Animal Spirits Podcast - Murder of the American Dream (EP.116)

Episode Date: December 11, 2019

On this week's show we discuss the economy Paul Volcker inherited at the Fed, a decade without a recession, how to raise kind children, the appeal of annuities, avoiding a mid-life crisis, banana art and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y-Charts. I got into the office this morning and saw news that former Fed chair Paul Volker had passed away at age 92. And all the stuff coming into him about is very glowing. And I decided to do a little introspective about what the markets were like before Volker came into that head post as the Fed chair, which was August 1979. So I wanted to do a very data-heavy post since I didn't really know much about the person that he is. or was. And I immediately went to Y charts, fired it up, got all the data I needed on the S&P 500, 10-year treasury yield, and the inflation rate going back as far as I needed. And so we're going to get into that in the show. But that's just one of the things that Y charts does for us is

makes our lives easier in terms of researching. So if you want to use Y charts, take it for a spin, go to them, tell them Animal Spirits send you, and they'll give you 20% off your initial subscription. Welcome to Animal Spirits, a show about markets, life, and investing. 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 Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may

maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So as I talked about him in the lead and I did a little research on what happened to Paul Volker as he was coming into the Fed chair. And I looked this up. He came in in the summer of 1979. And I'm going to make the case that he may have been in the worst position of Fed Chair as I come into besides this guy named Eugene Meyer, who came in in 1930 during the onset of the Great Depression. I mean, I'm sure we all remember Eugene Meyer. But here's what we had for. for Volker, and I think the inflation was probably the worst thing that he had to deal with. So from 1973 to 1979, inflation ran above 5% for all but one year. Two of the years, it was

double digits, and a couple of the years, it was closer to 9%. Now, to put this into context, since 1982, which is basically when Volker kind of killed inflation off, we've had exactly one year, which was 1990, that inflation came in above 5%. So the 70s were just brutal. So from 1968 to 1979 when he took over, the S&P 500 basically came in at the same exact price level it was at. And real returns were steeply negative. Yeah. Nominal returns actually weren't that bad because dividends were much higher back then. So nominal returns from 19, I went from January in 1966 to August 1973, and it was like 4% per year, a little more than that. But real returns were negative 1 because inflation was so high. And actually, real returns on 10-year treasuries

were like negative 3% for years. So that's a 14-year period where stocks and bonds both did negative real returns, which is pretty tough. So inflation was just nasty. Now, here's the thing that I want to figure out was, so Volker came in in early 1980s. He raised the Fed funds rate to like 22 percent or something ridiculous, over 20 percent. And it fluctuated a bit, but it was in the teens for a while. And that basically pushed us into two recessions in the early 80s. I calculated it out. We were in a recession 60 percent of the time from 1980 to 1982. It's like 22 out of 36 months. Do you think the political will would be there today if inflation ran as high as it did in the 70s to let a Fed chair take us into a recession like that? A no.

I think it would be almost impossible. I guess it depends who was in the White House. So, it turns out, actually, I started reading Volcker's biography, autobiography. Didn't know he had one. Keeping at it, the quest for some money and good government. Yeah, it was out last year. And I put it down for a specific reason. Not because I wasn't enjoying it. I forget what it was.

I'll pick it back up. But I am currently reading a book by Binium and Applebaum called The Economist's Hour, False Profits, Free Markets, and the Fracture of Society. I was going to recommend this later in the show. About halfway done, and this is easily the best book on economics that I've read, maybe ever. It explains the history of modern economics. Even better than intro to microeconomics 101 in college. How economists got into society. So starts with like Milton Freeman versus Keynes and brings you all the way through today. So obviously, Volker was a big part of it. And he's

looked back on very fondly as a heroic, selfless political figure. At the time, he did not have very many fans, to your point of tipping the country into a recession. Right. Don't you think he must have been to the public if he did that today, he'd probably be a villain, would he not? Well, here we go. This is a line from the book. As Americans suffered, they noticed a new kind of pilot was guiding the economy. Auto dealers sent Volker the keys to cars they could not sell. Home builders sent chunks of two by four wooden beams. Quote, Dear Mr. Volker, one wrote on a block with a knot hole, I am beginning to feel as useless as this knothole. Where will our children live? A Home Builders Association in Kentucky published a wanted poster for Volker,

his crime, murder of the American dream. Whoa. This is one of those like you, you didn't like the movie the first time, but later on you figured out it was a classic. That's what Volker is. Oh, well, not me. No, I'm saying, yes, the perception of him. He said that Ronald Reagan said to him,

he learned in this little college he went to, his economics professor taught him that inflation was the end of the world. So Reagan gave him the rope to hang, basically, to hang. of the economy. How many legendary investors owe their career to Paul Volker for putting interest rates at 20% and sending valuations on the U.S. stock market to seven times earnings or something? Are we going to relitigate this one? No, I'm just saying it's pretty crazy. How many people at time could have predicted what would happen next? It's not like anyone at the time when interest rates were 15% and inflation was running at 15%. People said, oh, these bonds are an amazing deal right now.

Yeah, it probably did not feel like a fat pitch at the time. Let's just go with that. Okay, so sticking with the economic history lesson here, I tweeted this out last week. I ran the post for this a while ago, and I figured out that since I think Art Cashin had originally said something about this, that this is the first decade since the 1850s that we're not going to go into a recession, unless one hits us in the next three weeks. I think even if an asteroid hit right now, wouldn't it offset all the money we'd make from mining it that we wouldn't really go into recession if that happened. The S&P would gap down 4% to finish at the highest.

This is a very resilient market. Yes. Asteroids notwithstanding. So someone else tweeted over me. I can't remember who did it saying. Let me tweet it over you. Do you mean a quote tweet? Quote tweeted saying the National Bureau of Economic Research is the one that recreated all

this stuff going back to the 1850s because GDP wasn't even invented until like after the Great Depression. We did an episode on or was it an FAQ on recessions and the NBER does not define it as two successive quarters of negative growth. Remember that? Yeah. So however they define it. I think they said like general manufacturing productivity and other whatever. Someone took this back to 1776 when the country was created and said that since 1776 there's never been one decade that we haven't had a recession.

Anyway, it's been a long time. Does it really matter? I mean, this is just certain end dates, I guess. But the response, but the responses I got on this, so this is a survey of one, basically the responses to my tweets because this thing kind of blew up a little bit. Here's where the responses fell. Thanks Trump. Thanks, Obama.

This never would have happened. about the Fed, and that was the most of them probably, is the Fed stuff. So money printing and Fed and manipulation, and we're putting it off till later, and it's going to all blow up because we have $23 trillion in debt. What's the clapback? Well, I mean, the clapback is, if you really think that the Fed is all seeing and all knowing and all controlling of the economy, and they can cause this recovery to last 10 years, which obviously you have to give them some credit for this, they don't control it completely, but they've certainly helped. If the Fed could really control the economy like this, don't you think they would always do this? It would always be an

expansion and we would never go into recession. I mean, I feel like people look at, they take both sides of the argument of, oh, the Fed is just manipulating higher, but once it gets away from them, then the next side down is going to be 10 times worse. I just couldn't believe the number, the staggering number of responses here from Fed haters saying, oh, of course this happened. Look at how much money we threw with the system. Do you think that's ever going to really go away? The Fed helping the economy, it's always going to be here now. QE4. Forever. That's going to be the tattoo I'm going to get. Well, the reason why people are mad is because, well, people that were screaming at you

probably did not participate in the economic recovery or certainly probably more like the stock market recovery or both. And to that point, you know I was going to bring this up. Record outful has been. I saw this headline and I immediately knew. I wish I could have bet in this somehow. I know Michael is going to put this in the dock to talk about. This is like cat in it for me. I'm a sucker. Three weeks. We haven't talked about record outflows in at least three weeks. What do you got for me? Investors have pulled $135 billion from U.S. stock focused mutual funds and ETFs. This is an interesting. Do you think the same person writes this one? Is it the same author of the article that writes it? I know you're not an emoji user, famously not an emoji user, but are you familiar with the yellow emoji hand on the chin, like the thinking emoji. Right. So I would put that for this. This is a quote. The outflows are a sign that investors. aren't chasing the stock market strong performance. This suggests major indexes like the S&P 500

still have plenty of room to run after a decade-long rally. Cash on the sidelines. Why do Outflow suggest that there is plenty of room to run? Because everyone's a contrarian. So you've seen this Goldman Sachs chart that shows the breakdown of equity ownership in the country, right? Yes. I put it in here. You should be looking at it now. Are we going to link to this in the show notes? Yes. Why don't you tell people where they're going to be? they are. You have a blog? Podcasts too. So mutual funds make up roughly 30% of the U.S. equity market ownership.

The majority is actually household. Mutual funds and ETFs. Yeah, mutual funds and ETFs. The rest is between pensions and hedge funds and businesses and households. Foreign investors make up 15%. My point is they make up less than a third of the overall market, yet we try to ascribe the reason for their movements just to mutual fund inflows and outflows. So those inflows and outflows are a tiny percentage of the total mutual funds. And those mutual funds are a small percentage of the overall market. So I think we make too much of a leap trying to guess what's going to happen in the market because of what mutual funds are doing. What I'm trying to say is stop linking to this article every time it

comes out. Me? Yes. I'm just kidding. I'm kidding. But I'm saying it's not as big as you think, even though that's what the majority of regular people invest in. Well, $130 billion. It's like, oh, that's a lot of money, but it's like, to your point, that's one hundredth of one percent of not total assets, just total mutual mutual than the ETF assets. So it is a drop in the bucket. But as they are wont to do, they found somebody to give them some quotes. His name, Ted Darling, a 56-year-old investor in Cape Elizabeth Maine. Don't you think they could have the guys, the guys who wrote Anchorman, make these up with the names? And we interviewed Veronica Corningstone. Yeah, Ted hasn't been bullish on stocks this year. He moved his money into Treasury

inflation protected securities, the vanguard total bond market, and other assets such as golden silver. His view, inflation will eventually move higher while economic growth will further slow crimping corporate profits. And then there's more. Who cares about Mr. Darling? No offense, Ted. But why is this in an article, a serious publication?

I don't get it. He's predicting a redo of the late 70s, early 80s. Well, he must be reading Ray Dalio, who got dragged, I guess. in this Bloomberg article? This was quite the headline. So anyway, hang on, back to the other stuff real quick. Wait, you're still with Ted? My main point just on the mutual fund stuff is

institutional and professional investors move the markets, not individuals. That's my main takeaway here. People want it to be mom and pop that. Why is that a takeaway? Because people want to fade mom and pop all the time. And mom and pop don't run the markets anymore. Institutional investors do. But this isn't saying mom and pop are running the market.

Oh, you're saying Ted. They're talking to Ted. Well, no, I'm saying mutual fund inflows and outflows. You can't gauge the market on that because institutions are the ones that make the big money moves that move the market. And you're saying that they don't hold mutual funds and ETFs. Bingo. All right, moving on. Ray Dalio is more famous than ever in delivering subpar returns. Do you think anyone got an email at Bloomberg about this one from Mr. Dalio? I do. By the way, that's pretty good. That's not bad. What, the headline? Yeah, I feel like a millennial. Well, let me ask you this. So it says his

flagship return has returned an annualized 3.8% since the start of 2012. So I guess this is the Pure Alpha Fund. But this sounds a little fishy. Why are we going with the start of 2012? That's a good question. Sometimes it's hard to get the returns for these things, I guess. I don't know. No, no. We have returns and it's not a mystery. Obviously, 2012 is the start date, which makes his returns look the worst. Yeah, that makes sense. We've been talking about him in recent weeks. So maybe one of the reasons he's been sounding so bearish in his pieces and his outlook on the world is because if you have bad returns, you better sound bearish because otherwise what's the other explanation? So maybe I thought that maybe he wasn't positioned bearish,

but maybe he has been this whole time. And that's been the problem for his fun too. He also has different funds than just the pure alpha. But what was interesting about this is saying the returns have been bad, and his peers have gotten killed in terms of shutting down the funds and investors fleeing. Here's a quote. By contrast, Pure Alpha II is closed to new capital and has a waiting list of about $5 billion, according to a person with the matter. Investors credit Dahlia's reputation, along with savvy, marketing, and first-rate customer service. So the reason he has a $5 billion waiting line is because he's an influencer now. Yeah, he's an influencer. But do you think there's something to that? I do. No, I think there's something to the fact that he has $150 billion worth of

capital and he's got a really great long-term track record. Nobody gets fired for allocating to Bridgewater. Yes. In his defense, J.P. Morgan put out their guide to alternatives and they break down hedge fund strategy like as a quilt box, which again we'll link to. And by far, by far, the worst returns of the last decade are global macro. isn't it kind of fitting that after the crisis, everyone wanted a macro investor? That's all anyone wanted was, okay, you take the top-down approach. If we cannot play revisionist history for a second, don't you think that made sense at the time? Can't you understand why that happened? I think I understand why it happened because people tend to fight the last war quite a bit.

But that's the thing like buying insurance after an earthquake. You look for what just worked and then hope to double down on that, that it's going to work again. And I think that's the problem with investors that try to find this lightning in a bottle twice. It doesn't work like that. And I think that's the way that people allocate hedge money. This guide to alternative is also interesting because you see in this asset quote how many different types of hedge funds there are. It's a really wide range of strategies. It's not just one group of funds. It's a wide range of stuff. And if you don't know what you're looking for in this space, it can be really challenging to understand what the hell it is you're investing in in the first place in these

things. So this seemed to be like big news. Did you see this CalPERS news? All right. I'm going to put the fire out on this one, but go ahead. Beat me to the punch, please. Just put out the news. Okay. According to... I don't mean to dunk on all your headlines, but I have to do. No, no, no, by all means. We want to get to the truth. California public employees retirement system, aka Calpers, has terminated most of its external equity managers slashing their allocation to $5.5 billion from 33.6. I mean, when you're $300 billion fund, you basically have to do this. So your only choices if you're that big are to, I think it rarely ever makes sense to outsource if you're that big. Because the majority of the really good Canadian pension funds, they run it all in-house.

So that's what it looks like Kelpers is doing here. They're moving the majority in-house. So either- I have to actually back you. If you're that big, you either index or you run it in-house because it's way, way cheaper than paying an outside manager. Okay. Now it's my turn to actually, you're actually. Did you read the article? I'm guessing you didn't.

I wrote the headline. Exactly. you read the headline. They were developing an internal manager. I'm sorry, maybe not internal, but they were allocating to young budding managers and it failed. That's basically what happened. They're shutting that down, I think. Those things almost always fail, unfortunately. It sounds like a really good thing in theory. We invested with a manager that did that in the past and it's really, really hard to do. Even if you're that big and can kind of structure the terms of the deal to make it really in your favor, that's way easier said than done, obviously.

Sorry. All right. But if you're that big, you're $380 billion. Allocating to 12 different active managers, you're not going to find any outperformance at that level of assets. You have to index or do it in house and pay just nothing to your managers that are doing in house. Fair? I don't know. We'll say.

Okay. I think just at that size, it's really hard. Okay. So this is one of the better pieces I've read in a while. Adam Grant is a Wharton professor. He's been on the podcast tour lately. He must be pushing a book or something because he was on Tim Ferrary. Harris and Dax Shepherd and a few other places. He's got a few books out. I think you read the

origin, right? I don't think I've ever read any of his books. I did. It was pretty good. This was pretty good. He said the name of this piece from the Atlantic is called Stop Trying to To Raise Successful Kids and Start Trying to Raise Kind Ones. And so here's your survey of the week. If you survey American parents about what they want for their kids, more than 90% say one of their top priorities is that their children be caring. But when you ask children what their parents want for them, 81% say their parents value achievement and happiness over caring. So we have a little bit of a mismatch here. And he kind of goes through this.

And I send this to a few parents because this is one of the better pieces I've read in a while. Wait, excuse me. What? I didn't get it. It's in the dock, man. You didn't read it? I'm not on your parents' CC list. I'm sorry.

I guess not. What did I miss? Sometimes it's almost like framing is the way to do this. So I've read a few pieces that talk about instead of asking your kids, how was your day today, or what happened or what grades did you get? You frame it as he said, he said, he. he now asks this kid at the dinner table, who did you help today? Or how did you help someone today? And he said when he first did it, his kids were like, oh, come on, grown. This is ridiculous. And he said now that he starts asking them, they actually kind of go out of their way to do it.

And so he's looking to raise a kid who actually will be helpful and kind to others instead of someone who achieves a lot of so. And the other research, I think I might read a little piece on this because I've been seeing it is if you praise your children by saying you are so smart, you got an A in your paper, that's not going to help them in the future because they think they can just glide on their natural abilities they already have. But if you praise your children on, wow, you worked really hard on that, whatever the grade came out to, I just know you did your best. Kids will actually try harder the next time if you praise them on their effort over their ability. Makes sense to me. Thank you for the tip. Okay. So that's my parenting tip over the week for you.

Okay. So Senator Rand Paul wants you to pay for your student loans, we were 401K. He's putting out this helper act, which do you think that if they did a study somewhere like Michael Lewis or Malcolm Gladwell could do this, the name of an act gives it a better shot of actually going through? We know that to be true. Okay. Although I don't know how the 401K ever got through with that name. Well, they didn't know that in the 70s. Okay, so Malcolm Gladwell and Michael Lewis came on later and then we all know it.

Okay. Okay. So this act would allow you to withdraw tax-free and penalty-free up to $5,250. dollars from a 401k or IRA annually to pay for college or to pay off student loan debts. There's a bunch of other tax stuff in here that we could probably have our tax expert Bill Sweet go over for us. But that's kind of the main one that people latched on to. So I guess the thinking is, well, his defense was, well, student loan carries an average rate of 2% or 5%. And if you're investing in a 2% bond, if you take it out of your 41K and put it in there, you're earning that spread.

I don't know how many young people invest in bonds in their 401k. But I just, without getting into the nitty gritty and running like the spreadsheet stuff here, do you think it's ever a good idea to take that money out of your 401k in retirement accounts to pay off debt? I feel like there's always got to be a better way. Why would you have to? Well, I guess the thinking is instead of steering that money into your 401k, just pay down your debt. I just don't like the idea of messing with your retirement accounts. I would rather find another way to do this.

How about this? I know this is specific. What if you have $20,000 in your 401k and you lose your job and you need to make your monthly payment in that case? Okay, you just talked yourself into the wrong answer because if you lose your job and you lose your 401k, you've got to pay your 401k loan back immediately. Now you're talking about hurt from that side. Well, hold on.

This says penalty free. So do we know that you have to repay it? Well, you have to pay back your 401k loan. You're basically paying back a loan to yourself, but you still have to pay it back because that money comes out. Okay, so you're taking it out as like a distribution. Yes. Okay.

That's how I read this. Okay. I guess I was thinking about this more as like a student loan, a 401k loan. So I guess, okay, maybe I read this the wrong way. So this is actually just taking money out of the 401k that you already saved. I don't know. I've heard of worse ideas. This doesn't sound that outrageous to me.

So this is a debt for equity swap, basically. See, the problem is I feel like this is the kind of program that would just get utilized where parents would be forsaking their own retirement and paying off their kids' debts. How many people who have ridiculous student loan debt are going to be saving their retirement accounts anyway? Okay. All right. That's a fair point. I think that's the kind of thing where parents would end up ransacking their 401Ks to pay off their kids. And I think this is a situation where you want to put your oxygen mask on first and have your finances short up before you have your kids. So that would be my big worry is that parents would do this for their kids instead of people taking out of their own 401 kids.

All right. Not a bad idea. Let me ask you, I got to ask you about the Palat on ad. I don't get it Yeah Honestly it didn't bother me that much Can you even explain to me the source of the outrage? Was the source of the outrage that a husband got his wife a Peloton? People were mad at the husband bought his wife of Peloton And people were also mad that she was already this

Implying that she needs to lose weight But she's already a beautiful person She's already in shape And that it changed her life Even though she was already in shape On day one and then on the end of the year I mean That was like we have nothing else to be outraged at today

Let's just go for it We're all bored. It's around the holidays. But Ryan Reynolds sort of nailed it when he put her in his gin ad four days later. That was pretty good viral marketing. I give him credit for that. I didn't see the need to be so mad at Peloton for this. I mean, you're a Peloton user.

Are you going to give it up because of this ad? I just don't get it. I wonder it was the outrage. It wasn't a joke, right? No, no, no. I think people were, I mean, some people were probably using it as a joke, but the initial wave was outrage. All right. I got to ask.

So how many days a week are you using yours? Excuse me. As you know, I'm recovering. That's right. So that means zero days a week? I'm just getting over my injury from March for the Fallon, which was like seven weeks ago at this point. Okay. Can I offer a tip? Please. Next year, if you're going to do March for the Fallon, you should train for it. Well, I will. So, okay, stick it with jokes. There was a New York Times article.

Obviously, this was talked about over the weekend, this banana on a wall. Some of these quotes are just really amazing. you have a work like the Mona Lisa where everybody is coming back to look at it to take photos with it, to discuss it. Mr. Periton stood by the seriousness of the artist with whom he has worked for 27 years. Morizio is a pure genius, he said.

I see the magic happening on different occasions. So this banana came from the grocery store. It's selling for $120,000. This feels like the Joaquin Phoenix bit. Yes. With David Letterman when he was just goofing on everybody. Here's my take on this. My totally uneducated take on this. This art place wanted some publicity. They told the guy to do this. They chart. And don't you think the majority of the art world is just used for money laundering? I think the art world is potentially being used for money laundering. What else could explain someone paying six figures for a banana duct tape to the wall? I think this, whoever owns this studio said, we need to get some publicity. And how can you get some publicity? Do something stupid that will go viral on the internet. I think viral marketing and outrage marketing and joke marketing, like this is just something

that people do these days. And if it takes off, then they just go. And I think rich people go along with it because they're just laundering money anyway somehow through all his art. Too hot of a take? No, I think that's actually just right. That's like the porridge. And what book is that? Goldilocks and Three Bears. We've been reading that with my daughter lately. Kind of a weird book when you really think about it. A lot of the kids' books, children's books are very weird. Let me ask you a question. Is there a cutoff date, birth date, then you hear somebody's born, you're like, oh, man, I feel old. Every time I go to buy booze and you see the sign that says, like, if you were born before

1991 or something, it's like, oh, really? You know, when you see those numbers when you figure out who's 21 now? I had that experience. I'm not really quite sure how you describe this, but I was in a pharmacy and the kid next to me, it looked like he's around my age, and the pharmacist said how old, a birthday, and he said August 1990. And I was like, wow, you're a baby. But he's not a baby.

He's 29 years old. Yeah, that's... They still card me when I go to the store. I bought a bottle of wine the other day. I had all three of my kids with me at the store and they carded me. Well, you should be happy. I want to... Yeah, if I'm not old enough, though, I have three kids.

I deserve a bottle of wine. Sir. Okay. I went to get a bottle of wine yesterday and believe me, she did not ask for my card. You haven't been IDed since, like, 2006. All right. The median age, this one was flying around the internet a little bit. The median age of U.S. homeowners.

homebuyers is up from 37 to 41, and this has since basically, this has gone up eight years since the financial crisis. And a lot of people were saying, oh, this means that young people can't afford to buy a home. This is another way that young people are getting screwed. Our good friend, Jake, well, here's the other side. Our good friend Jake at Economic came up with the actually, he found that the average age of first-time homebuyers in 2017 was 37 years old, which is down since 2011 and it was 43 years old. And he's thinking the reason that these are different. So this is the median age of all homebuyers versus the median age of he was using the average age of first time home buyers. So maybe what explains this increase is the fact

that all these old rich people are buying second homes. The boomers. Yes. So they're maybe buying second homes or vacation homes or more homes. So the data doesn't really agree with the take that everyone was having that millennials can't buy homes. But to your point, waiting a little longer is not the worst thing in the world for a lot of people, I think. I agree, sir. Yep. Jason Zawag at the Wall Street Journal had a piece on buffered annuities. We've gotten some feedback because we've done a couple Talk Your Book podcasts on this idea. One of them was on structured notes with Jason Barsim at Halo investing. Another one was a while ago with

innovated ETFs and Bruce Bond. I still think these things are going to continue to grow in popularity. And Jason looked at them and he said last year, People brought these variable annuities that are just this form of insurance that's linked to a market index. You trade away a portion of your upside in exchange for protection of the downside. He's looking at these ones that protect you from 10%, loss of 10%. Don't you think that we're just at the point where these things completely move over from annuities and insurance products that will just have investment firms that create these for people instead of having them be an annuity? Doesn't it not make sense anymore that we have access to so many other strategies now that it's not easier to do these?

I know there are some ETFs that do this. Yeah. So what other structures would they be in the... But I'm saying why do these have to be insurance contracts anymore in annuities? Why can't we just make these using some options or other sort of derivatives? They are. Well, it just seems like the annuity insurance market is still vastly bigger than what you can earn in like a mutual.

I understand. I understand. Well, that's where the salesmen are. Yeah. And I guess maybe that's where the commissions are. I'm just surprised that this hasn't taken off a little bit more. and maybe it'll take like another prolonged bare market for people to want to buy these and they'll buy them at the wrong time again and fight the last war.

So someone, one of our colleague, Paul Zodner, who was one of our financial advisors, sent me this. This one was, tell me what I think about this. It's this place called Age Up. So this is a form of annuity. This is for you basically buy it for your parents to help them with longevity risk. And so they gave some stats at the website for this place. And it says one in three of today's 65-year-olds will live past 90. and there's a 50% chance that one of your parents, if they're both still alive, by that age,

we'll live past 90. And this is something where you put in like $50 to $250 a month, and you're setting away money for them for when they're older. So you start at like age 55 or 65 for them if you're worried that your parents haven't set aside enough money for retirement. And then they receive an annuity at age 91 that lasts for their lifetime, and they start receiving it from 91 to 100. I looked for some of the terms on this.

They were very hard to find, and I couldn't find what the fees were. And basically, if you pay for this annuity and they don't live to age 90 or 91, that money's gone. That's kind of your premium. Do you think it makes sense something like that at age 91 to start receiving a variable annuity for the hope that you'll live to 120 or something? Or if you're going to save money on your parents' behalf as it is, why not just save the old-fashioned way and invest it for them? If you're going to think ahead and save for 30 years for your parents and pay these premiums, Why wouldn't you just save that money in an easier way instead of hoping for an annuity to come

in in 20 or 30 years? Doesn't this seem a little overly complicated? Oh, maybe you'd rather rely on the insurance company than the Federal Reserve. Ever think about that? That's true. That seemed a little, a little extreme. And maybe if we live to be 150 and they figure out some cure for every disease in the world, whoever buys these will be, look like a genius, but it seemed a little excessive to me. Okay. Someone sent us this world economy in charts. So I thought this is pretty interesting. So there's one that show, shows the size of the economy. So the United States is the biggest at 25% of the world economy with $20 trillion of GDP. China's second with $12 trillion. And then they show the world

population percentage. So here's an interesting one. This is maybe the biggest case you could make for emerging markets just on the back of the envelope. So based on these charts, here's what I got. The U.S. has roughly 50% of stock markets worldwide. We also have just 24% of world GDP and 4% of population, which is pretty nuts. China and India together have 5% of equity markets, 19% of GDP, but 37% of population. How do you square those? Obviously, because maybe we're the biggest tech up in the world. USA.

It is pretty wild when you look at the ratios of those. And obviously, you have to take into account demographics, and China probably has a worst demographic profile than us. We're maybe better at bringing in talented immigrants to come here and create stuff, innovate. but that's pretty wild, is it not? That ratio of stocks to GDP to population. It's basically backwards. Yeah, those are good.

All right. That should have been a blog post. I tweeted that there was an article, an op-ed in the journal about Schwab moving their headquarters from San Francisco to, believe it's the Dallas area. Austin, I thought, no? Somewhere in Texas. Anywho, Schwab charged about $70 per trade in the 1970s, which was, about twice as much as the price of the average stock in the S&P 500.

Wow. Did they charge more or less than they charged on Boiler Room? If you missed it, we just, on Monday, we rewatched the movie Boiler Room from the late 90s or the 2000s. What do we call it, a random watch on Wall Street? We're going to be watching more of these finance movies. Anyway, check that out. We'll be in the show notes.

So imagine buying one share of Caterpillar for $142. and the commission is $250 or whatever it is. If Robin Hood was invented in the 70s, it would have been worth $8 trillion, give or take. It's pretty wild. And so Gus Sauter, who's the former investment chief at Vanguard, I think he retired recently, he was on the Longview podcast with Christine Benz and Jepp Attack. And he was talking about the fact that I think maybe these prices of the cost of trading has something to do with back then that few years.

were active managers really traded very much, like the turnover was much lower. But he was saying, so if you look at those turnover numbers throughout the years, investors turn stocks over way more frequently now. He was saying the fact that markets have become more efficient over time and technology has enabled the easier access of different strategies and stuff, that has actually forced the hand of active investors to trade more because stocks don't become as mispriced as they once did. So the fact that we've seen increased turnover lately actually makes a lot of sense because it doesn't make sense for these active investors to hold anymore because the windows aren't as wide or as long as they used to be. So in effect, indexing has made it

harder for active funds to outperform, but the growth of indexing continues to make it even harder because you're raising the hurdle in terms of making them trade more. It was kind of such a simple theory and idea that I'd never thought of it, but it makes a lot of sense, the fact that markets are more efficient. So they almost have to trade more because they can't just sit and wait for those fat pitches because they don't come as often. Thoughts? I'm not sure. I need to think about that. Investopedia, top terms of 2019. So their data science team examined historical data to identify which topics had the most notable influx of visitors over the past 12 months. Some things in here definitely are not like the others. Yeah. So they said they have 22 million monthly readers

that they took this from. Yeah. One through 10. Negative interest rates, dark web, fire, as in the fire movement, conventional mortgage, negative bond yield, exempt employee, JZ, Carl Marks, Inverted Yield Curve, and ESG. Okay. What do you got? Who's searching for JZ on Investopedia? Is he like a Muni Bond officianto that we don't know about? And who's searching for exempt employee? I guess it makes sense negative interest rates is up there in inverted yield curve. You'll notice that there wasn't one term on here about the stock market.

Does that mean that we have more room to run? not in the top 10. That's worth asking. It's even better than cash on the sidelines. So there's negative bond yield and inverted yield curve. I feel like negative bond yield is something that an investipedia visitor would search. Yes. It makes sense that probably not a lot of people know what an inverted yield curve is and they go to investa pita to learn what the definition is. Dark web as number two? I think I've read about that before. I still don't really understand what it is. Is that the same thing as the deep state? Yeah. Well, the dark web is like the other internet where you can put a hit out on someone or something, right?

So somebody tweeted this to me. I did a little, this wasn't a tweet storm. It was a thread. I know the difference. A thread is three or less or maybe five or less and a storm is greater than five. How's that? Sure. Thank you. So I was tweeting some charts from the JP Morgan Guide to Alternatives and somebody replied to me with at thread reader app unroll. And so it automatically sends you a bot. It sends you a tweet back. You click on the tweet, and it shows you in one web browser all of the tweets without the threads. So it turned into a blog post. Yeah, it's kind of cool. Not bad. And speaking of bots, Nick showed me this. Somebody tweeted, hey, can y'all do me a favor and quote tweet, reply to this with something along the lines of, I want this on a shirt. Thank you. And the picture is, it's a picture and it says, this site sells stolen artwork, do not buy from them. And so this particular tweet apparently went viral, and there are bots that pick up on this and make it onto a T-shirt.

So I'll include this in the show notes so you see what I'm talking about. But Amazon, there's a picture of Amazon with a T-shirt that says this site sells stolen artwork, do not buy from them. There's two more examples of this. But there's apparently bots that are scraping the Internet to look for things to put onto T-shirts or various items. Okay, so it says it's a funny memes shirt, it says. So they look for memes and they sell them on shirts. It's like automated plagiarism. Okay. Getting there before you patent that word or something,

or copyright it? Yes, I guess so. We got no listener questions this week, so I'm going to go right into recommendations. So we went to see a new comedian the other day. The other night for it was my sister-in-law's birthday. We went to see a comedian named Chad Daniels. Guy I've never actually heard of before, but he was very good. He's got a special on Amazon Prime that's worth watching. He was better in person, I think, than he wasn't as special. but there was a guy who opened for him who was a local guy trying to become a comedian and it made me realize very quickly the difference between an amateur and a professional and this amateur guy had a couple of good one-liners and he had some good joke premises but he kept messing up his punchlines and he started the same joke a few times like you could

tell he was nervous he was kind of sweating and then this other guy gets up there and he is just smooth as can be and it's one of those things where you think being a comedian is just getting up there and telling funny stories or being able to tell a good joke and carry the room. But this guy just had 150 people in the palm of his hand. And he was just interacting with the audience. And it just made me realize the difference between someone who has been doing this forever and is a professional versus someone who's just trying to do this and starting out. You can really see that difference, especially up close and personal.

So anyway, Chad Daniels, one of my favorite new comedians. He was very good. I've got a new goal in life. Wait, can I ask you a question? Is that really fair? One of your new favorite comedians? You've seen one of his standups, and now he's one of your new favorites? Yeah, I saw a standup, and then we watched his special, and I'd never heard of him before.

He's one of my new favorites, as in, I've never heard of this guy before, putting him on your radar, even though he's been around for a while, I guess. I really enjoyed him. He went for an hour and a half. He went longer than he had to, and he just killed. Okay, so I have a new goal in life. My goal in life is to not go through a midlife crisis in my 40s. I'm reading the happiness curve by Jonathan Rausch, and I think we may have talked about the happiness smile before, how in your mid-fort. 40s is kind of when you're at your least happy. He goes through all of the research on this. This is a

really good book if you want to get into that happiness research stuff. And he basically says, when you're younger and growing older, there's this expectations gap where you expect things to be way better than they are. And as you approach 50, it finally turns a little bit and the expectations aren't nearly as high. And so once you sort of level off that expectations gap, that's when people are 50, 60, 70s, that's when they report the highest happiness. He said it's almost on average in every single country that they've studied, that in your mid-40s, you go through a midlife crisis. It was actually an entire episode on The Crown. I believe the quants refer to that as robust.

Yes. That's not saying it's everyone, but he talked about how his father was just kind of a jerk most of his life. He always flew off the handle for no reason. And later in life, he kind of settled down a little bit. He said, well, what happened? And his dad said, I liked this saying, with age, we get fewer $5 reactions to nickel provocations. I thought that was great.

That's good. Okay. So should we get into the marriage story movie? Well, I was about to say maybe that's a, that's an appropriate segue to a marriage story. What did you think? So this is the movie, the new movie on Netflix with Adam Driver and Scarlett Johansson. All right. Well, I'll tell you exactly what I think. I enjoyed it. My wife did not at all. She was, so I don't know if. This is maybe a movie you don't want to watch with your significant other. Really? Yeah. I think these kind of movies are tough to, it's, it's. I don't know if I enjoyed it because I was a child of divorce. I'm not sure that it has anything to do with it. So it's called Marriage Story, but it's really a story about two people who are getting a divorce.

So you know what? This is a movie for people in cinema. Yes. This is probably one of the best acted movies of the year that I've seen. This was not a movie. This was a film. Yes. The acting was phenomenal.

Adam Driver, I said to you, has to be hands down the best millennial actor on the planet. It's probably not even close. They're probably not even a close second at this point. So the cast was excellent. Also, Laura Dern as her attorney, Scarlett-Therhansson's attorney, was very strong. Alan Alda and Ray Leota. I mean, it was a killer cast. A little too long for a movie that is. So here's a thing. The best 10 minutes of the movie are the first 10 minutes. Yes. If you just stop after that first 10 minutes, you'd walk away happy. It's not exciting. It's not particularly fast-paced.

They kind of brought it around to that first 10 minutes at the very end, which I kind of liked. But you had to wade through a lot of mud and crying and yelling. to get there. So I liked it, but absolutely not a must see. But I feel like this is going to do very well come award season. Do you agree? Yes, but if you're a person who doesn't like sad stories and wants the really happy ending where people end up together, this is not your movie. You know what? I feel like you and your wife and myself and my wife, we've got a chance. And here's why. Okay. We are able to disagree about movies. Are there couples in your life who are like, we liked it? We hated it. Yeah, yeah, good point.

It's like, wait, what do you mean we? You're allowed to disagree. Ah, Michael's Guide to a Happy Marriage. You can disagree about movies. So my wife and I started watching, last night we started watching Britney runs a marathon. Okay, I saw it on Amazon. Okay, so it was like getting late. I didn't see it yet, but I saw the preview.

I was getting tired, so I said to my wife, I was like, you know what? I feel like this is more for you than for me. So I'm going to bail. Yeah, it happens. And every once in a while, that happens with my wife, too, where I say, you know what? She'll be like, I'm out and I'll say, all right, I'll finish to my own. So, here you go. Any other ones? Any books lately?

Well, like I said earlier in the show, The Economist Hour, I started reading, the Economist hour is excellent, by the way. I started reading, I think because I loved Knives Out so much, I was like, you know, maybe I'll try and read a murder mystery. So I went to the Agatha Christie collection, and I am reading Murder on the Orient Express, which was written in 1934. You ever read it? Oh, it's that old? No, I have not. Did you see the movie? No, I didn't see it yet even. It's been remade like three times, I think. So that's that. Okay.

All right. Send us an email, Animal Spiritspot at gmail.com. We want to give a quick shout out to all the listeners. Thank you. We actually passed three million downloads this week. And I think we've basically been doing this for two years. We couldn't have done it without all people who give us feedback and questions and funny inside jokes. Matthew Passy.

So we really appreciate it. We have a lot of fun doing this. And we just want to thank you guys for listening every week. We'll talk to you next week. Thank you.