Is that an all-time high? So they said Netflix used to burn as much as $3 billion a year, and they would fund that with debt. Now they don't have to anymore. They don't need it for any more money. And so their cash flow from operations went from negative $3 billion in 2020 to positive $2.5 billion.

And this is why that EBITDA enterprise value chart you talked about earlier, this is why it's high because a company like Netflix grows into it, and people assume these other companies are going to grow into it too, and they'll win as well. That's what's happening. People are just pulling forward future expectations in these companies now. Yeah. Well, that's because of interest rates, no? It's a part of it.

It's a part of it. It's a part of it. Interest rates were 6% in the dot com bubble, though. So that had nothing to do with it then. Risk appetite has nothing to do with interest rates. I disagree. There's a difference between interest rates and credit, how much credit is given out in terms of lending.

You can have a dot com situation where interest rates are much higher. Those five or six percent for the 10 years. Yeah, we did. So that's why I'm saying that interest rates, can't be used to explain something like that. It's part of it. Part of it, yes, but not the whole thing. So the Midnight Sky was watched by 72 million people. I liked it. A lot of people didn't like it. I liked it. I'm going to watch it. Enterprise value to sales is like the metric that is at the 100th percentile. Interest rates are part of that. A huge part of enterprise value is

debt and companies are guzzling debt because why not? It's free. Does that mean I'm the only Fed truth here now? You seem to be jumping off the bandwagon here. I'm the only Fed Apologist left. I don't even know what I am anymore. I honestly, I'm so confused. It's hard to know. I feel like we could have gone another hour on GameStop today. What do you think? We'll run it back next week. So Netflix just crossed 200 million paying subscribers. That's just an incredible story. When you listen to all this stuff about how Blockbuster could have bought them back in the day, I still can't believe Carl Icon basically put Blockbuster out of business and gave Netflix the bump they needed. There's some good podcasts out there about this. Okay. Listener questions. listen to our questions. Go ahead. I'm a 37-year-old who just lost his job.

Sorry to hear about that. I'm a pretty decent saver and have no debt. Eight months, the worst of living expenses is an emergency fund. When it comes to investing, I have 97% in stock index funds, give my time horizon. I dollar cost average. I max out my tax and manage retirement accounts. If there's left over, I put out a brokerage account. Here's a question.

I'm privileged enough to have been offered a severance package that will cover six months of expenses. Given that I'm now unemployed and the job market is soft, do I treat the severance as a windfall and invest it? Do I hoard the severance in case it takes longer to find a new position? position or split the difference and save half and continue to DCA the rest. What did you do in my shoes? You can take this one. That's tough break to be employed right now. If you're employed, even though you have the emergency savings fund, personally, I would not have the risk appetite to continue investing. I would hold on to as many dollars as I can. And if it looks like your job prospects are better than they are, you can always play catch up with that. I think you play it safe,

especially if a soft job market in your industry. All right. No, nothing from you. You're right. I think that's a position where you're play it safe. All right. Somebody asks us about game stock, whether it's legal or not. The SEC has to be talking about this today. Any legal experts let us know. I just think personal opinion, I think that they're going to make an example of someone from this or try to.

They're not going to just sit on and let this continue to happen. Can I suit you for copyright infringement taking my Vuneck? You got it. What's your advice on the appropriate place to keep any money you are saving for a mortgage down payment? By the way, this is by far the most asking. question we ever get. I agree. I'm trying to see what's a variation in here. It's pretty much the same thing. I live in Boston. It's very expensive. We've been looking for about eight months and unfortunately have been

outbid on four different houses. I had a question about this recently from a young advisor that works at our firm. And he said, listen, I want to take a little bit of risk with this because it could be a few years. He said, what if I use like a target date fund for 20, 25 or 2030? So it has mostly bonds and a little bit the stock. So let's say you get a 2575 mix, something like that, where you're taking a little bit of risk, but you still have the majority in something that's relatively safe. I don't see the problem with that if you want to take a little risk and try to give yourself a little upside on something like this. I would like to see worst case scenarios. Yeah, true. Especially with rates where they are. I guess like what's the point of risking anything to get one, two percent a year just

make yourself feel bad mentally? And maybe that's a big component. We saved diligently for the last several years to put together a 20 percent down payment and transferred all the money to a savings account. So now not only do we not have a house, but we've also missed out on pretty meaningful gains that we would have made if that money was invested in the stock market for the last eight months, is a savings account really the only advisable option to store our down payment monies? And that's particularly tough today when not are just markets going up, but there's opportunities to make serious money. I understand that this is mentally tough. But I don't think my answer is going to change. Unfortunately, I think if you're buying a house in three months,

six months, you can't risk it. And especially if houses are going faster, and let's say you have your money and something riskier and it goes down and you can't meet your 20% down payment, then what are you going to do? So let's say that you take 5% and you go nuts. You swing for the fences because you think this is the right time to be doing that sort of thing, which clearly it is. But what if it turns on a diamond, you get out over your skis and I'm using an extreme example, but let's say you lose 50%. So now you've lost 2.5% of the principal you're going to be putting down in the house. What if you try and make it back, you're not telling your spouse and you dig yourself in deeper. Again, I'm making an extreme example.

I just don't see the upside. Yeah. That sounds like the plot of a bad sitcom. I mean, it's too important. That's my thing. It's just too important. I agree. All right. Recommendations. All right. So Michigan went live for online sports gambling on Friday. By the way, Stafford's leaving. Yeah, I don't care. I mean...

Nothing? I don't know. He was like a fantasy football quarterback. Does it really matter? I think that your organization ruined him. He was a good player. Yes, he'll probably be better somewhere else. Yeah, it happens to everyone. I wish Barry Sanders would be left earlier too and gone. So I did my first online sports betting. experience. I use the Barstool Sports app because I'm so jealous. They said any money you put in will be matched for their small business fund. So I said, all right, cool, I'll put a few hundred

bucks in there. That's through pen gaming. Yeah, so through pen gaming. It's so easy. I've never really bet on sports like this before. Always just maybe with friends or like a March Madness. Well, I've never actually done this before where I bet on games. So I bet on the NFC and AFC championship games. I won three out of four bets. I had the Packers. I lost that one. But then I bet it's insane how many things you can bet on. So I bet on Aaron Rogers over under on his yards. I bet over and I won that one. I bet the over for the Packers and Bucks. And then I took the Chiefs. How much more fun was watching the game? It honestly, it added a huge element. Watching the game just as a fan is like being in a Target Day fund. Watching it with action on

the line is like being short game stop. I guess that kind of makes me get the fantasy football thing where it gives an extra element of. Oh, well, whoa, look is coming around. I get it. But I can see if you were a degenerate gambler, how you'd go down the rabbit hole. I can't really see myself betting on like a Tuesday night NBA game, like in regular season, but I'm definitely going to make a ton of stupid bets on the Super Bowl. I think it's going to make it more fun. Like the prop bets, I'm going to do a whole bunch of them. It's going to make it 300% more fun. And you can bet on the first play of the game will be a runner a pass. There's so many different bets you can make. I can see how people going down the rabbit hole, not only degenerate

gamblers, but people just for entertainment value. It made the game more entertaining for me to watch. Do you know the term is now Degens? I didn't know what that meant. I had to Google it. Oh, really? Okay. But yeah, I still think that might be huge online sports gambling. I wanted to say, speaking of like the old young divide between Wall Street bets and I guess Wall Street, I feel like we saw a very similar thing play out yesterday in the NFL. When Matt the floor kicked a field goal, the entire internet was like, wait, what? I could not believe it. Yeah, my joke was Matt LaFleur has been in cash since March. That was an incredible joke. And then the same thing happened in the Buffalo game.

When you're down, double digits to the chiefs, and you're kicking field goals. And by the way, the coach of the bills and of the Packers are young coaches. They're both in their early 40s. Should the machines be the coaches? Yeah, they get in their own heads. I don't get it. Okay. We watched a movie this weekend, Edge of Tomorrow with Tom Cruise.

I can't believe I've never seen that. Everybody loves it. Oh, my. I think that's one of the most underrated action movies of the 2010. So where did you watch it? It was on Hulu, I think. Tom Cruise, Emily Blunt, Alien Invasion. Oh, stop.

I'm in. Element of time travel. It's a great action. If you want to just turn your brain off and just have some entertainment, edge of tomorrow. I got to watch it tonight. I'm exhausted right now. GameStop has you done? GameStop has burned me down.

Pour yourself a drink. All right, one more. My favorite new television show in a while is called Dave. It's on FX and I've been catching up on Hulu. You're a big Hulu Stan. I really am. They've got some good stuff. there, especially shows. So it's an FX show originally and it goes to Hulu. It reminds me of

Louis. I know Louis C.K. has been like canceled into ether, but I used to love his show. Am I allowed to say? I loved Louis. His show is in then Atlanta. So if you like Louis and Atlanta, I feel like the FX shows have this certain vibe. And it's about this Jewish guy who wants to become a rapper. It's like a satirical rapper. And apparently this is semi-autobiographical of this guy who's rap name is Little Dicky, and I'd never heard of this, but he's apparently like a viral YouTube guy, so it's semi-autobiographical. Watch the first episode, and you'll either love it or hate it, depending on your sense of humor.

This is Dave, we're saying? Yes, two seasons. It flew through half the season this weekend. I think it is hilarious, and also, they have a whole episode on how his hype man for his rap concert says bipolar, and it's a true story, and that episode was, like, unbelievably good. It's one of my favorite shows I watched in a while, so I think it's either a love it or a hate it show, but I love it. All right, there you go.

Anything else? Nope. We gave some recommendations two weeks ago, and I wish that I gave a disclaimer. We recommended industry, and that was early on in the series. I wanted to pull that one back a little. Yeah, I really did like it, but I just kind of wish I gave. Normally, you don't give a warning for sex and drugs and stuff, but this was graphic and over the top. It was way over the top, too much for me in some instances. Well, not too much for me. Okay. I'm not approved, but I felt like, did they really need that? Was that necessary? That's the way I felt about industry. 10% of the show. I'm in for season two.

I'll still watch it, but yeah, it was a little over the top for me. All right. There's one Tarantino film that I haven't seen. Jackie Brown. I don't know how I missed it. You ever see it? That's one I haven't seen either. A little bit too long, more than a little bit too long. But it's Pam Greer and Samuel Jackson in the lead. And as a supporting actor who is way overqualified was Bobby Dee. Oh, really? I don't know who's in that. Is it good? Bridget Fonda was in it. The main guy, one of the main guys is definitely a, oh, that guy. I don't know his name. I mean, it is certainly worth watching. Okay. If you're not a Tarantino fan, it's two hours, 40 minutes, so it's not for

everybody. Amazon. Amazon. It's definitely worth watching for you. All right. Lastly, I haven't felt this way about something in a long time where I basically texted like 10 people I know. You got to watch this. Just trust me. And I think that everybody will have a similar reaction where it's a one-man show. It's called In and of Itself. It's on Hulu. It's a one-man show. It's a one-man show. It's a one-man show. I don't want to ruin anything. I just don't want to ruin the experience for everybody. But I cried. I think it's one of those things that probably, if you feel something, you're going to cry. And it's weird because you're not exactly sure why you're crying, but it's a combination of the way that he makes you feel, the way that the audience

makes you feel, and the way that you feel. It was directed by Frank Oz, who was the voice of Yoda and was big in like Muppets. So anyhow, it's as strong a recommendation as I could possibly give. And maybe, Ben, if you watch, we'll talk briefly about it next week. I'll go to look. All right. Again, thank you to Interactive Brokers. Interactive Brokers charges U.S. dollar margin loan rates from 0.75% to 1.59%. Rates are subject to change. Learn more at IBKR.com slash compare. Animal Spiritspod at gmail.com. Michael's got to go, take a nap or have a drink after that one.

We'll see you next time.