Animal Spirits Podcast - Micro Bubbles (EP.187)

Episode Date: January 20, 2021

On today's show we discuss why index funds will never cause a bubble, how day traders are evolving, the best-performing stocks of 2020, penny stock madness and why 2021 could see the economy shoot the lights out.   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. On today's episode, we're going to get into some of the best performing stocks of 2020. A listener actually emailed us in and reminded us that Y Charts created a table for us last year that showed all the different sector performance over the entirety of the 2010s along with the best performing stock. So they said, hey, can you do this for 2020? We sent it over to the cracked research team and Rushi at YCharts. Send it back to us immediately with these numbers. so we're going to dig into these and talk about what it means for some of the speculation in the market. Go to Y charts, tell them Animal Spirits sent you, and they will give you 20%

off your initial subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt 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 Ritthold'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 positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. You and I were kind of

debunking this when it happened, but doesn't it just seem silly right now that at one point in time in the last years, people were worried about the index fund inflows creating a bubble? Like, doesn't that just seem laughable now that something as boring as index funds could ever create a bubble with the type of stuff we're seeing today? I just think that that's the kind of thing that would never satisfy that type of urge, right? What do you mean exactly? Index funds are too boring to ever create a bubble, is what I'm saying, because when you see some of the type of speculation that we've seen in the past, I don't know, eight or nine months, it just seems laughable to me that people ever thought index funds could create that kind of euphoria that we've seen. I had this in the doc for later, but I want to get to it now. There was an article in Bloomberg about trillions of dollars gushing into S&P 500 index funds that are distorting the market.

And we first mentioned this a few weeks ago. This is an academic study that I'm not embarrassed to admit. I opened it. I opened it, but I just couldn't get through it. Here's some of the findings. Every time I open an academic, like an SSRN paper, I just come on. I hit Control F and I go type in conclusion. I read the intro and the conclusion. That's it. A small minus large portfolio of stocks of the index, which takes a long position in the smallest shares and shorts the biggest, earns an average of 10% per year. This is from 2000 to 2019, I believe. But an equivalent portfolio using shares outside the S&P 500 delivers an insignificant return indicating the amount of cash index to the benchmark may be creating the distortion. So I think what they're saying

here is that flows into the index are propping up larger stocks, but will lead to small stock outperformance. This doesn't make any sense because small caps have underperformed. Large caps have been the best performers for years. So I don't get that logic. And if that's a conclusion, then to me, that's probably just data mining. I don't really see it. Now, I'm not an academic, so I can't debunk this. It's just my opinion. So take it with a grain of salt. But Ben, to your point, so our friend Phil Bach has a fund RVRS, which holds the S&P 500 in reverse order from their size. So Apple's the biggest. Amazon's the next biggest, et cetera. I believe that that's gotten killed relative to the large cap stocks. And just because smaller

stocks have done way worse than mega cap stocks, I mean, so hold on. Let me just pull that up. So since inception, this fund launched in November 17, it's up 37%. The S&P is up 55. Okay. But one more thing that I wanted to pull out in here. If index related price distortions become more significant over time, they may boost the profitability of active investing strategies that exploit these distortions and ultimately slowed the shift to passive investing. If that was going to happen, it would have happened already. Yeah. I don't know. You're probably right. This is probably data mining or they picked the period that it worked. What about GE and Exxon? Those were top 10 stocks not too long ago. Here's the reason that there's never going to be an index fund bubble.

So Whitechart sent us this data. They looked at just 2020 performance and they broke it up by sector, and then they gave us the top five performing stocks in each sector. For instance, the best performing one, of course, was technology. It was up 44%. The top five performers were all up more than 400%. So Veritone, which I don't even know what they do, they're up 1,000%. The gains in these holdings are ridiculous. Every single sector has hundreds and hundreds of percentage points of gains. Health care was up 13%. Even real estate, which lost money last year. So energy was down 33%. The best performer, Whiting Petroleum was up 240%. There's enormous gains in here. This is the reason why people become bored with index funds. And even though I had it in here

to talk about, Vanguard now has over $7 trillion and I shares is close to $8 trillion. So that stuff is still huge. But the returns that you can get in individual holdings, especially when people can trade for free, that urge is just always going to be there. So index funds are never going to do this. So you see this story last week of the Tiger King woman, Carol Baskin. She was on this cameo service and she said that Cameo paid her to pump up a stock basically. This is Zomedica, ZOM. Does everyone just creating tickers that look like Zoom now just in case? But it was up 230 percent and it had a billion shares traded since she put this little 15-minute thing on Cameo. So someone paid her to do this and it shot a penny stock up ridiculously.

Our micro bubbles just with us forever because these traders. So last week there was a headline a handful of penny stocks just made up a fifth of U.S. volume. That's insane, right? That is wild. That is insane. These people aren't leaving. The thing that might end this, and forget about the bubble burst where all of these stocks go to zero. Let's just assume that doesn't happen. They could crash 50, 60, but let's just assume that they don't all go down 80%, like the dot-com bubble. What can reverse this trend is what if people just go back to work? Maybe, but I mean, you saw something like GameStop last week. that was up 100% in a couple days. People wanted to say that it was because of someone joining the new board, but it sounds to me like it was this Reddit community who just are doing these, like, attacks on this.

They squeeze the shorts. They're doing these coordinated attacks, and you don't want to believe me, but these people are getting smarter. They're going to get caught holding the bag at some point, but you're right, if they keep just going from pocket to pocket and leaving, it's kind of like the J.T. Marlin office in boiler room, where they have all the phones,

and then they pick up all the desks and move them to the place next door, that's kind of what they're doing. They're ransacking these companies and they're leaving them. I changed my mind. By the way, that's kind of like, remember Independence Day, how the aliens go from planet to planet, sucking their resources dry and then moving on? That's exactly what Wall Street Betts is doing. And I was laughing, maybe a few months ago when you said that, I'm not laughing anymore. I think that these people are getting smarter. They are getting more sophisticated. It doesn't mean they can't lose money. And they've found these small stocks where they know that they can have an impact. So what stops this? Is it regulation?

I don't know even what that means. Maybe you can't talk about penny stocks on Cameo, for example. That would be probably a good place to start. But this isn't going away. If you think that things are going back to the way they used to be, forget about it. Commissions going to zero was a watershed moment. We're never going back to 1992. It's not going to happen. So these micro bubbles, getting back to my point earlier, these micro bubbles, I think might be a permanent part of the market going forward. By the way, even if the broader market crashes, we could still see microbubbles. Won't they start shorting eventually? Now you're getting a little bit too much credit. Yes, true. But if the pandemic caused this just wave of day traders to be here with us for a long time, it can't stay forever. Again, people are going to lose money. But the penny stock stuff, that's just enormous. So a sentiment trader tweeted, even before the spike in recent weeks, there was more than one trillion shares traded in penny stocks in December. How many minutes would that be?

Isn't that your forte? You can break down trillions in a minutes for me. But it looks like before then it was $200 billion. in the month preceding it. Oh, right, right, right. So five times higher than the month preceding it, which is another crazy extreme we're seeing where microcaps have outperformed small caps and midcaps, but then large caps have up. It's a really weird market where we're seeing the two. Usually it's a teeter totter. And right now it's both, it's a barbell. I just told this to Josh on the YouTube channel, microcap stocks have doubled the performance of large cap stocks over

the last year. 32 versus 15. How is that possible? Here's another one from Settlement Trader. We didn't think traders could get any more speculative than they were at the end of August. We were wrong. For the first time, small trader call buying exceeded 9% of total New York stock exchange volume last week. People, this is madness. And I don't think people are ready for this to be with us for the foreseeable's future. I think people are dismissing this as a speculative frenzy, which it is. But I don't think they're going to leave. You and I have been flagging this stuff for months and months now. And every once in a while, someone on Twitter and our email will send us something and go, okay, guys, really seriously, this is the top, right? But we've been talking about these anecdotes for seven months, at least. Good luck figuring out which one of these is, okay, it's gone too far. You'll never even tell with this stuff. I don't think this is going away. I really don't. The journal did a piece about this frenzy. Video snippets under the tag hashtag Neo. So Neo is a Chinese electric car company. I think it's worth $100 billion. and worth, ha. But that's what its market cap is. Those videos have accumulated more than 35 million

views on TikTok. On Twitter, it was mentioned nearly 6,800 times on a single day in November, up from about 100 mentions a day at the start of 2020. Neo has been the second most actively traded stock in the U.S. over the past year with 111 million shares trading hands each day. I don't even know who this company is. I heard of it last week for the first time, I think. Option volume tied to Neo has surged with more than one-tenth of all activities. recently stemming from individual investors. This is not going away. So if you're using this as a barometer for bearishness or whatever, throw it out. It's not relevant. Now, that being said, again, crazy shit is happening. There's no doubt about it. Kathy Wood announced that she's launching

a space exploration ETF. The market is smart. Virgin Galactic jumped 20% immediately. The Wall Street Journal article you referenced, they looked at the top 10 traded securities by average daily volume. And I think this was for the end of 2019 through January. So this is first week of the year. The three times long crude ETN was up there. All the sundial growers, which I have never heard of. And then you have your General Electric and forwarded. You're seeing these big blue chip companies that would make sense to be there, along with these crazy ETFs in companies that you and I have never heard of. Shifting from the small money to the gigantic money, there was a big story from Greg Zuckerman last week that James Simons is stepping

down his chairman. I don't think he's run the funds for a long, long time now. Matter of fact, if you read that excellent book, it was basically Robert Mercer and Peter Brown that were steering the ship. Did he announce that he's going to spend some more time with his cartons of cigarettes? Is that what he's doing? But Simons was still the chairman. He was the architect. He wasn't the codebrook. Probably, I think that was my favorite book of the last year. It was excellent. All right. This is tough. So the Medallion Fund, which is the best performing hedge fund of all time, and I think by such a wide margin that it's not even close. So they were turned all their capital to outside investors. When was that? It was a long time ago. Oh,

eight? A long time ago. So they crushed it last year. They were up 76% in 2020. They gained 98% in 2008, and 76% last year. So when the markets got crushed, they just absolutely crushed it. On the other end, we've got the Renaissance Institutional Equity Fund fell between 20% and 30% last year. That's a tough look. And whatever, whatever, say what you want. The S&P 500 was up almost 20% last year. I don't know how you could stay invested in a firm that does that. That is so bad for, on the one end, it's so good for themselves. I don't know how you could justify that.

That's a tough look. So I'm not saying that anything shady is going on, that they're purposefully disadvantaging. I'm not saying that at all. But that's tough, right? It's just that their secret sauce, they figured out doesn't scale. They're keeping it off for themselves. Their secret sauce, correct. It doesn't scale.

Why do they even take money? So they, what did you said, 15? billion dollars in Medallion, why don't they just invest money for themselves and not even take outside capital? Would you be shocked if they return all the capital? I mean, obviously they're still making money. Maybe they should. So the Medallion Fund is intraday. I forget what percentage of volume they were responsible for, but it was a big number. Not quite as big as the Wall Street bets, but it was a big number. And the institutional equity fund, it's more long-term in nature. It's not a trading strategy. So whatever it was doing did not work obviously last year.

So the story everyone sent us to talk about, probably one of the most widely ones I saw on Twitter was the guy who got locked out of his Bitcoin. My wife asked me about that. My wife saw it on The Today Show 2 and asked me. I tried briefly explaining it to her. You called me and said, how do we explain Bitcoin to my wife? And I had no idea. Well, I felt back on the old John Oliver quote, Bitcoin is everything I don't understand

about money combined with everything I don't understand about computers. Is Bitcoin one of the instances where sometimes the simpler topic is, the easier it is for people understand. Is complexity actually its best-selling point? The fact that it is almost impossible to explain in layman's terms to someone who just has no idea what it is? I'm not sure. Okay. Anyway, so this guy in San Francisco, somehow the cryptography behind this is he has 10 passwords to figure out, to recover his Bitcoin off of his laptop from whatever year he headed in. You ever see Swordfish? Yes. Good movie, right? It was okay. No? It's my type of movie. Just complete garbage action. Right. Yeah. Remember that scene?

where Hugh Jackman's got to crack the computer code? That was my thought. This could have been a 90s movie. Totally. I just need another minute. I need another minute. So he's got two passwords left. I know some people were, and he's been thinking about it because it's worth $220 million

if he can crack this. I guess there were people on Twitter saying that they could bring it to a service because this is an old laptop and maybe someone could say, give me 10% of it and I'll crack the code for you somehow. I guess this is the double-edged sort of this, of having the security where it's easy to lose if you have it like this. But this is why you and I never could have bought this in like 2011. It was trading at $3 and people could have become millionaires because we never would be able to figure out how to put this on our

laptop or have the key to store, right? No, dude, I can't remember any of my passwords. When did Coinbase even open? I honestly don't know. So there's another one of this guy, the British guy, who accidentally threw away a hard drive loaded with Bitcoin that is worth more than $70 million. And he's trying to get his town to let him go look in the dump, in the garbage dump. He's trying to find a needle in the blockchain. Good luck. Honestly, going into a landfill, I think I would just let the landfill have that 70 million. I don't think it'd be worth it. I don't think you'd ever get that smell off of you. What would you rather have? Smell like a landfill the rest of your life or have $70 million in Bitcoin.

Probably $70 million. That's just me. Pig pen. Okay. So last week, we were talking about, by the way, Bitcoin's at $30,000. I think last Monday was $30,000. We were talking about it. Still remains the most fun thing on our screen. All right. Last week we were talking about when Kathy Wood made that Tesla prediction, and I suspected that you and I were doing some dunking, we didn't. Credit to us. So I looked at our Twitter feed to see all the mentions that we did of Tesla, and we found some wild things. So Ben, why don't you take this? Some of them not that long ago. I said this in January of 2020.

I said this is wild. Tesla market cap 83 billion, GM plus Ford market cap, 87 billion. Tesla is now, what, 700 billion market cap? This seemed crazy at the time when people said, oh my gosh, Tesla is worth as much as Ford and GM combined. So let's just replay that. This is one year ago. One year ago, we thought it made no sense that Tesla was worth as much as GM and Ford, and that's $80 billion. It's up almost 10x in Sun. Here's the other one. This must have been when Kathy Wood made her $4,000 prediction. And this is from October 2018. I said, this is I tweeted this, why I love the market's reason number 783. You can have two groups of people. Group one, Tesla is without a doubt a zero in the future. Group two, Tesla is worth $4,000 in the future,

and both parties can be absolutely certain about their stance. The funny thing is, at that point, more smart money probably assumed Tesla was a zero than a $4,000, by far. By far. And it hit that $4,000 mark. Somebody shared a chart of non-profitable tech divided by the NASDAQ. So it's a line chart, and it's going vertical. What I'm about to say, I already disagree with. I was going to go into this saying, what if this is intentional that companies are getting smarter knowing that they're getting a higher multiple if they lose money because investors are

just prioritizing growth. That was what I was going to say. But this was going lower from 2014 to 2020. So I can't even say that with a straight face. It's not as if all of the sudden investors decided to put a multiple, a higher multiple on negative earners. This stopped on a dime and went vertical basically in March at the bottom. Right?

Yeah. So I don't know what's going on here. There's so many charts that are just like this, though. But this is not like an economic chart. This is a stock chart. So what the hell? Here's the other side of this is a tech bubble and this is crazy and it's going to burst. And maybe it's still burst anyway.

But for, I don't know, 80 years, value kicked the crap out of growth, right? Any back test you look at, value stocks, buying undervalued stocks outperformed by, I don't know, call it 2 to 3% a year. If we're talking value, I think you mean per annum. Sorry, yes. It's a robust back test. So let's say technology has completely broken the market. And I was thinking of this. I almost wrote this because Fortune asked me, they're doing this big tech piece.

And they asked me to write something about it. Has tech changed the markets forever? And my thinking was, okay, let's say value outperformed by that much over that long. What would it take for growth to come back and make it even? Depends your starting point. Yeah, of course. And because maybe throw a lot of that stuff like pre-1960s, just throw it out the window. But you and I have been discussing this lately. What if this is just the new reality that growth

is going to beat value going forward? It's not out of the realm of possibility. Of course not. That sounds ridiculous for some people to say because we've all been taught that you buy a dollar for 50 cents and then you wait. I'm not going to go there because I don't think anything is permanent. I think the pendulum will continue to swing. Right. But it's just how far does it swing? Does it continue to swing? That's the thing that is really hard to say that that's what makes it hard, I guess. What if a lot of these value stocks? Let's not forget. these are actual companies. These are businesses. What if they start adopting a lot of the technology? Well, some of them are probably going to have to. I guess that's the other side of the equation.

This just becomes something that everyone is involved in, then there's no longer an advantage. I'm not saying that Wells Fargo is going to turn into square, but what have they started adopting a lot of the technology? And you could say the same thing in industrials and energy. And there's a value in a growth component to each sector. I suppose that would be the thing you say is that you can't pull apart value in growth, but of course quantitative investors can. example, Macy's and Nordstrom adapting to the new reality. So they also pulled forward probably 20 years of what their technology run rate was at to deliver the Omnichannel experience to consumers. And they were not doing that. They were not going to do that if COVID didn't come

around. Yeah, that's fair. So what if they just closed the gap? Anyway, it's an interesting debate that we will probably have forever. Pretty much. Okay. So Derek Thompson had, I thought one of the better pieces about the cancellation of, you're my boy, Blue. Here's the money shot from his piece last week about how big tech impeached Donald Trump. He says Facebook, Snapchat and Twitter have blocked the president's social media accounts. Apple, Google and Amazon have stopped hosting parlor, a social media alternative that's become popular among Trump to votees. The PGA has cut ties with Trump's national golf course in New Jersey. Stripe has stopped processing payments for Trump campaign website. Reddit has banned the Donald Trump subreddit. Twitch has

disabled a streaming channel associated with them. Shopify has terminated stores affiliated with them. YouTube has announced that remove all channels that post videos questioning the outcome of the election, TikTok, all these, he goes to all of them. And so basically it was corporal. And so basically it was America stepped in and canceled him. We talked about the fact that tech has so much power, but I think it's not just tech. It's corporate America is running the show now, more or less. They have the say-so here for just about everything. Derek said corporate America is running so far to the left of the GOP because both corporations and parties try to win the future. Corporations win the future by appealing to consumers, while parties win the future by appealing to voters.

At this moment in U.S. history, younger Americans and college-educated Americans have moved sharply left, while Republicans have come to represent an older, wider, less educated American cohort that has move sharply right. He calls this audience capture. I was thinking about this when I was watching, and we'll get to this, the Tiger Woods documentary last night, that Nike made the very deliberate decision to go all in on Tiger as a black golfer. Right. At the time they said on the dock, it wasn't like a foregone conclusion that that made sense. And the news was reporting that as if it was a big deal and it was a big deal because previously companies had not done that. I guess the other thing is when you have your whole infrastructure tied to technology, it's

easier to hit that on-off switch. So I was thinking about this. Like when we have our virtual home where everything is attached to Alexa or Syria or whatever or Google Home, turn on this and turn off this. And when the power goes out, we are all screwed, right? That's the kind of thing. They turned the power off on him. But that's what's going to happen to us. We all have smart homes, right? All right. Take your tinfoil hat off. I'm just saying, I'm already thinking about this when you, everything you have is tied to that. Is Amazon going to cancel your home if you piss them off? Well, maybe Bezos will just send everyone a generator to keep your house running when the electricity goes off, I guess. I don't know. That's what I thought, though. It's kind of

an off switch here. All right. I wanted to share an article from ThinkAdvisor. Target date funds near and dear to your heart, Ben, experienced their first year of net outflows since at least 1994 when Morning Star started tracking the data. Vanguard had just $3 billion in net inflows. They had $31 billion in inflows in 2019. Unfortunately, this was not a target date story as much as it was a COVID economic 2020 story. So somebody said, quote, with no smoking gun from poor performance, it's more likely that the slowdown inflows reflects the very real economic stress and anxiety affecting investors as a COVID-19 pandemic continues into 2021. All right. Since we're all like playing policy because we're just throwing out huge numbers and trillions of dollars this year of stimulus and stuff,

instead of giving people a lot of people to rip the bandit off and take no penalties that took from their retirement savings account, why not give everyone the ability to borrow money instead of touching their retirement savings? That's just a double whammy of someone who's in financial peril and ransacks their retirement. It's horrible. I mean, I don't know how you would do that though, because the people that need it most are probably not going to be able to pay back those loans. Yeah, potentially. It's a really shitty situation. Because the retirement situation of this country is already bad enough. And so when people have to ransack their retirement savings,

Imagine somebody took $20,000 out in April. I was thinking about that because we had conversations with people who wanted to sell in March. So let's say you have like a million dollar portfolio. You're in a 70-30 portfolio. You're down 25%. You're down to $750,000. If you sold then and you missed the 50% upswing on that portfolio, you're not just down $250,000.

It's the opportunity to cost you lost too. So now you're really down $500,000. You lost an enormous amount of money. Divide that number in 10 to represent the average American or by 20. If you had 50,000 and I went to 35 and you bailed, that would be worth, what, 75 today? You can't make that up. No, you can't. All right, Josh did a post where he shared a chart from Michelle Meyer talking about how the stimulus is working. And what Bank of America did was they looked at daily total card spending for households that received the stimulus payment. versus those that did not. And I believe my eyes. This is pretty clear. She said, total card spending for the stimulus recipients accelerated meaningfully at the start of the year with a jolt on January 1st, which lasted about five days. Total card spending for stimulus recipients is up nearly 20% year over year on average

since January 1st, which is almost four times of December average growth rate. And then they compared that to people that didn't get the stimulus and I think that was flat. So here you go. Stimulus is working. Are people that don't need it getting it? Yeah. Okay, big deal. people that need it are getting it and they're spending it. Right. And so if your goal is to boost economic output, this is the way to do it. You give people money. That's separate from whether you agree with it and whether we're taking on too much dead and whether there are ramifications from it. But the people who say it's not going to work, if there's one thing we know how to do in this country, it's spend money. How about this? 100% of the people that say it's not going to

work don't need the money. Pretty much. Yeah. And also 100% of the people that say we're screwing over the grandkids probably have enough money. Biden laid out his new, I guess, was $1.9 trillion plan this year. And people already ran the numbers. I mean, these things are fun for us to debate. You never know what's actually going to pass legislation or what's going to make it. So these are just plans. They ran the numbers on these. It said the president-elect's plan would cut child poverty in half through increased minimum wage and through some of the checks and unemployment triggers and you get this much bigger credit for having a kid. I mean, I think one thing we've learned in the past few decades is there is no line in the sand on government debt. We'd really

don't know what it is, what point is like the tipping point for making really bad ramifications. We don't know that. But isn't this the kind of thing that's worth trying it for to see if we can tow that line? If we're going to cut poverty in half? The fear is going over that line, there's no coming back. And then we turn into Venezuela and our currency goes to zero. And I don't really see that as that big of a risk. I understand. I'm not saying I agree with it, but that risk is enormous if we go over that line and we can't rein it in. But we've spoke about that's probably two or three times in the past. But we've proven in this country we can rain it in. We had out of control inflation in the 70s and they did rain it in. Apples to oranges,

right? This is not done. Your apples to orange. Venezuela is apples to Mars. I completely agree. But I don't think that we can reverse all of the spending. We've been doing it for over a decade. Okay. So Krugman had a thread today. He said essentially, if economic growth is boosted at three or four percent from this and rates are 1 percent, that's how you pay for it. The gap. that's it. It never has to be paid down like a mortgage. That's the mistake people make. Yeah. We've spoken about helping families with child care. Child care is an enormous cost that, frankly, I don't know how most people pay for. To help address the child care affordability crisis, and I do believe it is a crisis. President-elect Biden is calling on Congress to expand

child care tax credits on an emergency basis for one year to help working families cover the cost of child care. Families will get back as a tax credit as much as half of their spending on a child care for children under age 13 so that they can receive a total of up to 4,000 or 8,000 for two or more children. The full 50% reimbursement will be available to families making less than $125,000 a year and all families making between 125 and 400 will receive a partial credit, anything over 400 and you're fine. You don't need any money. I added that last part. So if you're making less than $125,000 in your family of four, I think this is fantastic. I'm all in on this. Yeah, and it's a progressive system where it works its way out.

think it makes sense. Every time we talk about this, we get hate mail. I raise my kids. Right. I don't want to have to pay for your kids to go to daycare. Life is not the same anymore. I think this makes sense because it is so expensive for child care. The people getting angry at us for feeling this way are the same people that think that inflation is 10%. Right. Guess what? This is a way to help that. If you're an inflation truther who thinks that child care costs and college is going up that much, this is a way to make it easier for people and make their lives easier. So you can't have both of those ideas in your head. Sorry. Stephanie Rule did a thread. She said the American Family Act child tax credit expansion, including the Biden proposal could have a massive

impact towards adjusting child poverty. Here's, I think, the most important point. While it might sound like a big spend now, the cost to our economy long term for millions of children missing opportunities because they are born into poverty is enormous. National Academy of Sciences estimates child poverty costs our country between $800 billion to $1.1 trillion a year. So if you're worried about our grandchildren. Why not help our children today? So Joel Greenblatt talked about this in his book Common Sense, where he talked about how to fix education and wages and inequality. It's not about tax rates. This is it. His whole point was, though spending money to give people a higher living wage actually ends up saving money over time

because the government's not having to give out so many other funds to people to help. So you don't look at it on one side and ignore the other side. There's always like a balance here. There's a cost a benefit. Yes, exactly. That's the point. A real quick, we're on the topic. Friend of the show and former guests of the show, Eddie Alfenbine. This was a good one. I hadn't seen this. Rarely discussed topic. Apparel prices are lower than they were 30 years ago. Anyway, just wanted to add that arrow to our inflation quiver. What exactly is this show on? Like sneakers? Clothes, clothing, apparel. Okay. But your personal Air Jordan collection is up 346% on an inflation adjusted basis. Right? No? By the way, you do get a lot of love for your graphic teas on the YouTube and Instagram videos.

Robin was dunking all over me for that T-shirt. She couldn't stop laughing. I didn't get what was so funny. I don't remember what it was. This is a 1985 shirt. Your was born. Okay. Wait, you bought a shirt with a year and I have to commemorate the year you were born?

It was in my Instagram feed. I'm not saying it's like the best shirt ever. Who cares? It's probably 18 bucks. Was that the actual ad? You're like the guy who goes to a city and buys the shirt to say, look where I went. I'm an easy mark. No, I don't do that.

Okay. You're the guy who wears the band shirt to the concert, right? All right. No, I definitely don't do that for the record. All right. I'm not that guy. Okay. There was an article in the Times about the exodus from San Francisco and specifically people moving to Austin and Miami. There's some wild numbers in here. Apple is opening up a $1 billion 133 acre campus in Austin. Pinterest, which apparently had one of the most iconic offices in town in San Francisco, paid $90 million to break a lease. 90 million.

The question is, what is the Echo Austin? When people were moving to Silicon Valley, eventually that shifted up to Portland in Seattle. Eventually people are going to get sick of Austin because of this, right? And they're going to move somewhere else to San Antonio or Dallas or I don't know, right? Weather seems to be a big factor here at San Francisco, Miami, Austin, all of nice weather. What about Phoenix? That's not bad. too hot in the summer maybe. I think that's why people are moving to the southwest. The weather's

pretty good. North Carolina, Raleigh, Charlotte. All right. So this was interesting in the article. It sounds like cities are now fighting for people. So Topeka, Kansas started Choose Topeka, which will reimburse new workers 10 grand for the first year of rent or 15,000 if they buy a home. Tulsa, Oklahoma will pay you $10,000 to move there. This is really interesting. It's smart, though, too. There was a city in Michigan. did the same thing. They're trying to get people out of Chicago that did the same thing. Especially in a remote work environment now, go for it. For the first time, whatever, these remote workers are up for grabs. It makes total sense. This is the tech stock play where you're looking for

recurring revenue from taxes. You're paying one time up front to acquire a customer who's going to live in your location and then you're receiving recurring revenue of their tax payments over the years. Makes sense. Is there a platform where you could bet on city population growth? It's not a bad idea. I think I would at least for the intermediate term, call it two to three years, I would continue to short the big cities. I don't think that's going to stop. Topeka is deep value. Yeah, Grand Rapids is a 60-40 portfolio, basically. I think it's possible people are underestimating the economy at this point. So this is from calculated risk. He talked about this positive note from Merrill Lynch,

and they said, normally we're read about COVID news in the back, but it now does it was a front page coverage. COVID cases falling and vaccines accelerating. This is probably the beginning of the end of the COVID crisis. So they're looking. at the renewed restrictions helped, which it helped a lot in Michigan. Our numbers have come in quite a bit. Vaccine rollout. Obviously, things could go worse if that strain is bad, but they're saying their GDP forecast for 2021 is 4.6 to 5%. I want to ask you this without looking. When's the last time we had 4% annual GDP growth in a year? 2010. Not since this 2000. How about 5%? When's the last time the U.S. had 5% GDP growth in a single year? We didn't have like 4% growth in 09 or 2010.

No, it was very tepid growth year over year. All right, 5%? What, 90s? 86. What? And honestly, going back to 1960, we've only had it above 5 or 6%. Like, I think there's a possibility, a real possibility, if things go right. What was the final GDP number from 2020?

I don't think we have it yet. It's still not out yet. That's a good question. So I have the numbers from Whitecharts going back to 1960 with a year over year. this is real GDP growth after inflation. Wait, real like as in the government isn't making it up? Is that what you mean by real? If we're using the shadow stats, just add 10%. The highest number is like 7% in the mid-80s. I think 2021 could get there. We could have the highest growth rate we've seen in the last 60 years. I think that's possible. Obviously, you're coming from a low base and that

has to be taken into account, but I think people are underestimating how good the economy could be in 2021 and maybe 2022. Wouldn't it be so, Mr. Market, if the economy boomed in 2021, the stock market fell. That's why whatever happens is going to look so obvious in hindsight. If the markets struggle from here, it's going to say, oh, of course, they priced everything in. It was a sell the news moment. If the markets shoot up like a rocket ship from here, it's going of course, the economy is going gangbusters and we've had all this fiscal stimulus. Fine. Well, I will go on the record as saying right now on January 19th, nothing looks obvious to me. No, I'm saying in hindsight it will look obvious. I will not do that. Okay. I think the obvious play here is things can...

You're a big hindsight guy. Because it's hard to predict the future. But I'm saying if I'm doing a baseline, I think things are going to be really good for the next couple years. Will markets cooperate with that? I don't know. They probably should at least do okay. But I think your baseline should be that the economy is going to be really good for the next couple of years. How's that? I'm more confident about the economy than the markets right now. How does that sound? That sounds like an opinion, non-opinion. You basically said I think the market's going to go higher but expects volatility in the second half. We had a discussion in April, I want to say, where we said, will the stock market outperform the economy? And we were both

pretty sure the stock market was going to do better than the economy for the rest of 2020. Pretty good call on our part. Not to brag. I forgot about that. We said that. There's a video of it. There's evidence. I'm flipping that now and saying the economy is probably going to outperform the stock market. More people are going to take part in a better economy and more jobs are going to come back. And the market, who knows, that's my prediction right now. How's that? That's a prediction prediction, not a non-prediction. It's time for the economy to outperform the stock market for a while. And I'm probably wrong. All right, real quick, before we get into some listener questions and recommendations. We tested out here a few blog posts that we read as podcasts, and we'll probably

still do a little bit of that if we have some that we think are good for this audience. But part of that testing was we wanted to do something with all of our other writers at Ridholt's wealth. So we started this new podcast called Goldmine. So you can subscribe to it. So you and I have some Barry Ridholtz, Josh Brown, Blair Dukene, I think Nick Majula would be on there, Tadas Ascanta, Tony Isola, anyone from Ritholz who has a blog. And I think we're going to bring other people who have blogs as well that will read them and they're short. So they end up being, if you listen to two times speed like a podcast like I do, like a maniac, you can get through these in like two minutes. It's every day almost. It's a short blog post read as a podcast. Check it out. It's called

the gold mine. All right. Listener questions. My question to you guys is in an inflationary environment, even a hypothetical one that lasts two to five years of running over 2%, what is the best strategy asset allocation wise, or at least what are the considerations? Rental income. Real estate is not a bad play for inflation, right? Right. Hypothetically, gold, I think it's too early to say whether or not Bitcoin is a good inflation hedge. Also, the idea that gold is an inflation hedge, gold did great in the 70s when inflation was running rampant. I don't really know that gold is an inflation hedge. I know it was in the 70s. I don't really know that that's the truth anymore. So maybe real estate stocks, stocks in general, maybe companies, stock companies that can raise

their prices, materials. You know what your best hedge against inflation is? A fixed rate mortgage. Yes, borough. Good one. But I said this in a piece this week, and you never know the reaction, but by the end of the 90s, it was inflation was like 2.7%, but it came down from five. Now let's say we go from 1 to 2.7 or 3. Isn't that a different reaction in terms of inflation rising versus falling? 100%. It's the same thing with interest rates. It's not necessarily the level. It's the direction. But I think we talked about this. We got a podcast coming out on Friday was Gibson Smith, who's a fixed income manager. And we asked about this. We said, let's say we gave you what the inflation rate is going to be. Could you put together a portfolio that takes

advantage? He said, it's kind of the path that matters more than the actual rate. Even if you knew what the rate was going to be, it's hard to put together a portfolio that gets you the whole way there, I think. All right. Also, another topic I've been thinking about the diversification of diversification. It's a first world investing problem, but what do you make of the proliferation of things like not only crypto, but also Masterworks, Farmer Field with agriculture, fund rise, real estate, the list goes on. 20 years ago, it was only stocks and bonds. Look at all the options now. Are these just fads, just a reflection of people's discomfort with insane market valuations and lack of yield and bonds? Really high net worth clients have always had access to these markets

through other means. I can't decide if these companies are taking advantage of dumb money or filling an actual need gap in the market. Maybe those aren't mutually exclusive. No, I don't think they are. Packing McCormick wrote an amazing piece on the rise of all these alternative assets that we've been discussing of and participating in. And it's not just the dollars and cents. There's other things to it. Like, for example, we think a lot of these platforms are really interesting. I'm not necessarily hitching my wagon to the performance. If they perform well, that's almost gravy. I'm not expecting them to shoot the lights out. It's learning. It's fun. But I definitely think that it's a technology that allows us to

happen. And it's also interest rates. Candidly, if Marcus was giving me 3%, I would probably have a lot more money in cash than I do have in these alternative platforms. That's fair. But I think the fact that you know, have access to this stuff, whether it's for you or not. Like, and a lot of it comes down to, as with anything, your emotional makeup as an investor and what you really care about. And some people are just never going to want to invest in this stuff. For people who do, I think the fact that you have access to it now is great. And the thing is, this stuff is all the advances we've seen in the investing world over the past couple decades have all benefited retail investors, not institutions. That's a great thing that you just have some more options

they did in the past. All right. One more. In the next year or so, I am on track to be promoted at a big tech company and moved my family, wife and two kids to the San Jose area. Good time to be buying, I guess. We have money saved for a 20% down payment. This down payment would use up nearly all of our assets, not including retirement accounts. I project the mortgage to cost 30 to 40% of our monthly take-home pay. Is this a realistic idea? Is it better to just pay that mortgage as rent and keep our assets, stocks and cash? What do you think the median home price is in San Jose, California? 1.3 million?

Yeah, 1.1. Okay. Is it better to just pay that mortgage as rent and keep our assets? Who do I go to seek more advice about this? I am excited for the career move and feel blessed to have the opportunity, but that area of the country is so damn expensive. If I was a young single, it would be different, but I'm 31 with the family and we want a home for all of us.

Just have to buy the bullet, huh? So he wants to live in a home, but is he asking whether he should be renting or buying? Is that the question? Yeah, should he take money out of cash and stocks to have a 20% down payment? and basically rebalance its personal balance sheet or keep it there in rent. I would say it depends on your long-term plans.

If you're going to be there for a decade, maybe it does make sense financially, especially where prices are today. I don't know how much home prices in San Jose have come down. I imagine they have. But I don't think renting is a bad thing. There are homes that you could rent. So I don't view it as throwing money out the toilet. It gives you flexibility, if anything.

I think when you have a family that changes, though, I think you think about that home differently if you have a family. And I think that comes into play. Yeah, but if this person is moving, he's moving his family. So he's not from the San Jose area. So if you're going to a place, I think for a year, it can make good sense to move. And I understand that moving is a gigantic hassle and headache and pain in the bud and it's a financial thing. But if you're moving to a new city and you don't know the lay of the land, I think it's almost kind of risky to buy a house, assuming that it's going to be your forever house. Because all of the closing costs involved, that's expensive. So maybe it does make sense to rent for 12 months.

Yeah, you don't have to buy, but that's the other thing. Like, picture it as your forever house. Buy something you're willing to stay in for one or two decades, at least. Use that as part of your decision. Make it as like a buy and hold. All right, recommendations. What do you got? So I finished the Tiger Woods dock on HBO and I told you to watch it.

At first, I thought, okay, this is going to be like the Jordan dock. But it is nothing like the Jordan dock. It is... Because there's no Jordan. The golf is almost secondary to this. It wasn't made with him. But it felt like you were watching a VH1 behind the music story of a band... or child actor or something that had just a really rough time growing up.

His dad was obviously an horrible role model for him. He was just ridiculously socially awkward. I've heard some stories of this before, but never I'll put it in one place. You come out of it feeling like weird after you watch it. It was not the reaction I thought I was going to get where I'd come away, blown away by this guy. It was like, that's odd. I never watched scoff. I never even watched Tiger Woods.

I was a huge Tiger Woods fan. I would watch the tournaments just for him, basically. It's worth watching, but you feel like you're watching something about a child. child actor who was ridiculously talented and was totally flawed. The part of the story that I had no idea about, and I'm kind of surprised, is that he was in Vegas with Jordan and Barclay. I wonder what Jordan and Barclay thought about this. Yeah, they kind of threw them under the bus, didn't they? Showing him how to party and, but then they tell him like, don't get married until you're in

your mid-30s or something, and he did. He said to Jordan, what do I say to them? And he said, tell him you're Tiger Woods. Yes. Right. Yeah. He said, how do I speak to women? They said, yeah, say I'm Tiger Woods. Yeah. I think it's worth a watch. It was really well done. The second part feels like you're just watching a tabloid magazine, right? All right. So I'm reading this book called The Bubble Economy by Guy Christopher Wood. It was written in 1991, I believe, about Japan. Here's my question to you. Why is there no big short written about Japan? There's no book that definitively is about that one of the biggest bubbles in history. You know, I don't know. As much as we've read and written about the Japanese bubble, what were the returns like in 90 and 91? on. Did the bubble burst or did it just deflate slowly? Their stocks were around 50% in an instant. Good question. Why wasn't there? A big short. This book is pretty well done, but it's written by a guy. I think he worked for the economist.

It's very data driven and he's talking about what's going to happen. Actually, he was pretty prescient because he basically said, like, they're not going to recover from this for a long, long time. But the numbers are just insane. So I want a Michael Lewis book that interviewed the people who went crazy. And so it says, you've probably seen some of these before, but it says the Japanese property market at the end of 1989 was worth two trillion in four times the amount of the American property. Basically, you could have sold Tokyo and bought the entire American real estate market. It's funny because during a bubble, there's always delusions. And he said, like, well, how did that happen? And he said, well, because people in Japan basically never sold their

real estate. So they all thought the values didn't make sense because it wasn't trading hands that often. Anyway, I want a big short written about Japan and not just like a piece of a bubble. one other thing. So my stock picking fun portfolio, by far the best performing stock I have is called Stitch Fix. And I owe Patrick O'Shaughnessy a beer because he had the CEO Katrina Lake on this summer. And I listened to the story and it made so much sense to me that I just bought the stock sudden scene. It's done wonderful. I think it's a kind of company like Amazon should buy. I decided to try it out. So it's a kind of thing where you have a stylist and you pay like a $20 fee. And if you keep anything, I think they just credit that fee to you. But they send you like five

things. And so they sent me a pair of jeans and a few shirts. And as someone who's so routine oriented, even in terms of like buying clothes, it's kind of nice to have something where you have a surprise. So they send you this box of clothes and then you send back what you don't want. And then you just pay for what you want. Dude, this stock is ridiculous. It's up 9% today. I bought it just because of listening to her on that podcast because it was so impressive the story that she told about it. It was, it was $35 in December. Now it's 81. Yeah, it makes a lot of sense. If you keep this up, you could retire in two years.

You might join the fire movement with your stock picking prowess. Yeah, sure. Okay, that's all I got. All right, I got two movies that are both, I think Hard Recommends. Both of them are on Amazon Prime. The first one, written by Aaron Sorkin, Charlie Wilson's War. I don't know how I missed this movie. When did this come out?

I didn't realize that was an Aaron Sorkin one. That's actually a very underrated Tom Hanks movie. 2007. Okay. So I thought the movie was good, but the acting was amazing. Specifically, Tom Hanks and Philip Seymour Hoffman were incredible. I think that's one of the movies that gets a premium for me because it's a true story too. True. 10% premium because it's true. With lesser actors, it would have just been, I thought the movie was good, not amazing, but I thought they were amazing and it's worth watching. All right, hard eight is from 1997, I believe. I believe. It's Paul Thomas Anderson's first movie. There's four actors in this, Philip Baker Hall, who you probably don't know the name, but you definitely know the face. John C. Riley, Gwyneth Paltrow, and Samuel L. Jackson. That's it. Those are the four actors. It's not the most exciting movie. It's a slow burn. It takes an interesting turn towards the end. And if you are a movie fan, then I highly recommend watching this one. It's an Amazon Prime called Hard 8.

I started the first 20 minutes of it based on your recommendation the other night. It kind of hooks you at the beginning. It's an interesting, it's a weird story, right? It gets weirder. Okay. All right. I'm in. Yeah.

All right. Animal Sparitspod at gmail.com. Thank you for listening. We will see you next time.