Animal Spirits Podcast - Long Global, Short USA (EP.251)

Episode Date: April 6, 2022

On today's show we discuss Elon Musk's new position in Twitter, Tiger Global, the scalding hot labor market, frugality is not always the way, the Animal Spirits Discord channel and much more.   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by Masterworks. Michael, we first had Masterworks on the podcast. I don't know. Two or three years ago at this point, Scott Linney's been on a few times. I think after our first podcast, we signed up. We bought some paintings, contemporary art. We're art aficionados now. I just had my first exit from a painting.

Not to brag. Totally to brag. Albert Olin had the doppel build, which he painted in 2002. Masterworks bought it in January 2021 for $1.9 million, roughly. just sold it for 2.7. That was a cool, 33% gain for yours truly on a net basis.

Or 2% after inflation. Hey, this is a real asset. I performed inflation rate by 25% or so. So this was my first exit. I got an email from them saying, hey, we sold a painting that you own, check it out. Money was deposited in my account.

What are you doing with the proceeds? You reinvesting? I'm probably going to reinvest in another piece of art. Now they got a tasteful. it because we go into these things saying five, seven, ten years probably, but obviously they got a good offer, offer they couldn't refuse. I'm a little jealous. I have not yet been part of an exit. It's kind of fun to see that and I got the proceeds in there. So anyway, if you want to check out MassWorks, Invest in Contemporary Art, maybe have an exit of your own. MassWorks.

And remember to check out massworks.io backslash disclaimer for more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Battenick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Rit Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions.

Clients of Rit Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Elon Musk is just the world's biggest troll. I think he took a 9.2% stake in Twitter as a troll move. I firmly believe this. It costs him around three bill. What's his net worth?

Isn't it $200 billion at this point? $300 billion? So one or two percent position? Yeah, big deal. I'm just kidding. Okay, $270 billion. He's been talking about Twitter a lot lately on Twitter. So it is crazy how rich he is.

That is almost throwaway money. That's 1%. You take a 1% position, basically. So Twitter searched like 20 some percent in the pre-market trading. Today, I don't know what's up now if you've looked. I'm always curious, like, how exactly does it happen? Like, obviously that's because there's orders being executed at that price. Got to be the algorithms that just hit the headline.

But it's like a $3 billion position for him. But what do the algorithm say? If Elon. You're right. Yeah. Anything with Elon? Here's the thing. So a lot of people are already, the funny thing to do on Twitter is

to post, Elon, here's what you should do to fix Twitter. You should add an edit button. You should do this. You should do this. Here's my takeaway. You could probably, for certain people who are especially like the power users, I'm sure that there's some things you could do that make it better. But is there really anything you could do to change like the DNA of Twitter to make it like a 10 times better experience if you just did these five changes? I don't know that there's much you can do. I think Twitter is what it is now. There's no going back from what it is. I have a completely different take. I don't think that you can necessarily change. the user experience, censoring, whatever.

I agree with you there. But from a monetization point of view, I think there's so much more they can do. And I'm not just talking about... From a business perspective, they could do it. Yes, I agree. Well, isn't that what matters? He's investing.

But the funny thing is, is that a lot of people today weren't thinking of it as, oh, they could make Twitter a better business. They were just saying, oh, you can make Twitter a better experience if you just do this one thing. Like, everyone has their one or two things. I think the Twitter experience is more or less set. But yes, from a business perspective, there's a lot they could do. I still don't understand how I see.

spend nine hours a day on Twitter and it has no idea who I am. Whereas Instagram, I'm on a fraction of the time and it knows me inside and out. Exactly. The ad experience, there's probably four things you tweet about all the time. Like, they should be giving you t-shirt ads, Nike hat ads, and Nicky's ads all day long. Very simple. And they don't do any of those things. I mean, this guy just loves to serve the pot. How bored do you think he really is at this point where he's got so much money? What is the motivation for him to do any of these stunts? Because it's a guy just love to serve the pot. Again, this feels kind of like a stunt, but I'm really intrigued with, like, he says it's going to be a passive ownership stake or whatever. But, I mean, what would be more surprising to you?

Elon Musk comes in, grabs a board seat, and changes the trajectory of Twitter's business, or in nine months he sells it all and says there's nothing I could do. Which one would surprise you more? I think he's out in 12 months unless, if I had to guess. I think he's probably the least bored person in the entire world. Did you see the video of the factory in Germany from the drone footage over the weekend? I don't think he's bored. I think he might be the busiest person on the planet. I mean bored from the perspective of I'm sure he's always thought he was going to be a successful

person but with the amount of money he has, what else can he do? So I think like a lot of the stuff that he spends his time on is stuff that it's just like he doesn't really have to care anymore. He's got an ungodly amount of money. Well, he is by far the richest person in the world at this point. I think a lot of stuff he's doing is he's trying to amuse himself is what I'm saying. For sure. So he's not going to fix Twitter for you. I think the first thing he should do is outlaw the stealing of memes. You know when someone goes, who did this?

But here's the problem. It's like the person who you stole it from, that's who did it. The problem is... That's a good point. If you steal a tweet, it should automatically at the person. They should build an algo

that automatically outs the first person to do that meme. That's a good solution. Here's the problem, though. He steals memes, so he can't do that. He's a stealer of me. All right, so Q1 is in the books. Let's get to it.

This chart comes... Great quarter, guys. Great quarter. There we did it. The best performer is the S&P 500, although actually, I bet you the Dow did better than SEP. The Dow's not in here. Well, value stocks based on your table here, value stocks outperformed. I'm sorry, you're right. The Russell 1000 value index, down just 1.2% on the quarter. And the Russell 2000 value as well,

also outperform the SEP. Down just 2.8% on the other side. Russell 2000 growth. Not surprised and we'll get into all this stuff, but down 12.7% and a lot, lot, lot worse for individual investors. Oh. I should say people that were selecting individual stocks. Not if they're buying energy names. I'm sure there's a lot of people doing that, right? I don't think they're in the growth index. That's the thing, though. Do you think that there will ever be a point where people come in and say, like, I'm chasing

performance, energy stocks are going crazy. Now I'm going to find it. Like, I feel like you can't get excited about something like energy stocks and the way that you can about tech or some other biotech or whatever it is. Yeah, I mean, I guess because just mentally, you must be thinking that what's the upside on an energy trade? If I absolutely crush it 40%. I'm making that up.

Whereas with some high-flying tech stocks, you can do 40% in a week. Speaking of bored, my dog is snoring up a storm. Oh, my goodness. You okay? Does your dog sleep in the office often? Can you, Sarah? Yeah. Dogs have the best life, don't they?

Just... All right, Bloomberg did an article on Tiger Global. Sorry. Not to like bring down the... But I'm getting a lot of... Now that I talked a couple weeks of my dog had passed and had we put down, the existential questions from my kids, especially my son is constantly asking about like, well, heaven and dying and well, if we all die, because our dog in dog ears

is 100 years old. So he thinks that everyone when they turn 100 is going to die. And he said, who's going to live in our house when we turn 100 and die? And saying, it's okay if I die because then I can go be in heaven with Ella. I'm not ready to answer these types of existential questions. yet. Are you? No, that's tough. No. All right. So Tiger Global. What does it say? They felt 34% in the first quarter. Is that what it was? Yeah. In the first court, look, you put a little more work into this than I did. But does not surprise you, is that a lag because of some private marks in their portfolio or what? No. So from the Bloomberg article, Tiger Global's particular undoing was sticking closely to tech companies, particularly China. So jd.com, for example, they put $200 million

into this company in 2019, eventually produced a $5 billion profit. So it's the fund's largest holding. So J.D. felt 20% last year or whatever, J.D. got killed. So they said, in hindsight, we should have sold more shares across our portfolio in 2021 than we did. That's from their investor letters. They were the poster child for overindexing, buying everything. And I think it's a little bit unfair. People are saying that, like, they're just spraying and praying and they're a levered bet on all this stuff. Mario Gabriel did a really good piece on how they're moving so quickly.

One of the things that they did was outsource a lot of their due diligence and gave them speed and the ability to be nimble. But anyway, what I thought was interesting was that since 2017, and I think it might even be worse if you started 2016, I'm sure you could pick and choose starting points to whatever. But from 2017 to today, they've underperformed the cues by a ton and even SMP 500. So since 2017, the NASDAQ, 19% a year, S&P, 12.7 a year, Tiger, six and a half percent a year. Ease. I guess I would ask, like, I honestly don't know.

Are they long only? Are they closer to the market neutral? I assume that they have like a huge long bias. I would assume to be long. I would assume people aren't paying Tiger to hedge. But that surprises me. So I asked this to you and Josh on Slack this weekend when we were doing some back and forth on this. Do you think the NASDAQ 100 is now harder to outperform than the S&P?

It depends on what it does. Right. But the big five are what, 40% or more or the big six at this point? If you're one of these tech heavy funds, that's your boge at this point. How many people are looking at like their venture fund or their private equity fund or whatever their crossover fund in saying, oh great, you guys did 15% a year. The NASDA just did 25% of year for the last 10 year, or whatever it is. But look at this chart. Even from 2017 to 2020, they were outperforming the NASDAQ, not by as much as I would have thought.

So this year that you said they were down 34%. The NASDAQ was down. what, 9% in the first quarter to the NASDAQ 100? It's not getting killed nearly as bad as some of these individual stocks. It's still holding up really well. To me, it seems like the S&P 500 on steroids, because it's all those same big companies at the top for the most part. So anyway, I guess the takeaway is like what we already know that investing is difficult for everyone. They have more information, more access to capital than probably anybody in the world or they're certainly on the upper end. They always have a wonderful PR machine as well because

they're in stories all the time. There's constantly stories written about them. All right. Moving on. Long global short USA, this chart comes from, this is the title of the chart, from Bank of America. What it does is it shows the U.S. divided by the rest of the world. And the chart has gone parabolic. It's really been going up for years, I guess you could say almost decades at this point. What can turn the tide? Is this just like our tech companies relative to everything else. For the last few years, it's been growth versus value in the U.S. has been the big back and forth and Ken Valley all perform.

I feel like stocks outside of the U.S. are now even more hated than like value stocks were for a while. Like value stocks have had the run. Because I mean, since 2008 especially, stocks overseas have just lagged horribly. We've given this stat in the past from 1970 to 2011. In U.S. dollar terms, the S&P 500 and the international. index, if or whatever, Aque, we're neck and neck over a 40-year period, like a dollar invested was even, and different paths, of course, but even.

From 2011 to today, the U.S. is up like, I don't know, 3x, 4x? Yes. You talked to the guy from Houston-Bortons, the other to Adam Parker on the compound and friends that he talked about, like, why would you own international stocks? We could just own different sectors within the U.S. I still don't believe that that's kind of the Bogle framework, too, I think, just own U.S. stocks because 40% of their revenue comes from overseas. I still think the idea that you get a diversity of not only like sectors and valuations and businesses, but investors in those

companies. I think that there's something to that. And obviously it's like you're getting a currency diversification as well. That's the thing. How many people thought the dollar was going to collapse, remember following 2008 because all the Fed actions and the dollar is only strengthened and that's part of it too. Usually when the dollar is going up, international stocks are going to do worse, especially from the U.S. perspective. And when the dollar is going down, that's when international stocks tend to outperform. If somebody is going to say, I just can't own international stocks, I'm not going to fight you too hard. I understand the motivation, but I can't get there. I think that we spoke about this, the other episode, diversification sometimes starts really badly. And it goes in and out

of favor, and this has been out of favor for a long, long time. I'm watching this show on Apple called Pachinko. And called what? Pachinko. Yeah, it's like a game in Korea, I guess. And the story spans two different time frames, early 1900s and then 1989 in Tokyo. And going into that 1989 period in Tokyo when Japan was on top of the world, and they were like 40 some percent of world equity markets, they were enormous. And now they're, I think, back under 10, that's like the risk. Everyone always does to us, like, now show Japan. Like, that's why you invest in international stocks is because of Japan.

I don't think the U.S. could have one of those. that was probably the biggest bubble of all time, but that's the risk that you're just the concentration risk of you just never know. That's why I diversify internationally. Yeah, I mean, if you could go back in time, there would be no reason to own international stocks, obviously, but we didn't know that. And now with all of these companies at multiple trillions of dollars is now the time to say, you know what, I don't want to own anything else about U.S. stocks. I don't know. It's also the biggest difference is just the technology sector. So if tech underperforms, I would imagine international stocks are going to outperform. That'd be my

guess. Okay, let's talk about the yield curve. So we've got inversions coming all over the place. I feel like there's a new one reported every single day. The five to sevens, the two tens, did an intradate for a second. So Jim Bianco has this really good chart showing how stocks react to an inversion of the twos and tens. And I usually think that like most times are different, like that every time is different. But I think that given like Fed intervention, how has the yield curve not lost some of its predictive power? I like that you said this because we had this same exact argument, I think, in like 2018, 2019. There's two responses from finance types.

One is, listen, the yield curve works as a recession indicator every single time. It does. And then number two is, but what if it's different? I don't think you watched Arrested Development, did you? The original first two or three seasons are like some of the best comedy ever. I never saw the rest of development, the office. It's always sunny. Okay, yeah, you missed that.

So Tobias Foonke, which is one of the greater characters. He said, this is the meme that always goes around. Well, did it work for those people? And he says, no, it never does. I mean, these people somehow delude themselves into thinking it might, but it might work for us. That meme reminds me of thinking that this time is different. And I have that same mentality as you, though. Like, okay, it's worked every time. But like, yeah, real interest rates are negative now. Or the Fed is so much more a part of this. And all these different things.

I'm like 65% that still works. 35% is different this time. No, you have to say it's 40. Remember 40% is the line of the sand. I'm interested to see how the bond. market, like how much that can throw its weight around? If eventually people say, why wouldn't I put all my money into one in two year treasuries now if they're yielding just as much as the 10 and the 30? Does the bond market fight back a little bit? Pushing rates down? Yeah, like, I think we thought that would happen. Why isn't all the money from bonds going into short duration bonds right now? Well, I think because- And would that push rates down? A lot of this is just like mandates from like

pension funds and stuff like that. Right. Did they have to? Maybe that's the problem. But everyone else, I guess. So you know the great thing about doing financial content for as long as we have? If something happens, one of us has probably written about it before. So I looked. Are you about to quote yourself? Yes. Allow myself to quote myself. August 2019, I wrote a piece called, you probably can't use the yield curve to time the market. So I looked, I did this for fortune, I guess. I looked back when the yield curve was inverted in the past and how long it takes for a recession. And it's basically anywhere from 10 to 22 months for the last five times this has happened. That was kind of the average. So yield curve inverts, 10 to 22 months later,

we go into a recession. But Fama and French, Eugene Fama, Ken French, who have that efficient market hypothesis that is 100% accurate. Markets are always efficient. Don't let anyone tell you differently. So they ran this test back then, 175. Hang on. Hang on. Hang on. I have to defend their honor. No, I'm just saying that's markets are efficient. Whenever something goes crazy in the market, someone go, ooh, efficient market hypothesis, I told you. That's my least favorite thing. No, no, no, no. Prices are always kind of wrong, especially, yeah, stupid shit happens all the time. But I guess my two sense is that you don't know whether prices are right or wrong. Exactly. Therefore, it's efficient. That's all. Okay, so they looked at 11 major stock

and bond markets to determine, like, if you could use an inverted yield curve to predict the stock market underperforming cash. So it inverts, then you go to cash. Does that work? They found, like, there's no predictive ability over, they looked out one, two, three, and five years. Wait, Kenny French did this? Yeah. French and Fama. Yep. And, and, and, and, and, They looked at this across the world to this yield curve signal underperformed a 19 out of 24 world XUS back test as well. Their base premise was buy and hold is still probably a superior strategy than trying to use a yield curve. I can't believe that that's where they landed. I cannot believe it.

Hey, sometimes it's good to have a reminder. Buy and hold is honestly the simplest, dumbest strategy there is that also 95% of people underperform. 98, 99. Pretty close. Yeah, listen. I don't think anybody beats the. market over long periods of time. Generally speaking. Don't take offense.

Certainly not consistently either. But it's not fun to talk about that all the time. I'd like to provide a reminder. It's fun to protect. This one from Bloomberg was kind of shocking to me. So they said last year was one of the best years ever for profits for corporations. This is profit surge 35% last year, which that's not surprising because 2020 was so depressed. But this one got me. In all four quarters of the year, this is Matt Bolzer wrote this from Bloomberg. The overall profit margin stayed above 13%, a level reached in just one other three-month period during the past 70

years. Think about that. In 70 years before last year, there was one quarter in which corporate profits were above 30% on a profit margin. It did it every single quarter last year. I don't know when it was. I'm sure it's probably in the last few years. He also said employee compensation rose 11%, which is probably higher than most people would assume, but profits were up more, obviously. I would love to hear GMOs take on this because one of their biggest things was that profit margins are mean reverting. And I don't think that was like an unreasonable call. I probably nodded my head and agreed with them. And the fact that profit margins have stayed elevated for so long is certainly an outlier. And I wonder if like, I'm not saying it's permanent, of course,

but that busted so many models. But don't you think the majority of this is the fact that tech stocks are such a huge repart of the market now? 100%. So they obviously didn't see that coming. We spoke about this, I don't know, a year or two years ago. Howard Marks wrote a letter and his son was involved in this, Andrew. And they spoke about like how if you have a bearish view of profit margins or earnings or whatever, like you have to make a bearish case for tech. Pretty much. Yes. That's going to get smart. And I think that was the outlier. It was like the productivity that we've seen from these companies, the Googles of the world. We've never seen that is such so far outside of the scope of anything that we've seen in the history books. I don't know how you could say, because everything that can be done with tech now, someone is going to try to turn into a tech business to make it more efficient. And if we're dealing with a labor shortage, it sticks around for longer than people think, and I want to get into the labor market at a minute here, companies are going to have to use more technology to become more efficient. They're going to have no choice. So you think we're to get robots in hotel rooms?

Like, oh, why isn't the Roomba? Or is that what it's called the Roomba? Okay, so you have this thing right here about travel going to be super expensive next year. I want to talk about this. So when I was at Disney, I forgot to mention this. No housekeeping. We were there for a week. The only thing they did was change the soap and shampoo in the bathroom and refill the coffee machine. But there was no cleaning of the room, no making of the beds, and then they'd give you new towels if you needed them. And I didn't know this going in. Here's the problem. And it shouldn't have mattered, like, that kind of thing. It's the only kind of thing that you notice if you were spoiled in the beginning. So like going to hotel. I don't even have beds made. I don't even have beds made, to be honest. No, honestly, I don't either. But like, it's something if you've had it in the past and you're used to it and you don't get in any more. It's taken away. Then it's like, you have the loss of version. You go, wait a minute, I like that. Even though I didn't need it. It's like, when you're at home, how long do you let a towel go for

for the shower? Like a week? Six weeks. Like, and then you get to the hotel. You get the hotel and you immediately call down and like, yeah, I need more towels. It's like, sir, you checked in five minutes ago. It's like, yeah. By the time you leave a hotel, there's like seven towels on the floor. Yes. But so I'm saying I got used to it and they didn't clean. Like, and we were eating in a room a little bit with the kids and there's crumbs and stuff everywhere. It's like, okay, if you're not going to give me a housekeeper for a week, I need a broom or something. I need a vacuum. I think that's the kind of thing that people are going to be shocked by is you're probably in the future, you know, now they have to pay for overhead luggage and that just became the

norm after a few years ago. That's going to be the norm for hotels now, is that housekeeping is probably going to be something you have to pay up for. So we're going to Markle Island. We're taking the boys, our first time in a couple of weeks, first time away with the kids. Should I bring a dust buster? Maybe you should ask for it. The thing that shocked me about is that they didn't tell us ahead of time, that, oh, by the way, you're not going to get them to clean your room. Now, this is obviously the biggest first world problems ever. It was shocking to me a little bit. A room was kind of a mess by the end. Well, you can imagine what my room's going to look like.

True. Average hourly earnings and leisure and hospitality are up 20.8% of the last year. That's the second fastest pace of wage growth on record in data from 1965. Jeez. Okay, so here's the thing. I realize everyone really, really hates inflation. People dislike inflation so much. And I think it's blinding. You ready to apologize? Are you ready to apologize? About inflation? No, because I think, I mean, take away one leg of the pandemic. and the war, and inflation was transitory. I'll stand by that.

Is that moving the goalpost? Yes. I paid under $6 for my gas the other day, so yeah, team transitory totally won. By the way, some dude dunked on me on YouTube a few weeks ago. Every once in a while, I still go in the comments. And a guy said, I can't, savage. I stopped listening when Michael and Ben were so adamant that inflation was transitory. I don't think we were adamant.

I just think we said that was our take. Hang on. Now you're moving the goal post. We were definitely team transitory. Take the L. I don't think we were adamant, though. I think we were looking at the data saying it's used cars and And now, of course, everything cut up.

But so anyway, this guy said, I don't listen anymore, watch. And I said, well, thanks. I don't know how we're going to do it without you. And he said, hold on. If he's not watching, then what was he doing in the comment section? Of course. He just checked back in. But he said, so I said, what am I going to do without?

And I commented, I said, what are you doing here? He said, my viewership is transitory. Ooh, not bad. Burn. Good burn. Good burn. Okay. Sam Stein at Politico said, a shocking data point that explains much of Biden's political troubles.

More people think jobs have been lost over the last year, 30, 7% than those who think they've been gained, 28%. Unemployment is at 3.6%. We're probably in the hottest job market ever. Unemployment right was 3.5% before the pandemic hit. We're basically back there. We've climbed out of the hole. It's almost, I think we created like 1.6, 1.7 million jobs in the first quarter.

I think people, maybe it's the labor short. Like, what do you think it is besides inflation and labor shortage? It's permanent. This is what it is. Remember that book, Factfulness? I think they spoke about this, that people always assume that they're live. are better than the rest of the world. Things are okay in your neighborhood, but the world is burning around you, but things are okay where you live. I think it's that type of thing.

I think that's the internet year. I think that mentality is just kind of so this. So there's Bill McBride chart that we've shown a million times. It's the percentage of job losses. You can see it's almost all the way back. Just that's so crazy. I want to say this is like top 10 crazies chart in all of finance. Show someone this in 2019 and say, look what's going to happen to employment over the next two years and they'd go. What just happened? How would you explain that? Okay. So the lowest the unemployment rate going back to 1940 has ever been is 2.5%. The analogy I made is kind of squeezing the toothpaste here. I want to go over this thing that like no one wants to work anymore.

So I looked at. Hang on, before we get there, just real quick. I forget who tweeted this. I thought I put it in here. All right, today's job report marks two years since the U.S. began hemorrhaging jobs at the fastest rate on record. More than 22 million jobs lost in just two months. With another beginning in March, we've now regained all but 1.6 million of those jobs. This chart is nuts.

The retort from the ag guy on Twitter would be like, yeah, that's because we printed trillions of dollars. It's like, yeah, it worked. And it worked. Yes, of course, yes. But here's the other thing. People say no one wants to work anymore. So prime age U.S. population is 25 to 54. That's like prime age.

That's when you're working. 25 to 54 is now at an all-time high. U.S. labor force. It surpassed the amount before. 55 and over is within a stone stone. So people say, well, a bunch of people retired early. But that is almost back to where it was, too. So people are wanting to work.

So I looked, too, at the U.S. labor fort participation rate for 25 to 54. going back to like 1950, it was like 60% back then. It's 83% now. Obviously, that's a lot of women coming into the labor force. If you believe those numbers, sure. The number of people who say that on Twitter to me is, yeah, I don't really believe these. Okay, this is from Ben Castleman. This is crazy. The rate of wage growth among the lowest wage workers right now is remarkable. No sign of slown whatsoever. Look at this. The lowest wage group. Look at that growth that they've seen. Isn't this crazy? So here's another one. Isn't this a huge part of inflation? Listen, this is a good thing, but people at the lower end who spend all of their money.

These are not net savers, usually. So the highest wage earners are seeing the slowest wage growth, and the lowest wage earners are seeing the highest wage growth by far. It's not even close. It's double. And middle class is getting crushed by inflation. Here's another one. This is a new substack I follow.

Joe Politano, you follow this guy? Mm-mm. I can't even pronounce this. Apricetus economics. He says layoffs are at an all-time low. Layoffs and discharges. people being laid off from their job all time low. My friend Talman Smith at New York Times wrote a piece about Nebraska. They have the lowest unemployment rate in the country, 2.1 percent, the lowest state.

They interviewed this bartender. And she says, I'm in hot demand, baby, mentioning desperate employers with a burst of a grin. I've worked at like six bars in the last six months because I keep getting better offers I can't turn down. Workers have never had this much negotiating power, not in the last 40 years. Here's like the downside of this, if you're looking for one. Kind of like I said, every inflationary spike. You don't have to look that hard. No, well, yeah. Right. But I've shown this data before that the returns are better from 9% unemployment and higher than they are from 5% and lower. So I actually looked at, I've done those average returns and it kind of goes at a stair step function like you'd think.

Fair market. It's counterintuitive to a lot of people, though. So I looked at what are the worst returns over 1, 3, 5, 5, and 10 years from below 5% unemployment, 5 to 7 to 9 and 9 and higher? Basically, the worst outcomes. Isn't it like tech bubble? Oh, six or seven. But kind of like the only way inflation has come down is through a recession in the past. Most recessions are not caused by a low unemployment rate, but a recession tends to start there because that's when you get excesses. What would you say the probability of the Fed orchestrating a soft landing bringing inflation down without a recession? And don't say 50.

40%. It depends what they're, if they were to say, like, listen, our target's not 2% anymore. It's 3 or 4%. I think the market would actually like that and say, you know what? The question. A soft landing with no recession. What's the time frame? It's 25%.

It's a low percentage. Okay. So you would say 75% chance of a recession in the next, whatever, call it. If the Fed says we're going to shut off inflation, I don't see how we don't go into recession or at least a little slowdown. So you can now bet on this. We told our friends at Kalshi, we want to bet on the number of hikes. And so they now have a bet. And it says at the end, this market is.

proposed by animal spirits so we have our own bet i actually didn't even see this i mean i know we spoke about this but so now we can bet on the number of hikes if you go there right now so you can bet on four hikes five hikes six seven eight or nine and above can you like bet like not seven oh yeah yeah you could oh okay all right so what's no of them too so i want to short seven i just want to let you know though 25 basis points counts as a hike so 50 basis points would not be one hike that would count as two hikes i get it i get it so seven right now is the highest probability of happening based on she's numbers. What? I'm shorting that. So what's no? So you could buy no for 75 cents on seven because the yeses are all pretty low because so you've got 25% upside. So what is your target for

fed funds rate at the end of the year? Call two and a half, two and a half. Okay, so two and a half how many hikes would that be? Divide that by 25 basis points. That's 10 hikes. So you want 10 hikes. You buy yes at 11 cents. You're going to make 9 to 1 on your money. Wait, did I say no? Count me for a yes. You think two and a half percent. So again, each 25 basis point one counts as one hike. So if they did 50 basis points, that's two hikes. When does this end? December 31st.

End of the year. This is through number of fed hikes in 2022. By the way, you just saw how the sausage is made. You just got to glimpse it to my brain. I'm fading myself. I'm taking yes. You're going to bet yes and no on the same bed. Wait, is that arbitrage? That's free money.

Here's what I would do. I'd probably bet yes on 7, 8, and 9. And you still have a higher pay out there. because the combination of those is like 50. All right, whatever. I'm taking the over. Apparently, I'm taking the over. Over what?

Over seven? Seven or over? I might just... Wait, hang on. This is important. Is it at least because I don't want to lose if I take seven and there's actually eight hikes? You have to nail the...

You have to nail the exact, so that's why you have to bet on a few of them. That makes it very difficult. So I have to spread my bets. I got it. I got it. So maybe I'll do seven eight and nine. I bet seven eight nine.

Okay. Why was six afraid of seven? what is it because seven eight nine yeah is that it i got it i've got kids too mike zikardi posts at this one this is kind of interesting consumer spending on energy and food i think this might be from the jp morgan guide to the markets food and energy what gave it away does it say it on there yeah okay that's it in italics and in small font by the way i do have better than 2020 seeing what do you say it seeing eyesight my vision is starting to go, just like my hair.

Okay. It's unfortunate. Glasses? Glasses or contacts? I couldn't do contacts. I couldn't touch my eyeball. I'm going to wait it out. Anyway, what have we looked at?

1960, food and energy accounted for 27% call it of consumer spending. Now it's 12%. Energy peaked in late 70s, early 80s at almost 10%. It's now 4% now. So energy prices would have to more than double from here to account for as much of a budget as they did back in the 70s and 80s. Why do you think food prices were so much higher back then? Inflation? No, I don't know. Well, productivity. It's way easier. Productivity. Yeah. It's got to be it. Carl continued, this is from Morgan Stanley. The U.S. car market is not a car

market at all. It's a truck market. We believe the first signs of demand destruction will be with low-income consumers buying gas-guzzling trucks. Good. Good. I've said this before. This is my one spend shaming thing that I do not feel guilty about. People spend way too much money on SUVs and trucks. Starting price divided by mile per gallon. I've got to tilt my health to look at this. So the Chevy Tahoe. So shame Tahoe owners. The Sierra, the Silverado. Okay. Those Tahoe's are like, I bet right now you'd buy a new one for 90 grand. Easily, right? Yeah. Everyone at the kids soccer and basketball games is driving a suburban or Tahoe. Not many minivans. I got to get a minivan.

Minivans aren't that expensive either. But minivans are, are they not? No. Okay. Speaking of spend shaming, here's the other side of this. So we talked like last week about the fact that a lot of times your upside in retirement savings is much greater than your downside. For most people, end up with more money than they assume. People that start with a decent nest egg. I'm reading this book. Someone recommended it. It's called Die with Zero by Bill Perkins. Ever heard of this? A bunch of people have recommended it to us. I don't want to talk down it. It probably could have been a podcast as opposed to a book. His whole thing is, especially for people who are relatively well-off and wealthy, your whole thing should be trying to enjoy your money and

spending it all before you die. Spend it or give it away. Agreed. We talked about this last week. Someone sent this to me, and this is a story from 2016. I think we've all heard about it. It's like this janitor bought all these stocks over time. And by the time he died when he was 90, he built an $8 million portfolio. And he gave it all away to a hospital and library. And he did this because he maintained a very frugal lifestyle. Now, a lot of personal finance people look at this and say, this guy is a success story. He invested in stocks that paid great dividends. He had $8 million by the end and he lived a frugal life. Why didn't he give it away while he was alive?

Think about the satisfaction it would have gotten from that. I think Ben, four years ago or five years ago, whenever I started blogging 10 years ago, would have looked at this and go, this guy is a success story. Now I look at this and I think of this guy's,

that's not a success story. Like, I think frugality is a disease just as much as overspending is. For people who can't make themselves, like, I agree either, like if you don't want to spend it on yourself, that's fine. Some people can't force themselves.

Like my father, if he never had to buy another article clothing in his life, he probably wouldn't do it. He's not a person that likes to spend money on himself. There are people that are like that, but I think then you spend your money to make other people happy or something. I don't see this as a success story as much as I would have in the past. Enjoy it a little bit. Have some fun. Literally cannot agree more. Someone else sent this to is kind of on the same thing. This is an older run feet landing. So Michael Norton, who wrote that book,

Happy Money, you read that one? Really good book. Did a research report in 2018. He and his collaborators ask more than 2,000 people who have a net worth of at least one million $1,000, including many of those with wealth that far exceeded that threshold, how happy they were on a scale of 1 to 10, and then how much more money they would need to get to a 10. All the way up the income wealth spectrum, Norton told me, basically everyone says they need two or three times as much to be perfectly happy. That number is always going up no matter what, because there's always people richer than you. This is so obvious, in my opinion, once you are past a threshold, I think the study

say $75,000, whatever it is. It could be $200, $300, I don't know, whatever it is. past that point money does nothing literally nothing i also think your comparisons today are to everyone else in the entire world now and you can always see someone with a little bit more than you or more vacations or more house or whatever it is and i think the goalposts today are easier to move than they ever were in the past or in the past you could just see people in your local community and that was you could have been a big fish in a small pond much easier than you can today now we're all fishing in a big pond think about if you had assuming that you're

there's a gigantic gap between not having enough money and having enough money. That's where all the happiness is. Obviously, if you can't put food on the tip, money is life changing. But for somebody that's relatively well off, what would another million dollars do for you? Exactly. Literally, what would you do with that? I agree. Honestly, this is something I've changed my mind about a lot. As far as personal finance goes, I was always the frugal, saver person. And I've definitely changed my tune on that over the years. I mean, listen, we change our opinion over the course of our life. I might change my mind again on this topic in five years, but as of today, 37-year-old Michael has no ambitions to die with a lot of money. Amen. All right, one quick one on banks.

Our financials doing well this year, they have to be. So credit card rates are up at 16% on average. Savies accounts are averaging 0.06% at banks. Axios did this piece on this, basically saying banks are not pressured at all to raise those savings rates because they have more than enough deposits. We've seen all those record deposits of banks. Like, they're going to be very slow. Like savings accounts are basically dead. at banks. And people who leave their money in there, it's just, it's complete dead money. Can I tell you something? Speaking of changing rates, I actually did get gas under $4 a gallon this week. In New York? Yeah. I found some places in Michigan that are like $3.90 something.

So crude came down, gas came down. Do you have any takes on that? It took a lot longer, though. Why did it take four weeks? It just seems like it did. The analogy someone gave me was it's rocket ships and feathers. Rockets on the way up, feathers on the way down. Oh, interesting. Not bad, huh? Bespoke tweeted this. Mortgage rates have gone from record lows to 10-year highs in a little over a year. At 4.9% of the last 10-year fixed was as high was April 2011. Pretty wild.

And I think some of the stats were that it's like this is the fastest increase of that magnitude ever. I don't think this will change demand for homes, but it certainly should impact prices. I hope so. Redfin had something saying, like, maybe we're finally seeing his pause. And he interviewed this guy in the Bay Area. And he says, bidding wars are still common, but homes that would have been bought in 10 or more offers earliest year, now getting half that many. A house that might have gone for 700,000 over the list, now may go for 300,000 or 400,000 over list. Wow. So it's getting so much

easier for people there. Here's another one. New listings for homes were down 7% from year earlier. The biggest drop since the four weeks ending February 2013, 2022. Basically, the supply just keeps going down. Record 59% of homes that went under a contract had an accepted offer within the first two weeks on market, up four percentage points from year earlier. I think that is the problem, is the supply thing. Maybe people wait a little longer because they have the higher mortgage rates now, but the supply thing being so short still, I think this is going to be a really bizarre market for a while still. Let's talk about our Discord for a second. So I wrote a post on this. First of all, thank you to everybody that bought NFTs. There are still plenty to buy, by the way,

and all the money is still going to Nocon Hungary. So this is amazing. The first batch that we sent over was like 12 something Heath. And we got a match. This was news to us, Ben. We got a match from the giving block. So we sent over 25th on our first shot. We've got another sixth of cent. I think they basically said like any crypto donations to charity will be matched up to $5 million or something like that. And it just happened to be that we timed it that way. Yeah. So we've sent over $100,000 to No Can Hungary, which is incredible. So one of the things that we severely underestimated was how powerful Discord was. My only experience, on Discord to date was getting rugged on that.

Oh, that was through Discord. That's right. That was through Discord. And so I was like opposed to it. I figured that it was going to be a lot of work for us and we just don't have the time of the day. But people are hyper engaged and it's not work. You pop in, you pop out. It's like Slack basically. It's Slack. And people are, let's just read a few quotes. I don't say. By the way, we get to these quotes. The Discord thing, like people had access to it. They could get in. And I looked on it the first time I signed in and all the sudden people are there engaging and talking to each other. It was, I thought it was going to be like,

okay, we're going to have to be the ones getting the ball rolling, but it's the people in this community are having interactions with one another. It's awesome. From here tofore, we'll call them animals. Yes. I'm not going to cancel for that. I don't think so. It's done with love. Okay. All right. I'd almost say it was a borderline genius idea. Oh, so we've got one channel called connections where people are just talking about themselves and so people can know who. This is my age. This is what I do. This is my job. This is where I live. We can't see our listeners. I mean, we hear from the inbox, but anyway, all right. I rarely post anything on social media, but I feel like this is the exact community

where I feel comfortable being an active participant, was able to help a few members with CFA study plans. So between keeping kids fed and helping our community members, feeling pretty good. Here's a good one. Someone said, I've already received more from this discord in the first week than I expected entirely. I think I have two. Same.

So we've got like a recommendations tab on markets tab, all this stuff we're talking. So if you want to get in on that, buy one of the NFTs, we actually gives you access. give you access to the Discord. And again, if people are going back and forth and talking each other and helping and off, it's really kind of cool to see the community. We did get one direct message. So someone said, hi, Michael and Ben, want to thank you both putting this together and using your platform to help others. Like myself, I'm sure this was the first NFT purchases for a lot of people. Ben, I feel your pain navigating the blockchain world of a special quest. It's my dad's 61st birthday on April 14th. My dad and I listen to your podcast every

week and we'll catch up afterwards to chat about each episode. A happy birthday message from the two of you would surely make his day. Thanks in advance of the podcast, Chris Curtis. Happy birthday to Chris's dad. We don't have the dad's name. Chris, send it out. All right. Well, thank you, Chris. And happy birthday, dad.

By the way, there are still, we made NFTs of Ben running in high school. I forgot that we did this. A bunch of people said, hey, I got my NFT. There was the reveal. And it's me scoring a touchdown. And still all the money is going to No Kid Hungry. So if you want to join the community, there's still plenty of room. And we got a lot of people saying this is my first NFT.

So credit to the guys at Audiograph, because a lot of people are saying this is the first NFT I've made. They made this process so easy for people. And they're also helping people on the back end with customer service. So credit to them for making this such an easy transition to people who've never done it before. Because we had a lot of crypto-new people that were doing this. Let's move out to recommendations because we've only got a couple minutes left. Okay. Real quick. One question that actually came from the Discord channel. When the market was crashing in March 2020, decided that Tesla stock was the opportunity of lifetime thanks to Kathy Wood and Tesla YouTube. I drained my savings of 250K and bought Tesla shares the attention of holding

them for 10 plus years. This is quite a massive. move. Fast forward two years later and those shares are now worth 2.5 million. I still think Tesla stock today is like Apple 10 years ago, but it feels insane to have over 70% of my net worth in a single company. Thinking about selling a million dollars worth and putting that into VTI index funds to hold forever. I'm not interested in exorbitant Los Angeles real estate and already have over 5% crypto exposure. This is a good long-term strategy. Will VTI do on an inflation environment? 40 years old, no kids earn 150K a year. So he's concentrating to build wealth, diversifying to keep wealth. I think that's the first step here.

The fact that you are diversifying, I know you're going to keep a little bit and let it ride, but taking some out to put it into an index fund and diversify, the inflationary thing will see. Stocks can do a pretty good job against inflation, especially with high margins, I guess. I can't imagine just personally having 70% of my net worth in a stock, even the best stock, just because I would be checking it 73 times a day. But I think the fact that this person is already thinking I need to diversify and doing that in a smart way, especially since they like double down and put their life savings on this, kudos to you for that but yeah

the diversification thing that's the biggest part here yeah all right what do you got did you listen to ben stiller on the flying the wall podcast david and dana carby you did it was great

yeah i pulled out a quote that I love spade said something about the great resignation he said everyone chasing their dreams at once might collapse on themselves i thought that was very insightful that was good he's great he was on smart list last week by the way too spade he had some really great stories i mentioned pachinko on apple tv

there's no other word i can describe this show besides beautiful. It is a beautifully done show. I guess it's based on a best-selling book. The grandma from Minare is in it, and it tracks her in the early 1900s growing up in this poor village in Korea, and then Korea is taken over by Japan and dealing with that. But then it fast forward to 1989 in Tokyo and her grandson and her interacting. And it's just this family drama, and it keeps going back and forth between early 1900s and 1989. And I don't think it's a Michael show, but it's like a drama slash love story. And slash kind of history lesson. It's just really, really well done. We're three episodes in,

and it's just an amazing show. I can't imagine this show's not going to win a ton of awards. So good. Is this film critic, Ben, talking? I'm guessing critics are going to love this show. My wife and I are really into it. It's really good. Season three of Atlanta finally came back. I think three-year hiatus. You were going to that show? It's an acquired taste. There are going to be certain episodes where you go, what? What was the what? But I have no time to acquire a taste. I'm sorry, but there was an episode, the last episode, they went to a billionaire's party in London, and it was hilarious. These rappers parting with billionaire. It was just great. Finally, rewatched No Country for Old Men this weekend. The ending of that movie still makes me mad.

It's 90% of a great movie. Slightly overrated. Because people love, love that movie. Yes. And I was going into it with big expectations, and it delivered until the end when they don't show you what happens in the hotel. Why did they do that? I don't know, because they're artists. It was such a terrible ending. It's like 90% of a great movie. And I love them. And I mostly love the movie, but yeah, I agree with you. Okay, that's all I got. I binge watch. I finally cut up on Ozark.

Holy moly. The next one's coming this month. Well, I know. That's what I was waiting for. I was waiting for my signal. God, what a show. It's awesome, isn't it? Like, that left you wanting more immediately.

So I'm glad that I waited. I wouldn't want to wait for too long. All right. What else? I was listening to the rewatchables, panic room. I ever watched that a few months ago. That's a good movie. I saw that the girl with a dragon tattoo was on Netflix.

So the girl with a dragon tattoo I actually prefer the original ones It's Swedish right Yes I read all the books too I really liked those books Love those books I don't think that I ever planted this flag I'm gonna plant it

Okay David Fincher is Maybe my favorite director He's got to be up there Social Network girl with a dragon tattoo Zodiac Panic Room The Game 7

Fight Club Alien 3 I mean Did I say Gone Girl? Maybe I think I did. Anyway, not bad. Yeah, that's pretty good. None of this Paul Thomas Anderson nonsense. This guy's a filmmaker. Yes. He's easily one of my favorites, too. Okay. All right. Animal Spiritspot at gmail.com. Hey, animals. We'll see you in the Discord. All right. Just trying it out. Not bad. Bye. Bye.

Thank you. Thank you. Thank you. Thank you.