Animal Spirits Podcast - Living Through History (EP.171)

Episode Date: October 7, 2020

On this week's show we discuss how crazy it is to live through a period of time that will go down in the history books, why this recession has been devastating to working women, the next Robinhood, the IPO boom, dividend stocks as a bond substitute and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

Welcome to Annal Spirits with Michael and Ben. Well, that was an interesting weekend. I mean, you never know how history is going to judge things now because people could look back differently, but... If somebody told you, let's say January 1st, that come October, I mean, 30 days before the election, that the president of the United States was going to be in the hospital from getting sick by a global pandemic, what would you have done? with your investments.

That's a good question. Junior gold miners. Yeah, gold square. Three times leverage. Markets up one and a half percent today. Yes, I got some stats on this from previous that might help. But I think this weekend and that Friday, Saturday, these are going to be the times people revert back to that mid-March period where we had Tom Hanks and his wife get it and then the NBA.

The flashball moments. That was by far the biggest shock to the system. I feel like I can't even be shocked anymore because of the first. what's happened this year. This weekend was surreal. But the news came out Friday, right? It was Friday. By the way, not that you would necessarily expect, on January 1st, if you had that news, you would expect the market to be down 50%. It's not a gigantic shock that the market didn't crater off of this news. All right, here's some historical ones, because I don't know what else we can talk about besides the stock market implications, because everyone else is already covering everything

else. So Eisenhower had a heart attack in 1955 in September. Actually, the next day, the market opened, it was down six and a half percent, which is surprising. Over the next two weeks, it was down 10 percent in total, including that 6 percent. And he wasn't released from the hospital until November. So he was there for a while. And honestly, the 1950s are probably one of the more underrated markets in history. Best decade. Never fell 20 percent the whole decade. It's the only decade that if you look at like calendar decades, it started at the low of the decade. Like it was never lower, I don't think, and it ended up the high. Yeah, that's an underrated one. People always point to the 80s and 90s, but the 50s was right up there. When Kennedy was assassinated,

the market actually opened up 4.5% the next day. And stocks finished up the following year in 1964, up 15%. Not taking anything away from that, but when the news came out, the market tanked. But again, the next day it came out back. When Nixon resigned in 1974, the stock market was already down. I guess it fell a little less than 1% the next day. I feel like that should be thrown out, though, because the market was already getting creamed. He resigned. It fell another 6.5% the next week. And from the time, impeachment process began until they resigned, S&P was down like 13%. But yeah, that was already a bear market. When Ronald Reagan was, they had assassination attempt on him in 1981, the stock market was down 30 basis points the day it happened. And it was actually up 1.3% the next day it opened. And from the day he got shot until he got out of the hospital, two weeks later, the market was flat. So the market didn't even flinch when the president was shot at and there was an assassination attempt made on his life. forgot James Garfield, 1881. Oh, there was no doubt. But if there was... Wait, Robert Schiller's data goes back to 1871, so we could have looked at that, but that's a

monthly basis. Anyway, there's no point to these things, just that I guess maybe the point is markets don't always make sense for these things and trying to gauge that is just... This is not a market story. I guess it could have been if a market tank. No, it's definitely not. That's the thing. In the headlines, they try to make it like that. After today's done, the headlines will say, we're taping the son of one day. It'll say stocks are up today and on news that President Trump is feeling better. That's what it'll say. Some people will think that. Of course. I don't know if I was talking to you about this or somebody else, but they were talking on Friday that the tides might be turning, that people are getting comfortable with the Biden

victory. And obviously, this is speculation. But there was such an internal reversal in the markets on Friday. Were we talking about that? No, I don't think I've ever uttered the phrase internal reversal before, so that definitely wasn't me. I just said that. I definitely did not say that on the phone call. But anyhow, the point is that could have been a one-day head fake. But imagine like how quickly these things get repriced. Yes, that's another reason why comparing it now versus back then, there was no algals back then that could take a headbine and react on it instantaneously. And that's why it's almost surprising that Eisenhower, when he had his heart attack, it was down 6% because the overreactions didn't make they're quite as bad back then.

I'm going to do this backwards. I'm going to talk about my recommendations right. now, only because they're both, I wasn't going to, but since we got into this, they were both specific to today. I watched Contagion, which was a very good movie. It means a lot more now than it did back then when it came out. Certainly. At one point, they said, in a few days, this will be tweeted and YouTubeed all over the planet. When did that movie come out? 2011? 11, yeah. Okay, so in a few days, more like in a few nanoseconds. Right. I was shot that they spoke about social distancing. They nailed it, right? I'm sure that social distancing, the phrase was not born in that movie, but...

Yes, it was very prescient. Yeah, I like that one. I also watched All the President's Men. Have you ever seen that one? No, Robert Redford. Yeah, I knew nothing about this. Did you know, we're showing how young we are, I guess,

that that was based on the book, that movie was based on the book by Bob Woodward and Carl Bernstein. Yeah, of course. You didn't know that? I had no idea. Okay, yeah. That it was based on that book. Actually, William Goldman won an Oscar for Best Adapted Screenplay.

The movie was about Watergate and Woodward and Bernstein, and it was basically a spotlight 40 years ago. Yeah. I've actually never seen the movie, though. Okay. I've lost the ability to be shocked by 2020, but I don't know if this is a shot in the arm for the country because didn't you get the feeling that at least I was, I feel like we had gotten to a groove with this stuff where, yes, we're used to wearing our face masks to the store and being more careful, but you were getting used to things and things were opening back up. My daughter at her soccer games. They gave out team masks this year. So she has a mask with her team logo on it. And it's kind of like people just got used to it. This seemed to me like a reminder to a lot of people that, okay, this thing is still really, really here and hasn't gone away yet. I was watching last night, Spolster's post-game press conference.

I don't know why, but just seeing him in a mask, he was just like, it just goes to show how quickly we adapt. Seeing masks, it's not shocking anymore, obviously. That went away a long time ago. Part of life. And maybe fiscal stimulus is part of life too. because they're probably going to need to do another one. I think people have come to realize that. So there was another jobs report on Friday. It's starting to lag a little bit. The numbers

coming in not quite as strong because I still can't believe that the market has been so strong in the face of not getting another fiscal stimulus bill, which I would have assumed would have been passed by now. It sounds like they're finally going to. But the numbers on Friday were not that great. So this is from Bill McBride, always puts these numbers together. He said, according to the BLS, there are still 2.4 million workers who have been unemployed for more than 26 weeks and still want a job. It's just a massive number of people. 2.4 million. Yeah. So obviously, things in the employment, although they're better, are still a long way to go to get back to normal. And one of the charts that he shares is percent of permanent job

losses. And he compares to the recession in 2007 in 2001. And the permanent job losses are piling up much quicker than they did in the previous ones. These must just be businesses just close. I don't know how exactly they compile the data, but... And other people have been furloughed and expect to come back, possibly, that makes sense. Yeah, it's obviously not over yet. And we talked last week about, is this a normal recession for the people in the really low end of the income scale to get hurt? And luckily, the Washington Post did a story just like this. And they said, no other recession in modern history has so pummeled society's most vulnerable. And they show this chart and they look back at the 1990 recession, which was actually nastier

than people remember, 2001, 2008, and then this one. So they broke this down by four different income group's highest, second highest, second lowest and lowest. I guess you forget in the 2008 recession, obviously there was a lot of highly paid people who took it on the chin because so many bankers and finance people were let go. The lowest earning did do the worst there, but it was a very thin margin. 2001, it was the same. 1990, they were all kind of the same. And now it was just this huge divergence between the four groups and especially the highest to lowest. So this is, especially for the lowest income earning group, this is the worst recession possible for them. We've talked about this many times about the fact that income inequality is only going to get worse from this.

I just think the anger from this thing is going to be so much worse coming out on the other side. Remember how angry people were following the great financial crisis? It just sort of stayed with us for a long time. Occupy Wall Street. Yeah, all that stuff. I don't know what the reaction is going to be, but people on the low end of the earning scale that have been held back for a long time as it is, just having it the worst here. And the other group as faring relatively poorly, this was in the last. job report is women are dropping out of the workforce like crazy. So CNBC had the number. They said

860,000 women dropped out of the labor force in September alone. So it looks like of the 1.1 million people ages 20 and over who left the workforce, 80 percent were women. And it obviously makes sense why that was the case because kids are out of school and women have to help take care and child care. And so unfortunately, this was almost predictable of what's happened. But this pandemic is just not happening the same for a lot of people. And a lot of people are, it's a lot tougher for them than it is on certain groups. So they spoke about how obviously child care is a biggie. And then a lot of the hospitality and other industries that have been especially hard hit tend to be majority employee women. Is this another case for maybe doing more for child care?

Yes. For the government to get more involved. Yeah, it'd be nice if people had more options because obviously a lot of people that this is the only option. One of our colleagues, Emily, was one of our advisors, said to us the other day, she said, do you think we could see more people moving home because child care could be back to their hometown wherever their parents live? And I didn't really think about it that way, but it makes a lot of sense. And I've heard many anecdotes, and I've heard a few people at my daughter's soccer games and talking to friends. I've heard multiple stories of people who said they moved here to Grand Rapids to be by family from New York. Okay, since New York wasn't opening schools, we've enrolled our kids in school here,

and now I think we're going to stay. So they moved back by the grandparents. I think that makes a lot of sense. If you have no other options and you can work from work remotely and child care is ridiculously expensive, obviously that's putting a little more burden on the grandparents. But if there's no other options, I think people, that could play a role in people moving these days. Yeah.

I think that makes a lot of sense. Again, just another unfortunate and almost unfair aspect of the crisis that women are being asked to shoulder so much of this burden. Do you think that people are waiting for this to come to a head? head. How does this end? Doesn't it seem like this is just going to be a defining story of our generation? How does this end with a revolution? I don't know. The whole inequality thing. With Amazon being broken up, like, how do we fix this? People will say, like, there's certain policies you can implement, and this seems like one of the things that trying to shove this all back in

the bottle is how do you do it? You can't just snap your fingers and make an easy policy that's going to make things better for people. This is stuff that took decades. in the making to get here. And now this is making it worse. I don't see how you can force that back in. People say, well, tax policy. I mean, if the rich all had to pay 10% extra taxes, is that really going to make that much of a difference in the grand scheme of things since they hold all the financial assets anyway? I don't know. I don't know. This is one of those areas where I really haven't heard any good answers. I mean, also, the thing is like to state the obvious, we're not policy people. So I don't know. I have no idea what the answer is.

This is like years and years of policy in the making. It's not like it can point to one policy action and say that's one that did it. Part of it is the way this system is set up too. Unfortunately, that's a capitalist system. There's going to be winners and losers. But I mean, how about this for the simplest solution, especially since so many people on the lower service end have taken out of the chin from losing their job or having to continue to work? I guess was it Switzerland this week? They instituted a $25 minimum wage. Make that federal mandated $15 minimum wage. instead of trying to bring the top people down, bring the lower people up somehow. Or keep some of these higher unemployment payments or something, keep some of this stuff

that we've tried in place. And then the pushback you have is like, can Walmart afford to pay $15 for their employees? Yeah, they can. But a lot of small businesses might push back and say, if I do that, I'm out of business. Yeah. That's the thing. There's no way to save everybody. I mean, this is what it is.

All right, Social Security. Okay. So this was at from MarketWatch, this economist, Teresa Gillarducci. The professor at the new school in New York City, I guess she's a nation, national expert on retirement. She says half of Americans 55 and up will retire in poverty or near poverty. She said our data is showing that because of the COVID recession, about 50% of workers over the age of 55 will be poor or near poor when they reach 65. By the way, this is another thing where it's like we're waiting for like a revolution, like we're waiting for the moment. But it's happening.

We're living in this moment. You know what I mean? It's not like, oh, what happens when in 10 years from then when people are retiring, they have no money. It's happening today. We've said this statistic that I always say is not true, but it is true that 10,000 boomers are retiring every single day. People are retiring today with no money. It's not like it's a tomorrow problem. It's happening right now. And by the way, that also goes to the point of how weird this whole thing is to know that you're living through history. You will tell your kids who are too

young to remember it, certainly the little ones, what this year was like for everyone. I assumed from my life, 9-11 and the 2008 crisis would be those things that I look back on and say those are the ones that I remember vividly, and those have been completely pushed aside for this pandemic, don't you think, in terms of stuff that's going to stick with you? It's just different because this is gradual. It's our way of life, whereas those were like one-time horrifying flashbulb moments. So she says a person who's 65 will be near poor or poor if they're living on less than $20,000 a year. And guess what? For those people, that's Social Security. And so this is one of the reasons why I say Social Security will never be able to go away. Because for so many people, that is their lifeline. That's why we had all these breadlines in the Great Depression because there was no backstop like this. So Social Security, while not perfect, for a lot of people, it will help keep them afloat, whereas in the past they would have been on their own and good luck. So this is another one figuring out the retirement crisis. It's going to get into.

interesting in the years ahead. Yeah. This was one hell of an article. So there's this company called E. Toro, which allows speculators to piggyback and copy other people's trades. Somebody wrote, Think Facebook meets E-Trade. Read the first two paragraphs of the lead here. It's perfect. Jay Smith isn't a professional money manager. He's just a 32-year-old living in southern England who spends his days playing the stock market. But Smith, better known online as J. Nemesis, drives the investment decisions of more than 21,000 people with $40 million in assets who copy his trades on a digital platform called E. Toro. When he loads up on shares of FedEx, so do they. And when he shorts the NASDAQ index, they do that too. So how does this work?

E. Toro pays people like, what's his name, Jay Nemesis. They pay him two and a half percent of the assets that follow them. So this guy, Smith, is potting a million dollars. His portfolio is up 62 percent this year. So he's getting a ton of people following him. This sounds like a more organized version of Reddit to me. You can follow someone's trades. And I'd never really heard of this before, but I guess you can basically hit a button and say, I want to follow the trades of these five people. To me, this sounds super fucking dangerous.

Oh, yeah, definitely. Because especially in the trading game, there obviously are good small investors out there that you've never heard of. But there's also a lot of them who got extremely lucky. And you're going to hit a button and follow someone who got lucky for 18 months. Right, exactly. see later. Yeah. Holy moly. This is a disaster waiting to happen. So this is not available in the United States. I don't see how we allow this. They said that they're going to try to come in here in early

2021 and challenge Robin Hood. I don't know. Maybe this is the kind of thing. It worked there, but it's hard to implement somewhere. Like if Robin Hood did this, don't you think someone, there's got to be well-known people that they would follow? But yeah, I'd be interested to see if people actually take hold of this because, and this guy's making a million dollars a year. The incentive for the people to swing for the fences is obvious. Just take as much risk as possible because if you get lucky, then you can shoot up the scoreboard. But then the idea that there's going to be new whales who follow these lucky people is scary. And honestly, this is not just these traders on platforms like this. Even the best professional investors in the world have

periods where they get kind of lucky for a while and then fall off the face of the earth. To follow amateur traders into this stuff, yeah, you're right. This is, I'm sure they have as many lawyers that they need and as much paperwork and legal fine print on this stuff. But, yeah, there'd be people who are probably going to get harmed investing in this kind of stuff. It was a wild story. The start of the day from Nate Karasi, U.S. video game sales are forecast to go up 19% this year to $45.6 billion. For comparison, the U.S. film box office peaked at $11.9 billion in 2018. Wow. Were you ever a video game guy? I could see you being a big video game guy.

I was. I was not like huge into it. I played Zelda, I guess, in middle school, and then graduated to Call of Duty. But I was never like hardcore. What was that game with, oh, Halo? Like, I never played Halo. I haven't played in years. I never got into like the... See, I don't think I got past Mario Card on Nintendo 64. Never really did it for me. Maybe kind of like fantasy football. It's one of those things that never stuck with me. The video games are so addicted. I feel like you look up in like four hours this past. I totally get the idea that this is an enormous market. The size of the market is astoundingly large. Yeah, I mean, you think about games like Fortnite. Isn't that what the Netflix guy said, their biggest competition besides sleep is something like Fortnite that takes viewers away from Netflix? Yeah, it's pretty wild.

Here's a wild chart from the Wall Street Journal. They're showing the number of stocks up at least 400 percent at some point in the first nine months of the year, and 2020 looks similar to the dot-com bubble. in this respect. So it looks like 25 stocks and it hasn't really been over 10. It was over 10 once in 2009 maybe, but since 99 and 2000. Pretty crazy. That's a good one. What a wild year. That's from a certain point. So that would be assuming like Wayfair was up 700% from the bottom. Right, right. Okay. No, no, no, no. No, no. That's not what they're showing. They're showing stocks that were up at least 400% in total, not just from like a bottom. I think year to date, not necessarily

from their bottom. Either way. Yeah, it's a crazy stack. at decent businesses at fair prices on average are down 15% year to date. And decent ideas at absurd prices are up several hundred percent. Here's the thing you didn't have in 99,000. There's probably more stocks that are around 60%. You could offlay that the 400% down 60% for all the cruise lines and some of the airlines and stuff. Let me ask you this. So last week we interviewed Bert and Malkiel and he had a great answer on why markets are imperfectly efficient. why the prices obviously aren't always right. I don't know anything about Dick's sporting goods, the business, but this thing was at around 50 bucks before the pandemic. Obviously, its business model

was decimated. So it fell from 50 to 13. Okay, that makes sense, a 75% decline or whatever it is. That makes logical sense. Now the stock is at $62. Again, I don't know what they're doing, but how is Dix in a better position today than they were nine months ago? And again, that's only according to the stock, which my point is, I'm not saying this is obviously wrong. I don't know, but this seems nuts. Yeah, you could argue that they're going to make a bigger push into online retail and e-commerce and that sort of stuff. But that's the kind of arguments you hear from people. They say, okay, Dix was worth 50 here, then 13, now 62, efficient markets. Ha, ha, ha, ha.

And Melchio's point was, no, the point is no one ever knows what the right price is, really. because opinions are changing all the time and expectations, if you're sitting at 13 and going, yeah, that price makes sense. And then you're sitting there at 62 saying, yeah, that price makes sense. No, maybe they all don't make sense, but people are constantly changing their expectations so much that it's hard to know which one of them is the right price. That's probably a pet peeve of mind. People that point to individual stocks doing crazy things and then laugh at the efficient market hypothesis. Right. Okay. If you would have done something about those prices, then you can say, yeah, markets aren't efficient. If you're so smart, go on eatoro.

and make a million dollars a year. Yeah, with a really great username. Okay, so markets are rocking, and equity issuance is, this awesome chart from Beesbook goes back to 1999. So this is, equity issuance is at the highest point they've ever been at this part of the year. Holy cow. Miles had a good piece over the weekend, public markets of the new private markets. Yeah, I saw that that was good. Josh Brown had on his podcast on the compound last.

week, some IPO experts. And it is kind of crazy to think about the fact that they're doing this stuff without having the road shows. And obviously the SPAC stuff is growing. But anytime this stuff happens, we get these immediate comparisons to 1999. But for years, we've heard about the fact that there just aren't enough public companies. It's crazy. No one wants to go public anymore. Everything's saying private. And then we get all these flush of IPOs this year. And everyone goes, oh, this is crazy. Way too many IPOs. So in some sense, you can't win. But the fact that all these companies have gone public without doing those road shows and going to all the investment banks and it's just happened and markets have just kind of picked up the slack and just allow these

companies come in and value them. It's pretty crazy that you didn't need to have all that stuff you needed in the past to get a company to go public. The market just takes what it has and figures out the price and we move on and go with it, right? I mean, there is froth in the market when you agree that. Oh, yeah. Enthusiasm is pretty damn hot right now. I'm just saying in some instances you just can't win because there's not enough stocks and now there's too many stocks coming public. I don't see it that way. Even if it's the same people saying those things, I think they both have some validity. Speaking of private markets, do you remember the story from Business Week? This was two years ago today. It feels like an eternity ago. Sone tells Bloomberg Business

Week that he plans to raise a new $100 billion fund every two or three years. It was a big profile on SoftBank. Do you remember this? Yeah. That one seemed wild at the time. Yeah, that seemed crazy at the time. I tweeted at the time, this will not age well. And I wasn't exactly going out on a limb. You didn't have to be prophetic to see that one coming. How did WeWork not end up in a SPAC? They missed that window by what, six months, nine months maybe? If that would have happened and the timing would have lined up,

a SPAC would have taken them over, right? Don't you think? Yeah. And I'm surprised that he hasn't started a SPAC yet. The guy from SoftBank. Isn't that the perfect ending to this? I thought you were going to say Adam Newman. Well, Adam Newman too.

Yeah. They missed their window. They could have had that. This is a killer statistic from Beespoke. Another one. It's hard to believe that the last 12 months for the S&P have been better than the 12 months before that. Let that proverbial sink in. Isn't that nuts?

That's a good piece of trivia. I wouldn't have figured that one. Yeah. And it includes a 34% peak to trough drawdown. I mean, unbelievable. Yeah. Well, when you put it that way, holy shit. Yeah, not bad.

Okay, so Jesse Livermore had a quick thread. this week. By the way, can you call it a thread if you don't do that one little arrow pointing down like this? Time for a thread. Finger pointing down. He also didn't do one out of. Okay, time for a thread. Two fingers pointing down. So he did this really great breakout of components of different country stock returns. And he did the U.S., Japan, Europe, and the UK. And he broke him out by growth value and then just the core, which is the whole market. He looked at over a bunch of different time frames where I've never seen the chart like this before, where he shows the return, and then he color codes it to show how much of it was from growth and income, basically the fundamentals.

Fundamentals. So, jinks. Yes, the difference between those two would be multiple expansion. And he did a bunch of different time horizons. Then he did the latest one, which is 2017 to 2020. And I think he did it through August. And he shows U.S. growth stocks, of course, killing everything. They're up like 21%, 22% annualized since 2017.

But basically none of that has come from fundamentals. That was kind of surprising to me. I mean, that's because you're looking at the group as a whole, I'm not just the five biggest or whatever, but basically all of that growth in the last four or five years has come from multiple expansion. His point was, eventually this is dangerous because there was fundamentals before,

and now it's just multiples going nuts and people repricing these things, which doesn't matter until it does, but the way that he drew this graph, it tells a really good story if you want to look for it. We'll put the thread of the notes, But he ended it with saying, to put the point bluntly, I think we're being collectively gaslighted by the price action here and by these irresistible stories of permanently altered

competition immune, hyper profitable future landscapes, kill COVID and this segment is going to have problems. Maybe. I mean, this is like a growth value thing. By the way, kind of similar topic. Has there been one value investor through this whole thing that's gone? You know what? You're right. It's done. I'm out. Has anyone like retired from value investing and said like I'm giving up on it. Remember the story a few years ago, trend following no longer works or something along those lines? Yeah, it happens. I have not seen any value investors throwing the towel. Okay. Well, maybe it's time for pensions to throw in the towel on investing in hedge funds.

There was a story from Brett Aaron's on Market Watch. This was ugly. So the MTA in New York, the public transportation has a $5 billion pension fund roughly. And they had $330 million invested in this fund called Structured Alpha, and it fell 97% this year. And the kicker was that still 3% left. It was sold to people as an all-weather fund, which is pretty good. Blue Cross had 2.9 billion in the fund. Lehigh University had 62 million. Arkansas's teachers pension had $774 million that they lost. This is one of the reasons I think it's so dumb to look at hedge funds in terms of risk as their volatility. People look at, say, like, oh, well, investing in hedge funds gives you lower volatility.

I've seen stuff like this happen so much more often in hedge funds than anywhere where a fund shuts down or it gets destroyed because of the bets they made or someone decides to retire and spend more time with their family. This is the risk of investing in a structure like this, is that you just get totally crushed for some unforeseen risk that has nothing to do with volatility characteristics and sharp ratios and beta, gamma, whatever. This is like the risk that you can't quantify when investing in these things.

Man, these are huge losses. So the MTA had $330 million invested in the fund. Don't you think you should go into the penalty box? Like, if you lose 97% in the hedge fund, your whole hedge fund allocation is frozen and you're done investing in that asset class for 10 years. That's at the point where you go, all right, we're not good at this.

Obviously something we missed. The Arkansas teacher, Arkansas teachers lost $774 million. If you are a teacher in that system, how absolutely livid are you right now? Yeah, or do you even know? Because you're going to have to probably, guess what, increase your contributions to this pension fund in the years ahead. I mean, pension funds in most cases are screwed anyways, but they're not helping themselves. They're making things worse. But it's not all hedge funds. Obviously, long short, typically doesn't have these blubs. It's always these sort of things, these structured alpha things.

I just love that alpha was in the name. That was like the kiss of death. Yeah. The funny thing is they said the hedge fund firm that's being sued, of course, by these people said, nope, what we did was fine. No big deal. Yeah. All right. So things are getting crazy. So this is from this Zumper Rent report, which I think we've mentioned before. Year over year, San Francisco, one bedroom apartments, down 20.3%. That's a lot. That's a big number. That's a lot. And I mean, it's probably still three grand for a studio or something there. But again, this is so good for young people that if they want to move to one of these cities, and I've heard anecdotal stuff people talking about, they're giving away like three

months for free in New York. If you come and sign like a year lease or something. It's like reverse geographic arbitrage. Leave the suburbs and go move to San Francisco. Yeah, move out of your parents' basement in the suburbs and go to San Francisco. Again, I think this is like one positive for young people here that it will finally. be a little more cost-effective to live in big cities, even though it's still probably ridiculously expensive. There's an article in the journal, How to Think Long-Term with Near Zero Interest Rates. And one thing that I plucked out that sort of blew my mind, credit card offers are recovering. Lenders mailed out about 99 million offers in July to potential

customers up from 57 million in June. 99 million. What? 99 million. Who is still, and apparently the answer is most people, who still gets a credit card of the mail? And they're like, oh, yeah, yeah, yeah, I need this. You put me on to this book, A Piece of the Action by Joan O'Sara. What was it published in the 90s, I guess, early 2000s, a whole chapter on the history of credit cards. And he talked about how that's how they grew credit cards initially. But at that time, they mailed people out actual credit cards and you'd call and you'd tell them to turn it on, basically, and you're ready to go. It's wild to me that that stuff still flies as a way to get people to use credit cards. You just mail them out. That's still one of the strategies.

And obviously, it works. If you could, don't you think if you told the post office, just shut my mailbox off, would you really notice anything different? I mean, maybe once a month I get a piece of mail that's useful, a bill or something. Other than that, everything is electronic. Speaking of, I sent a piece of mail across the contrary, an important piece of mail. And I should have known better. But it took a full two and a half weeks to get there. And I think thought it was lost, obviously, and I was like, I'm such an idiot. I should have just gone to UPS and paid a little bit of money for it. But. So you could track it and.

Yeah, but the post office system going to shit, it took two and a half weeks for a letter to get where it needed to go. Yeah, that's a while. I don't know. Is that possible in 50 years? People look back and say, do we still use the mail? I don't know. Is that possible?

Not possible. Everything is electronic? You don't think so? Everything could be scanned and sent to your email? Everything? No. Okay. All right.

Timestamp. Fifty years, post office doesn't exist in terms of bringing letters to a mailbox. All right, listener questions. This came in about Malkil. All respect to the man in his legacy, he has done more for people's portfolios than almost anyone in the industry. That being said, I just can't kind of board with the idea of using dividends to chase yield instead of fixed income. Maybe a diversified dividend DTF could work, but an example of technology company like IBM terrifies me. Byrne Malkiel, we asked him about bond substitutes. And he said he likes blue chip stocks that pay consistent dividend as a way to think about it. I agree that reaching for yield, obviously dividend stocks are not bonds. But I think you have to reconsider some of your previously strongly held opinions in a world where you're losing

money to inflation in bonds. I mean, a change in expectations doesn't have to be any change in strategy. But if you're not at least thinking about changing your strategy, then you're not paying attention to what's going on. So this person said, I just want to be one more part. The stock price, I never understood dividends anyway. The stock price is adjusted down by the dividend amount. so your net worth remains flat. I'm interjecting here. That's not always in theory. Yeah, that's in theory. That doesn't happen in practice. And maybe on that one day, all you've effectively done is taking a mandatory distribution, which gets taxes on an income instead of capital gains. You could do that on a modern

brokerage account. Someone explains me why dividends are ever a good thing because I just don't get it. Forget about the fact of the rationale for dividend growth and the stability and whatever, whatever. I think from a psychological perspective, I don't think I know that dividends, I understand mechanically, mathematically, after tax, I get it. But psychology is more important than that. People love to see their dividends coming in. They can hang on to a portfolio of 30 blue chip names, Coca-Cola, Verizon, AT&T, whatever, when shit hits the fan because they know that their dividend is coming in in 90 days. And I said to you last week, if you can separate out just, obviously, your investments are always thought of in a total return. So you can't just look

the yield and assume that's going to be your turn because the price of the underlying fluctuates, too. But if you could, especially for retirees, think about this yield stream coming in and dividends are far more stable than something like buybacks or earnings. So dividends are very stable if you have a diversified portfolio of them. If you're just looking at it for the yield coming in, if you would ask me this seven years ago, I said, no, that's crazy. Now, I think it's not that crazy. I don't think it's that crazy either. Also, he wasn't suggesting reaching for yield because, yeah, If you're going to buy a portfolio of stocks that are yielding 8%, good luck with that. There's a difference between, yeah, blue chips and MLPs or something, right?

I'm making this up. Pepsi's yielding 3% or whatever. There's a big difference between that and MLPs. So I don't think he was suggesting reaching for yield. All right, what else we got? Work for an RIA, want to diversify my finances. What do you think about buying single family home as a rental versus investing in equities? This is another one where in the past, I would have said, you're nuts. These two are not in the same ballpark, idiosyncratic, risk when you're buying a rental. Where interest rates are now, if you're willing to deal with those idiosyncratic risks and all the headaches that come along with owning a rental, I don't think it's the worst thing in the world. But I don't know that you can really compare it to equities.

I think it's a little bit of different comparison. But I don't know. If you're willing to deal with it, I don't think it's a bad idea. I think that this is more of a fixed income story than an equity story. And I understand that you work in the industry and we would like to diversify. So maybe that's fair. But you could probably, assuming you don't buy a lemon and you don't buy a house that blows up, you could probably get between 5 and 7 percent if, if you hold on to the house long enough. Because as we've discussed many times before, the cost involved are extreme. And you need time to make that up. Yeah, if you're willing to invest in something that's illiquid like that and it's long-term money, with where rates are right now, think about

it, if you're borrowing at 2.5%, 2.7%, if there's any inflation, and then you take the tax breaks, on a real basis, you're borrowing for nothing. Now, that doesn't count the cost involved and all that stuff, but the borrowing rates right now are so low, I think that changes the nature of this question a little. I agree. Not crazy. And again, something I never would have said a few years ago, but rates are so low, you have to take that into consideration. All right, one more. One of the first investment books I read was Howard Marks mastering the market cycle, which then led me did Ray Dalio and so on. Their teachings on economic cycles became so ingrained in my head that I can't stomach purchasing my first home towards what if they are correct and should be the end of an

economic cycle. In 2018, Ray Dalio was on record saying we're in the seventh inning, which feels like a lifetime ago. I've been sitting in a six-figure pile of cash since 2018 allocated for a home purchase. That's three years of waiting. My fiance and I are getting tired of waiting, and now she's demanding a better housing situation. She wants to buy. He wants to rent somewhere else nicer. He plans on meeting in the middle. I think this is one of the reasons. is that buying a house is not an economic cycle choice. It's just not, like, thinking in terms of I'm going to buy in the depths of a recession or I'm going to sell because things are topy, that's just not the reason you make this decision. What if you buy a house for $450,000,

you're happy with the house and you want to upgrade in 10 years and the house is $430,000. Okay. Right. That 10 years to you of memories made and... Ben's absolutely right. Now, the other side is it's really hard for this person. who has been waiting for three years to all of a sudden dump the money. So I get it. It's tough. This is why sitting in cash is so hard. In theory, it sounds like a good idea.

You're going to wait for the fat pitch. Well, we kind of just had it. I know it was quick, but it's poison. It really is. And everyone knows that you buy a house when we're in the fourth inning, not the seventh inning. I'm trying to picture this conversation between this guy and his wife. And I'm trying to picture me bringing up Ray Dalio and Howard Marks to my wife when we're trying to buy a house. And her thinking like, no.

But honey, it's 1937. Yes, again. This is why I just think it sounds so intelligent in theory. But again, if you would have told someone following the last crash that, guess what, during the next recession, when stocks are falling 35 percent, we were going to be living through a housing boom. Can you imagine telling someone that? No, of course I can't imagine that. This is from 2015.

Dalia warns Fed of 1937-style rate risk. I mean, he's been talking about if 2015 was 1937, And that's not good because now it's 1942. Ray Dalio and Howard Marks are billionaires. They probably each bought in six houses since 2018, and it doesn't matter to them. I think especially when it comes to your home, it's the most emotional asset on the planet. In trying to use the macro setup to make your time your purchase, I think it's just, it's never going to work. Yeah, you're not Muhammad O'Alarian.

I googled Ray Dalio in 1937, and one of the images, the first images that comes up is a chart that you've done. Do you remember doing this blog post? Yeah, probably in like 2015, right? You wrote this blog post in literally November 2017. Okay, and that was in 1937? Yeah. It was possible. All right, any recommendations?

Well, I already gave those two movies. So all the process of men, it was good, but like it was nominated for eight Oscars. You haven't watched a movie past the 1980s in like four weeks. You're doing all from like 40s, 50s, 60s? Because what is that, 1970s? 1970s. I watched Contagent. Okay, that counts.

So yesterday, Robin took the kids to her friend's house, who lives about an hour away. So I had the entire day, and I haven't done this in a long, long time. Did you almost freak out when you had all that free time, where you were like, oh my God, I got to do this, or I got to do this, or I never have free time like that on the weekends. And so it's weird if you do. I read for seven hours. I read this book called The Price of Peace. It is a biography on John Maynor Keynes, and it is spectacular because it's such a rich deep dive into history and how influential Keynes was and the World Wars and the birth of economics as a study. It's very readable, very, very readable. Do you think that if he didn't have Maynard in his name, that he'd be as famous as he is?

If he was just John Keynes. No, no way. I think the Maynard really did it. He went by Maynard. I thought about this from this movie. His friends called the Maynard. So Catherine Zeta Jones, if she was just Catherine Jones, not nearly as Poplar. popular. No. Phil Hoffman. That's true. Sometimes the third name really goes a long way.

So anyway. Tiffany Ambertheson. That's right. Okay. If you are into this sort of thing, it was sort of like the Economist Hour by Benjamin Applebaum. Remember how great that book was? Yeah.

It was another look at that. If you're not interested, obviously stay far away, but if you are, it's worth picking up. Okay. My recommendation from you from this week was buying one of those tall propane heaters for my house. I was looking for one forever. You told me where to get it from some, what's it called?

We'll link to it. Academy Sports. Is that a New York place? How did you find that? The Google. How was it putting it together? You're right. It took me about a half hour. It was pretty easy. You put a protein tank in there and we're gearing up for cold weather and trying to be outside more. And so we got this heater and it throws off some good heat. So the kids can play outside and come warm up. I have not gotten in the tank yet. So I need to go do that. They were all sold out to Amazon. And so finding it at this place was helpful. It came pretty quick. I watched the first two episodes of the new season of Fargo. It's on the fourth season. I actually watched the movie this weekend too again.

One of my favorite movies ever. I love the feel of that show. The first three seasons I love, and each season is its own storyline and completely unrelated to the prior seasons, but I'm cautiously optimistic about this. The first episode and a half, I was kind of like, Chris Rock as a gangster. I don't know if I buy it. He said it builds. And at the end of the second episode, my wife and I'm like, all right, we're in.

But him as the gang leader is, I just can't view him as, it's almost like picturing Will Ferrell playing like a mafia guy or something. It's like, it's hard, but it's tons of different actors, and so I'm cautiously optimistic on that. Finally, I heard Ken Jennings on a podcast last week, the Jeopardy guy. Yeah. Did you ever get into Jeopardy big time? Nope, never. Here's something I didn't know.

I got into it when Ken Jennings was on his streak. He was 29 years old when he did that. Wow. I thought he was like 40. Anyway, he's got a podcast, and I guess he's written a bunch of books. And one of his books is called Because I Said So, and it goes through like all the myths that we tell our kids or that our parents told us, science checks them and figure out if they're true or false. And so it's not really that great of a book, but it's one of those ones that you probably have on your toilet to read through and flip through when you're bored on the toilet. But here's some of them that stood out to me.

Again, I wouldn't really recommend the book, but just some of these stuff is interesting. So he talked about how there's this thing that, like, parents tell their kids, if you eat too much sugar, it's going to rot your teeth. Actually, that's not true. The only thing that cavities are a result of how long you leave that stuff setting your teeth. So if you have a bunch of sugar, but then you brush your teeth, sugar doesn't make your teeth any worse than anything else you eat. Good to know. here's another one. Sugar rush does not exist. So the idea that you give a kid a bunch of sugar and then he's on like a sugar high, that's false. He says that it's just that many of the occasions that kid eats lots of sugar like birthday parties and holidays tend to be chaotic anyway. And they said they did this study in 1994 where they showed mom and dads and they tried to pick their behavior as being hyper and the parents would blame it on sugar. They'd actually given all the kids a sugar-free placebo at the time. And it was just the environment that the kids were in. And let's see, I got one more. Okay, this was good. So it talks about how parents are scared to let their kids ride their bike to school because

all these bad things can happen. And Jennings put this out nicely. I thought this was a good idea for parenting. What if there's a 0.95% chance that a kid who bikes to school will get in a wreck, but a 95% chance that a kid who's not allowed to bike to school will grow up more tentative, complacent, lazy, and or unhappy because riding your bike to school is awesome. I feel like those percentages may not be that far off. I thought that was pretty good. That's good. Let me save us an email. I'm putting the propane space heater in the show notes in case you want to check it out. Yeah, assuming it's still there.

So it'll probably be gone, but... If you're in the cold and looking to be outside more, because what else are we going to do this winter when it's cold out? We're going to have to bundle up our kids and go outside, right? Yeah. Pretty much. Okay. We'll be back on Friday with another talk of your book.

And send us an email, AnimalSpirit the pod at gmail.com.