Animal Spirits Podcast - Obvious Signs of the Top (EP.257)

Episode Date: May 18, 2022

On today's show we discuss why markets are so confusing right now, the different kinds of recessions, inflation expectations, how to survive a bear market, the best movie sequels ever 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 NASDAQ. NASDAQ sent us this new survey of wealth managers, RIAs, brokerage houses, those kind of places, warehouses, asking, yeah, these kind of places. A couple of questions I thought were interesting based on where we are in the market. If you believe the stock market was headed for a prolonged bare market, what would your most likely advise clients to do? This was basically 50-50. That's me.

One group said, trade defensively to avoid a downturn. The other one said, hold first. and ride the bear market. I was surprised it was that close. Okay, here's another one. What's split? Wait, hold on. What's 50-50, basically.

It's probably 51-49, hold firm to trade defensively. I just got to ask you this. Neither of these are easy, right? It's not easy to hold on in a bare market. No. But what's more doable? Holding on for dear life or trading your way through it? What do you think is more realistic?

Well, which one has more career risk? I guess is what you're asking. No, I'm not even talking about from the advisor's perspective. I'm just saying just real talk. Well, my answer is always that buy and hold is simpler. That might not mean it's easier. It's for most people trading defensively probably makes them feel better. When do they trade offensively?

I don't know. Here's another one. When you want to trade defensively, which investment categories do you go with? The highest one here? So fixed rate bonds is the lowest answer. variable rate bonds is on there, hedged equity. So I'm guessing that's some sort of fair market fund or hedge funds. Yeah, market neutral kind of thing.

That surprises me. This has to be a great year for market neutral. The last 12 months, last 12 to 24 months. Yeah, it is. All right. Last one. Which would you consider to be a bigger risk to your business as an advisor? Not meeting the benchmark for which I set expectations, not protecting my clients

from major and prolonged market downturns. Which one do you think, one without looking at it? it here. Okay. This is a tricky question. How would I answer? How do I think advisors would answer? This is, this is like the Kane's beauty contest. All right. Ask what's, I forget. I forget it. So the question is, not tracking the benchmark. Yeah, not made of the benchmark for what you use to set expectations or not protecting your clients from a major and prolonged downturn. Okay. I think most advisors, I'm going to say 60% of advisors would say number two, not protecting you in a downturn. Yeah, it's probably more like 70% of people said that. Protecting for it.

But that one may be hard, but I would think that. Setting expectations, you put the downturns in the expectations. That's what I would think. But it's interesting to look at this from a career risk perspective because there probably are a lot of advisors who get fired during a bear market for either not setting the right expectations or not protecting because the client didn't know. Oh, I didn't realize this was the thing. Anyway, interesting stuff.

We talk a lot about retail, but the advisor side of things has way, way more money, right? And is more meaningful and moving assets probably. Thanks to NASDAQ for sending this over. go to NASDAQ.com to check out more of their research. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Battenick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions

and do not reflect the opinion of Ritt Holt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael, Ben. We're going to short start. Hey, oh. We're going to start the show off with, I don't know this housekeeping. Fantastic scene in a long came polly. Is that the first time that word was ever used? You just said the word sharded. I know. But I don't think that I'd ever heard of that word before Long Came Polly. Very underrated movie.

Is that the scene with the ferret? No, it's the scene where it's Philip Seymour Hoffman, and they're like an art exhibit. And he says, I shirder, dude, I got to get out here. Rest and peace. Love that guy. All right. We are looking, we, Riddholt's wealth management is looking to add to our growing tax practice. Bill Arseronian, who runs out is looking for a junior tax planner to join him and Bill Sweet.

So preferably, we're not Namest. But it would help if we don't hire a third bill. So if you are somebody who is looking to do tax planning for individuals, give us a shout. So we have a whole running Google Doc of questions that come into all of our different shows, all the YouTube, the podcast, all this stuff. We use them for Portfolio Rescue, use them for this show. And it's crazy how many deal with taxes. I know it's more exciting and sexy to talk about the markets and recessions and stuff,

but regular normal people who are dealing with finances probably care more about taxes than any of that. stuff, which is surprising. So Bill Arteronian's background, actually, actually, we got him from the Animal Spirits announcement that we were looking for a tax planner. We found Bill. He was a diamond in the rough. There's not like a million people that work at an RIA that also file taxes. So he was just an absolute gem. So we're looking to replicate him. So yeah, reach out. Also, shout out to Bill who ate a 40 piece chicken nugget from Chick-fil-A in nine minutes a couple weeks ago. It was a challenge in the office. So kudos to him for doing that. All right. Ramp Capital tweeted out last week. Looking back, what was the most obvious sign of the top? And I feel like

pretty much the whole way up. Everyone is making jokes. This is the top. This is the top. This is the top. This is the top? Here's my initial list. I was crying reading this. Okay. Do you remember this video? How do we make money from home? For starters, this is not a sponsored video. We just get this question all this time and is this TikTok people. How do they make money trading? So basically, I just trade stocks on an app called Robin Hood, which I left the link in our bio if you want to check it out. It's free to download, free to sign up, and actually give you a free stock so they're paying you to sign up.

Wow. But again, not sponsored. And I know trading sounds intimidating. Yeah, the TikTok stuff was. I see a stop going up and I buy it and I just watch it until it stops going up and then I sell it. And I do that over and over, and it comes for our whole lifestyle. If you're wondering how much you can do this.

All right, God. All right, I got, well, the recent Matt Damon Crypto Commercial, Fortune favors the brave. That was an obvious sign at the top. Tom Brady, laser eyes. Wait, hang, hang, hang, hang, hey, hey, hey, oh, time that. None of these were obvious at the time. We knew each and every one of these were more ridiculous than the last. Yes. But it wasn't like, okay, this is it because there was a million signs at the top, and we'll get into that in a minute. Yeah, it's more like a moving average. It's not like a certain day. I think, remember that Shiba-Inu's story about someone turned like $8,000 into $5.7 billion? Remember that one? That was a good one.

You can't say the February 2021 blow off like meme stock thing. That was like the beginning of it actually. Musk going on SNL like pumping Dogecoin. That had to be a sign of it. That was basically Dogecoin stop. All of the Buffett is over the hill stories. And then this was a good one for me. This was an early, early sign of the top.

Remember Dave Portnoy pulling out scrabble letters out of a bag and picking stocks based on the tickers that he pulled out of a scrabble bag? I think that'll think Dave Portnoy taking over the stock market was part of it. Didn't he see a deer outside his window when he bought deer? John Deere, the stock. Remember the art commercial mocking index funds? That had to be a close to a top for them. Michael Badnick getting an NBA top shot. That was like the beginning of things.

That was February 2021. That was literally the top of the market. Oh, was it? Or investor enthusiasm, as J.C. says. This is Chimoth in January 2021. When Bitcoin hits 100K, I'm going to buy Goldman Sachs and rename it Chimothman Sacks. That guy doesn't quite tweet as much anymore, huh? Not like that.

I think that's all I got. Okay. I have one first. you and I. Let's throw some egg in our own face. Okay, bring it. What did I do? No, you and I. I stand by this. We're never paying off our mortgage. That was like a sign of the low for mortgage rates, basically. I mean, with all of these opportunities to earn a higher rate of return. Oh, is that why? I thought we said we're never paying it off because rates are so low. That was my idea. What were you doing? Same thing. No, it's the same thing. It's the same thing. Okay. Rates are so low. You guys are getting paid. Yeah.

You're right. By the way, for the record. People refinance. Well. Forever. When did we can refinance again? Okay. Did you have this Exxon mobile one?

That had to be. So that was in January. Oh, yeah, yeah. Zoom was bigger than Exxon. So Exxon and Zoom crissed in October. Was it October 2020? We spoke about this. We were on Derek Thompson.

We're going to get hundreds of examples from people of all the ones we missed. There's so many that we missed. Oh, thousands and dozens. But the thing is, listen, when me look, Coonis rotated into stocks? Was there ever a more obvious sign of the top? That was 2013. Still the greatest CNBC headline of all time. Mila Coonis rotates out of cash into stocks. Easily. That was literally 2013. So just relax. Oh, yeah. So anyway, so we spoke about this with Derek Thompson yesterday, Ben and I were on his podcast. Exxon is now 14 times the size of Zoom.

They were the same size less than a year ago. So maybe my article, like, timestamping the bottom, I said, is Exxon the next general electric? And the answer is a resounding no. I marked the bottom in energy stocks for sure. You know what I did? I made money trading Exxon. I actually did pretty well. I made like 20%, not to brag.

I probably bought it around, I'm going to guess I bought it around 35, and I probably sold it around 45, something like that. I thought you bought it for the dividend yield. I thought you were being paid to wait. Well, I was impatient. Do you know what the stock is right now? $92. Oh, so you only missed a double.

That's not bad. It's not like there's a few stops. I mean, in fairness to me, in fairness to me, I was definitely getting out of 50. Yeah. So, Ben, how are you feeling about the market? Well, it's not crashing anymore, so it seems to stop. We did our listener mailback questions yesterday and somebody asked us, asked me, Michael, is this the higher low that you were looking for?

No, it's not. This is a low. So you think more pain is to come, judging by technical analysis? I don't know. All I'm saying, for me, for growth stocks, if I want to buy a growth stock, I'm not interesting in buying off the bounce. We saw a low. I want to see a higher low. We haven't seen that yet. We're going to. That's what I'm in. Obviously, unknowable. Let's say that 19% in change last week, that was the bottom. Let's say it was. I don't know if it is. What's with that

19% number messing with us? We've had like 319% declines. It happens a lot. 1990. It happened 2008, 2011, 2018, like 19% and changed. Just, but let's for argument sake say that was the bottom. and we go back up, does that mean, did people overreact if that was a bare market for, I don't know, reason, or is this just the way things going on now? No reason. Why do you keep saying no reason? I'm saying is the overreaction that people are saying,

okay, this is a 30, 40% crash coming. There seems to be a growing course of people who think this really is the next big one. I've heard a lot of smart people trying to say, like, okay, the last, everyone by the dip is over, and then this is it. This is a reset one. I don't know that 30% would be an overreaction because all that would do is take us back to the pre-pandemic highs. True.

That's the other crazy thing. We mentioned with Derek yesterday. The stock market is still up from pre-pandemic levels. So take away all the bad stuff that's happened in the meantime. The pandemic, inflation, this is the second bear market in two years. And the stock market is still up from the end of 2019. That's pretty impressive. I am more or less, I cannot say, I was not saying I am more or less firmly in the camp.

That's too wishy-washy. I will say that I am in the camp. I think that the market environment that we were in is over. And to be very clear, I'm not saying that we're never going to see new highs again. I absolutely think we're going. I mean, obviously, we're going to, whether that's in two years or four years or five years, you know, we'll say. But just this idea that the Fed having our back, I don't think that can be overstated

how important that was. And you could just say it's psychology, fine. That's what matters. But here's the thing, though. High yield spreads are going to blow out eventually if they keep down this path. something's going to blow out, something's going to break. We're going to have three hedge funds go under, and the Fed is going to have her back again. They just are.

I'm sorry. You're going to have one down inflation print, and the Fed's going to have her back again. You watch. I'm not saying that the Fed will never cut again, but we're still only at 75 basis points. They have to get to 2.5 percent somehow. But why? The market is already up there. Maybe they will.

And they keep saying that they're going to do 50 basis points for the next few meetings, and maybe they will. But the market has already done a lot of the heavy looking for them. That's a very fair point. So the political pressure, and I know they're like apolitical, whatever, okay, the pressure to cool off demand if inflation is still hot is going to be massive. Now, to your point, the market might cool off demand on its own. Retail sales just came in, by the way, not a bad number. Okay. People are still spending money. Well, this is arguing with myself, but maybe you're

right that if people keep spending money and saying, whatever, I don't care, inflation is hot, but I want to spend money because I didn't for 18 months or however long people held back for, then maybe it won't matter. The market will force the fed's hand. And you have have to keep raising. This is Ed Clissold from Ned Davis. He did a tweet thread on like waterfall declines. Where are we today? So basically, we saw more or less stocks just being liquidated. There was very little bounce on the way down. So he defines a waterfall. The average waterfall lasts 40 calendar days. Recently, it was 44 days. So on the magnitude wise, it wasn't that bad, but in terms of the length, it was pretty there. But we didn't get a volume spike. And this is what

people are saying that they're looking for capitulation. It doesn't always follow the textbook rules. But he's saying on average, the 10-day New York Stock Exchange volume jumps 111% from the pre-waterfall low to the high. This time it's up 32%. So we haven't seen like the absolute pukage that people are looking for. And you might not get it. That's the thing. Every correction is different. You don't have to get that. So Gavin Baker did his thread saying he's super bullish on mega-cap tech here. Great inflation hedges, broadly growing revenue and gross profit margins over 10% with ROICs, generally trading an all-time low, EV to free cash flow, PE multiples, and almost all aggressively buying back stock. All time is a long time. This isn't 08 or 2000.

I tend to agree with them there that like everyone trying to make this 08 or 2000. I still think that's a stretch. Oh, I agree. The euphoria in the 90s, it got bad this time, but not that bad. And the consumer was just in awful, awful shape starting in like 2006 back for the 08 crash. The reason why you can't get too bearish is, first of all, stocks just got killed. To get bearish now, it would be just the height of foolishness. But that's what happens to a lot of people is...

Totally, totally. His point here, buying Amazon down 40%. You're going to be fine. It makes sense to me. I think so. I don't know enough to, like, say Amazon's a fat pitch, but I think if you buy Amazon here, you're going to be fine. The consumer balance sheet, we keep saying this, but it's true.

The consumer balance sheet has never been better prepared to weather a storm. Sam Rowe is tweeting charts about corporate cash that they have. We're going to get valuation support eventually. But I guess that's the thing is like, where should stocks be trading given where we are right now? Because right now they're like 17 times. I've looked at this. The average P.E ratio when...

That seems high if inflation persists. That seems on the high end. That's the whole thing. But I guess this is the problem. Like the 70s thing, the Fed didn't all of a sudden start fighting inflation in 1974 when inflation started taking off. The Fed waited until... late 1970s, early 1980s to do it. This time around, they're already fighting it now.

Fighting at 75 basis points. But you don't think the Fed's jawboning has raised mortgage rates over 2% and raised all the bond yields have come up? I think that is the Fed fighting. Okay. The fact that the market is believing them, the Fed wasn't doing this in the 1970s. They were easing in the early 70s because there was that huge bear marketing crash in 73, 74. All of the back and forth right now that we're having in this dialogue is just proof that whatever happens a year from now, let's hold ourselves accountable. Neither of us do. The range of outcomes is very wide.

If inflation a year from now is 3%, everyone will go, of course it was transitory. And of course the Fed brought it down. And if it's still six or seven percent, people are going to go, of course the Fed couldn't do anything because commodities and supply chains and it is going to look obvious. I actually wrote about this. One of our like tenants, like one of our main beliefs, I think I speak for both of us, is that most of the time, even if you're given all of the economic data, ahead of time. It's no sure thing that you can predict what the stock market does. I feel like

right now, give me inflation and unemployment in December, January. And I feel like that's more or less all we need to know. Do you agree or do you disagree? I think an inflation will be the one. If inflation is 4% of December, three or four percent of December, stocks are way higher than they are today. I think. I think probably right. Well, unless it throws us into a nasty recession. But does it throw us into recession, but people don't care because they're looking past, so stock's bottom before then. This is like why investing is so, so hard. And anyone thinks that they can predict what's going to happen in the short term is either lying or delusional in my eyes. Like, it's so difficult to do. Investing is all about that scene from the Princess Bride. Oh. With the poison. Yeah.

That's a favorite. Come on. That is the best. Yeah. I got my kids into that one. There are a handful of movies that like you want your kids to really, if they don't like this, I'm going to have to disown them. Princess Bride. Did you listen to ETV watchables? Not yet, but it's kind of funny. played a little family game last night. My kids like to play like a favorite skin. What's your favorite this? And everyone goes around and you hold a ball and everyone says what there is. And we watched it.

And my son, George, who just turned five last week, said his favorite movie of all time is ET. And I was like, okay, my work here's done. Wait,

he's seen ET? Oh yeah, of course. We've watched ET last year. Okay. I got to do it. I'm pretty sure that I'm going to cry. Let him get a little older.

Okay. That movie is like pure nostalgia. My kids loved it. I don't know. We haven't watched it in a few months. And he said, yeah, my favorite movie is ET. All right.

This is pretty good. Jason Gepford. I feel like we haven't mentioned Satsman Trader in a while. He tweeted. By the way, we're in a huge bear market for Michael mentioning Pachy McCormick because text down. Oh, right? Sorry, Pachy.

I'm still a loyal reader. I read his alchemy post this week. Man, what does that say about me? Sorry, Pachy. I still love you. All right, Jason Gepford. During panics, correlations go to one. Not there yet, but climbing quickly among tech stops.

There have been 493 days in the past 23 years when correlations. when correlations were as high as they are now. Six months later, tech stocks were higher 491 times. Not bad. We're not good. Bottom? Good. That's the other psychological trick you're playing is literally everyone knows what the risks are now.

I mean, unless there's an unforeseen shock that comes out of nowhere again, and the war was certainly one of those. But unless something comes out of left field, the risks are plain to see it for everyone right now. That's like the reverse psychology you have to play with yourself to think, well, if everyone is too far on this side is that a coiled spring or is that a rubber band? But everyone is bearish, but they're not bearish enough. I can't tell if we're in first level thinking

or second level thinking or third level thinking. All right, also from Scentimate Trader. It's so freaking hard to think past this. What do people say? Avoid the noise. Ignore the noise? Yeah, okay. There's no reason to look at your 401K.

That is true. There's literally no reason. But ignore the noise is a joke. It's impossible. So he tweeted editors, field stories they think readers want to read. And what do they want to read about bare markets? By the way, guilty.

We've written plenty about bare markets over the past couple of weeks. Sorry about that. Last week, there were over 8,200 articles pointed out about that. True. The second most of any week in a decade. That's a pretty cool reading there. Okay. I hate to keep quoting myself, but I came across this one.

I was searching for something. Well, we're at that part of the cycle. Okay, but it's just funny to look back. So I wrote this March 5th, 2021, and I said, could inflation give us a wonderful buying opportunity? At the time, the inflation rate was one, point seven percent on the latest reading. And break evens were coming up still very low. And I equated it to the post-World War II. And I talked about this on Derek's podcast with plain English,

but I wanted to put a little more meat in the bone here. So look at this inflation chart from 1945 to 1959. Huge spike up after the war to 19 percent. Then it came crashing down. Of course, there was a minor recession. Another spike up in the early 50s came crashing down another recession. Another little spike up come crashing down. And by the end of the decade, it was low again. The 1950s for the S&P 500 are the greatest stock market in history from a return perspective. It's the best returns ever. There were recessions in 48, 49, 5354, and 57-58. From 1945 to 1959, the U.S. stock market returns 17 percent per year. There was three recessions. I counted one, two, three, four, five, six, seven, eight, nine, ten, eleven, eleven corrections in that time.

The worst was only like 27 percent, but there's still corrections. My point being, we can have inflationary spikes and then minor recessions and inflationary spikes and minor recessions and they don't have to be the end of the world. We can have corrections. It doesn't have to be the end of the world. I think some people just want that to happen, but it doesn't have to be that way. And I think recessions are this necessary evil in some ways that sometimes if risk is taken too far, you need a slap on the risk to bring people back in line. And I think that's what a lot of investors have gotten. And maybe if we get a minor recession, that will just better align people to say, okay, shouldn't have been as easy as it was. Is that asking too much? No, I don't think so. I would

be mildly surprised if we get like a big one. I don't know what would have to happen for this to turn into a 50% market crash. I think things would have to get so bad. I don't even know what that would look like, but that's definitely not where my head is at. The Fed would have to get to like 8% or something. I think that might do it. But then savers aren't being punished anymore. That would be truly, I hate to use the word shocking, but that would be shocking. It really would be shocking. All right, let's move on from that horror show of a possibility. Buy mutual funds. Still, another $20 billion in outflows last week, the 12th straight week of bleeding a year to date. I'm pretty sure this is unprecedented. It does make sense when you think about it. We thought early

in the year, if rates go higher, there's going to be a ceiling on them because people will flood in. But all the money had already flooded in, I think, is the problem. So the people leaving now, it's last in first out, I guess, people who were chasing the bond market. I was totally wrong on this. But you think people that were flooding in were chasing price? I think there were some definite momentum traders where... Because I just thought it was demographics. I think a lot of it was, but a lot of it was those bonds were up so much heading into March 2020 because rates just fell up. That was a waterfall in the other directions worth rates. And you had these amazing returns for like TLT was up 30 or 40% in a year. What do you say to people that are selling bonds right now? Where are you going with that

money? I've been getting a lot of questions from people saying, I want to move in my 401k to a stable value fund or into cash or something like this. I think that's the point, though, that I would not try to get too greedy and say, I'm going to wait until rates hit 5 percent and then I'm going to reinvest. Those rates may not happen. I do think, you have to think in terms of, we've talked about this before, the correlation between starting yield for high quality bonds and returns over 5, 10, 15 years is like 0.95. So whatever yield you start with, so today you're getting close to 3%. Your return over the long term in bonds today is going to be about 3% per year. That's not amazing. it's not really juicy, but it's not bad either.

And you could continue to see some pain in the meantime if rates go up more. I still think that's a pretty decent proposition for investors right now. All right, Ben, you wrote a good pose. Bear Market Survival Guide. You listed five bullet points. You try to be healthy. You told me you don't eat after 3 o'clock. How is it even possible?

Hey, those are private conversations. I just want to say, no, it is impossible to talk about diet or exercise without sounding like a complete debag because either you sound like you're bragging. I'm saying you either sound like you're bragging just to be like this is how I did this. You sound like you're bragging or you sound like you're saying something that's unrealistic to most people. So that's why I just like trying out to have those conversations. But yes, intermittent fasting in my late 30s is how I have stayed healthy, I think. What else did Joe Woken teacher? See? Okay. So you're healthy. You eat right. You exercise. You sleep. You turn off your brain.

for a while. What does that mean? At night, I watch TV or movies or read a fiction book. I'm trying not to just pay attention all the time to the markets. Even though you and I do pay attention and stuff a lot and we're reading and constantly looking at stuff, I try to watch the NBA playoffs or I try to do something that I watch TV with my wife for a couple hours a night and just try to completely tune everything else out and not even paying attention to the market. I think that's healthy. You said you live your life. I think having young kids is amazing for this. Like on the weekends, there's very little time. I was at TV. I was at TV. tea ball the other day. And nobody gives the shit about the stock market. No. On Saturday mornings,

we have three soccer games. And we're from 8 a.m. until 1 p.m. basically. We're doing soccer games. And we're running around from field to field. It's kind of nice to not have time to think about that stuff. All right. You try to avoid taking the market personally. How do you do that when you're down 80% to Shopify? I think that's the biggest one, though. People think that the market is out to get them. So like right when I put my money in the market's going to fall or right when I buy the stock is going to fall. Just my luck. Yes. Right. People say just my luck. Yes. Like it's just you. That's the thing I think, the market doesn't care about you. That's something that's hard for people to wrap their brains around. Like, what's the Adam Goodman one? The stock doesn't know that you own it. God, that book is so good.

The money game. One of the best books ever. Very good. And lastly, Ben, you avoid the dream of perfection. What does that mean? I think when you go through these kinds of things, people think that I'm going to nail the bottom or I'm going to put on the perfect hedge right at the perfect moment. And I think trying to think like a hedge fund manager in that way, that's not your job for 99% of us to try to get is exactly right. I think perfect is often the enemy of good for investors. And just getting, I think good enough is fine for most people and not trying to like, I'm going to wait. I'm going to get the fat pitch. I'm going to put it at the very bottom. And I think thinking that way is just, what was the number in the Jim Simon's book? They were right 51% of the time or something, 54. It was

a small amount. Trying to be right all the time. It's just, it's impossible. Okay. So Elon's back at it again. I mean, yeah, we have to. So let's kick it off with the Matt Levine quote. So Matt Levine wrote, there is a popular view that Musk has the option to abandon the deal if he pays a $1 billion breakup fee. I mean, that's what I thought. I saw people saying that. He said, as we have discussed around here, that just isn't true. The contract gives Twitter the right to force him to close and put up the $27.5 billion

of equity that he is committed to the deal as long as the debt financing is available. On the other hand, what if he does it anyway? What if he just says, no, I'd rather not close. What is Twitter going to do? Sue him. It is easy for me sitting here and looking at the contract to say that Twitter would win that lawsuit in the court would order must to pay the money and close the deal, but actually making that happen requires following a lawsuit and going to court and asking a judge,

blah, blah, blah. So basically, Elon can do whatever he wants. The whole thing is a game of chicken. So I know it's really cool for people right now to look back at a show like Friends and say Friends was overrated and it wasn't good. That was like the biggest show ever back in the day. Poppycock. Friends was a great show.

Exactly. There's a lot of people who say it got bad in the later years, but the early years of friends still hold up in my mind. And there's a lot of people who were like, they're too cool for Friends. Friends was whatever. But there was an episode with Chandler where he was breaking up with his annoying girlfriend, Janus, for like the eighth time. And he told her, he couldn't break up with her. So he said, instead of telling her he was breaking up with her, he said, I'm moving to Yemen.

And she kept calling his bluff and be like, okay, fine, I'm going to come to the airport with you to go to Yemen. And he bought a plane ticket. And he said, all right, see you later. She said, oh, I'm coming to the gate with you back when you could do that. And she called his bluff until he finally just, okay, I guess I'm going to Yemen. And I feel like that's the Elon Musk saga here. They're both calling each other's bluffs. And he's like, until I can get a handle on these.

bots and make sure that the bot problem is not more than 5%. And then what if Twitter says, okay, here's the evidence. Well, what about that I'm not going to do it until I do this? I feel like they're going to call his bluff until he owns Twitter and he doesn't want to do with it. So do we think that he never intended to buy Twitter in the first place, that he uses all as a guise to dump his Tesla stock to finance this? Because he said over the years multiple times that the price for Tesla was too high. He said that multiple times. Or do we think that he's like, well, wait a minute. Now, my Tesla's worth less and or Twitter, if the market is down, if tech stocks are down 50% in some cases, I should get a discount on Twitter. I'm not agreeing

to those terms. What do you think his motivation is? I think it's the second one. I think he's seeing the marketing. Twitter would be down way more than it is right now if he didn't have the buyout offer on the deal. Easily down 50. His timing on this was just really bad, unfortunately. And the offer he made was way too high for market conditions right now. I'm guessing he's trying to renegotiate. Imagine being a Twitter employee right now. That's got to be tough. Well, you saw yesterday, the CEO of Twitter, did a thread. And Elon Musk responded with a poop emoji.

Strange times. Robin asked me randomly. She goes, what happens if inflation keeps going up and the economy stops growing? And I looked at her and I was like, you mean like stackflation? I was like, what do you even? Why are you asking me this? I think she's like, oh, I saw something at Good Morning America. By the way, every other news story is about inflation.

still. That's the political pressure here for the Fed to get us under control, I guess. Michael Strahan is my wife's view into the financial world. I have Savannah Guthrie for my wife about inflation. So every day, prices are going higher. Not used car prices. Okay. I'm all right. Use car prices are down three months in a row. They're only up 14% year over year. So knowing that inflation is terrible politically, if it wasn't obvious before, it's obvious now. This is from Heather Long. Commerce Secretary Gina Raimondo and why she doesn't want to to lift tariffs on Canadian lumber. Lumber prices are already down about 40%. The Canadians don't play fairly. We are trying to protect American industry, not on the table to waive these.

I guess the trade war stuff has been kind of pushed to the back of the newspaper. Why do we still have any tariffs on when inflation is so high? In inflation is high around the globe. Why aren't we doing like a six or 12 month embargo on these tariffs? Why are they still here? This makes zero sense to me. This is the easiest political win in history. Guess what? The guy who was president before me put on these stupid tariffs, we don't want them anymore. We're getting rid of them. I have no idea what they are doing. It's like they want to lose the White House. I don't know. It beats me. Even if it's just optics, okay, this is from Pew Research. Percentage of people who say the following is blank in the country today. A big problem,

moderate problem, small problem, not a problem at all. Inflation is top of the heap. 70% say it's a big problem. Healthcare is high. It's pretty obvious. By the way, look at coronavirus all the way at the end, all the way down the list. It's also kind of funny that 23% of people say unemployment is a big problem. 38% say it's a moderate big problem when unemployment is basically the lowest it's been in like 60 years. Yeah, one out of five say unemployment is a very big problem. Wow. This is why we're anti-survey. But all right, so if you look back, here's another one.

U.S. Index of Consumer Center, you and Josh and I were looking at this the other day. You have a car dealership story? Do I? Oh, okay. So I went to the car dealer. My wife got a Hyundai Palisade and they said that your first oil change is free. bring it to the dealership. So I brought it there. And unfortunately, it made me get out of my car and wait in the waiting room instead of just doing it while I'm sitting in the car at a valvaline kind of place. So I'm sitting there. There's an old lady probably in her 70s, and she's flipping the remote to try to find a news station. And she finds a cable news network and don't have to tell you what it is, but her outlook on the world is negative. I don't have to tell you what the news station was. And I'm sitting there eating my Chipotle waiting for my car to be done. She's one of those people who just starts talking loudly so people can hear. I'm the only only one in the room. She goes, Look at this. Supply shortest stuff. Can you believe it? And she kind of looks at me to like agree with her. And I'm like, yeah, it's crazy. And she goes, listen, I was born in the 50s. I grew up in the 60s. That was prosperity. Then the 70s happened in the 80s. It's all been downhill from there.

Everything is just terrible in this country. And she wants me to agree with her. And I was like, yeah, I don't know. Sorry. I mean, obviously part of that is nostalgia. And I feel like there's a certain subset of the population that is just going to be negative at all things at all times and the news has kind of broken their brain. There's no going back. I don't know how many people that is, but I think the infiltration has just, it's like a chip was implanted in their brain that everything is bad no matter what. And there's no fixing anything. Anyway, she was not happy about the supply. All right. I want to talk about cars for a second, actually. So J.P. Morgan, Michael Samblis team, put out a huge report on energy. So this is interesting. There are power drivers,

Ben, the top 10% of drivers burn 32% of all gasoline. The bottom 60% of drivers burn less gasoline than the top 10%. How about that? So what does that mean? I would put myself in like, I'm not a big driver. I drive to the train station. So they ask, who are these gasoline super users? All right, here's some stats. They drive three times more miles than the average driver. They are more likely to drive pickups in SUVs. They're more likely to live in rural areas. That's obvious. They have similar income education levels as a general population, and they spend 8 to 13% of their income on gasoline, which is over 2x as much as the average driver. Here's what I really want to say. Look at this chart showing that cars last a lot longer than they used to. You see this, Ben?

So the average age of a car in 1972 was like six and a half years. Today, it's 12 years. And it also shows the top 20 vehicles sold in 2021. All right. So the Ford F series and the ramp pickup and the Chevrolet Silverado are number one, two, and three. Ben, if you actually adjust for time, maybe they're not such a bad deal. What do you think about that? By the way, truck driver's not happy with me last week. I got a lot of people saying, I'm coming to their defense. We don't back in to spots because it looks cool. We back in because of the axle placement or something. And I'm like, yeah, okay, that's because your trucks are too big. You made my point for me. They're too big for parking lots. But here's the thing. I actually, I backed my truck in. I don't have a truck. I have a Jeep.

I actually backed my Jeep at the Trader Joe's yesterday, and I felt self-conscious. What if a podcast listener was looking at me? Back to your point about how cars last longer. Remember in all the old horror movies of the 80s and 90s where someone would be trying to start their car when the serial killer is chasing them? How about turning? It wouldn't turn over. Yeah. The car wouldn't turn over.

That doesn't happen anymore. You hit a button in the car starts regardless. By the way, sorry truck drivers. I didn't mean to hurting. There was some people who were not happy. Can I tell you something? I went out to dinner on Friday night, as you know, or maybe Saturday night. Actually, a little peek behind the curtains.

It wasn't like a fancy place, but it was like a nice place. I couldn't wear like this T-shirt, for example. So my wife said, you need to get... You couldn't wear your Natty Light shirt there? She said, what are you wearing for tonight? I went into my closet. I wasn't really finding much, let's just say. So I went, I hopped over to Bloomingdale's and I face-tied bed and I said, what do I get?

And he told me to get a, what do you tell me? A linen shirt? I said, buy a nice linen shirt for the summer and you picked one that was like $250. No, no, no, no. You didn't buy that, did you? No, of course not. It was the first one that I picked up. There was the first shirt that I saw.

It's like $250. In this economy, forget about it. No offense. I cannot see you shopping. I can't picture it. I hate it. I literally, it gives me anxiety. I don't know why, but just like holding like a shirt, it's like my worst nightmare.

I really don't like it. That's why I shop on Instagram. But I went out, the couple picked us up and he drove a sedan. I haven't been in a sedan in like 15 years. And it felt good. I miss it. If I could, if I didn't have three kids, I would be driving a Honda Accord right now. I love Honda Accords.

That's my car. Give me a Honda cord, and I'm happy. My next car might be a sedan. If you only have two kids, you're good there. All right, this is from you. It's been 15 years since you could beat inflation. The savings account, I think this must be from JPMorgan's guide to the markets. Yes.

So they show the savings account yield and then inflation. Here's the thing. I think the outlier is actually the previous years where you could do it. I don't think if the Fed does its job going forward, why should you be paid to hold cash above the rate of inflation? Like, that's probably never going to happen again. I think that's probably happening in the past is probably, I think Sabers in the past, we're probably spoiled. All right, Bill McBride on the path forward for housing, he did a piece basically trying to say, what are the higher mortgage rates going to do for housing prices?

He's saying the last time this really happened, like a huge, huge spike in mortgage rates in a very fast period of time was 1979 to 1982. In 1982, prices declined about 1% from the peak. 1991, there was a little real estate bus declined about 3% from the peak. So people, we did it again on our mailbag yesterday. People keep asking, should I wait for a pullback? A nationwide pullback is very, very rare. He said the data seems to argue for slow house price growth scenario, but my view is most lucky that house prices will stall nominal terms and decline in real terms. He's kind of saying, I think it's probably going to just flatline for a while. And then if inflation remains high, you're going to lose money on a real basis, but guess what? No one looks at

their house price on a real basis. Everything is nominal in housing prices. He says a bust with housing prices falling five to 10% nominally is the least likely scenario. I tend to agree. That would be great for people buying their first time home. I just don't think it's... Because people aren't going to panic sell their houses. No. It's not like a stock. And it wasn't people that got over levered that are going to get foreclosed on. These people can afford to do it.

Okay. Let's move on to Great Quarter guys. So, Ben, this is a faceblower right here. Disney stock crossed $100 for the first time sometime in 2015. It's basically where we are today. It's not wild. So they had a double whammy of, I guess they got punished for having a Parks Division in 2020, and now they're getting punished.

for having a streaming division because of Netflix. This is all Netflix related. They're catching straight from Netflix. By the way, I was thinking about this. I was talking with my wife this week. This is old man yells at kids to get off his lawn kind of stuff. Remember in the pre-streaming days? You would only watch network television

and the whole summer there would just be no new shows. The season would end in May. And then the summer would literally just be game shows and reruns. Saved by the bell. We all just agreed. Let's not have any new TV shows in the summer. Who needs that? Remember that?

Like, we had a whole, like, three-month period every year where there's just no new shows. Eh, we're fine. We don't need them. Are you saying that's good? I'm saying people complain about streaming and not having enough to watch and, like, it's not good anymore. I think we're a little spoiled with the amount of stuff we have to watch these days. Maybe it was better because people just got out and did stuff. Dude, I still think Netflix is magic.

Streaming is magic. Because to your point, it really is. What did you have to do to get Netflix when it first started streaming? Did you have to, like, send it from your laptop onto your TV to the Apple, TV that way? Oh, because there was no apps and smart TV. That's a good question. I don't remember. I don't really remember how that works. I used to have to buy a little internet dongle. You had to plug into the back of your TV. I had this little like Wi-Fi router thing. It had to plug it into the USB and that was how you got it. But it didn't work very good at all.

Now it works like with a touch of a button. How about this? Yeah, I was thinking about this. We grew up with the internet. When you had to like download movies and it took like 14 hours. We lived the hard life. Anyway, so the science of hitting is a fantastic. It's a post that I subscribe to. He breaks down a lot of the companies that we speak about. It's a newsletter. Disney has 138 million global subs they reported this week, up 33% year over year. Domestic parks and experiences generated $1.4 billion in operating income in the second quarter, an increase of more than 30% compared to pre-pandemic levels.

That's domestic. But Disney China has been shut for like two years, I think. So that's hurting. Look at this chart showing the global paid subscribers of Netflix versus Disney. Pretty impressive. Actually, very impressive. how quickly Disney has caught up. They almost got them.

You can see Netflix slowing for a while there too, can you? And then this, this surprised me. I always thought that like the network TV, the ESPN, ABC was like a huge drag. Not necessarily. Look this chart. For a long time, that was their biggest money maker. Generated $2.35 billion in operating income in the quarter. It's up 3% year over year.

I thought it was shrinking. All right. You said, would you rather own Netflix for Disney here? That's actually tough because if you're thinking the best, The better business right now, the better business has to be Disney because I still think the experienced economy and people getting back out and doing stuff and services is going to continue to explode. I think Disney for the next like 18 months is going to be packed year round. But Netflix is down 70%. I'd still think I'd probably lean Disney. I guess the risk with Netflix is how do they transition to an advertising based platform? Because they're not growing anymore. Okay. Did you read Coinbase or anything? No. I mean, I did a post on this. The bottom line is that retail, volume is down like 50 something percent, like a massive, massive dryup. And the problem is they are still spending like drunken sailors. They hired, I think, 3,000 people in the last 12 months, which is like three times the amount of people that they had work in there last year.

They had a big loss. It sounds like Coinbase and Robin Hood, places like that were gearing up for 2020 and early 2021 to last forever for their staffing levels. And now they're having to cut back. Same thing happened with Peloton. The rapid declined last week in Coinbase were so sick. It was $100 on Monday and $45 and Friday. Okay, so Sam Bankman Freed came to Robin Hood's rescue. Did it go back a little bit since he bought up? I think it was up like 25%.

He bought like a 7% stake in it, 7.6% stake. We've been talking about someone coming into Buy Robin Hood. We didn't really talk about FTX. And I don't know if... I said Coinbase. Yeah. But we were thinking more traditional asset managers. Actually, FTCs makes a lot of sense.

And I don't know. I guess if you trust anyone to try. turn it around and help. Maybe he can create a good wallet to get my crypto off the platform. But if I was Robin Hood, I'd be thrilled that this guy is buying into our shares. Yeah, I mean, good signal. But Robin Hood is getting into the gap. He's like crypto Warren Buffett. Okay, they're coming back. It's getting into the gap. Walmart reported this morning. It's down like 8% now. I think they cited inflation and I don't know what other factors they said. Well, that was one of the best performing stocks of the year, too. The string of companies that are down 70% in fall

25% after earnings is so nuts. Unity was another one of those. There's just so many. So we've got retailers this week. That'll be interesting. But I think we had United Airlines this morning and I believe they got it higher. So I forget who tweeted this. But the transition from goods, especially durable goods, obviously that boom was over to services is here. That's another reason this could continue to be the weirdest recession ever. We could have people traveling all over the place and the country's technically in a recession. I still think this summer is going to be a massive travel boom for people. Not to brag. I'm traveling next week. Concerts too. So concert activities could be at an all-time high. There's

be a lot of other things that are all the time high. So Crunch Base had this thing on Andresen Horowitz and a few of the other big tech private people, Tiger and such. And they did this thing where they looked at all of the companies that have gone public from A16 Z's Venture Capital Fund, Airbnb, Coinbase, Roblox, Robin Hood, Open Door, Affirm, all these companies, BuzzFeed, have just gotten crushed as public companies. All of the ones that went public from them, pretty much all of them are down. Airbnb is the only one that is slightly higher, but that's because they had a big pop in the first day. Why don't some of these companies that are now bigger take some of these companies private again? Why don't some of these big venture companies pool together and just take them

private again if they still believe in the technology? Shouldn't we be seeing some of this at these levels where these companies are just getting annihilated? Or do you think that's just too much of a stretch for a VC for them to do? I just don't think it's what they do. If you're comparing what you can get for evaluation in like growth equity versus public markets right now, the public markets have to look more appealing because these companies are getting just decimated. So a company down 90% versus a company that's marked down 40% in the private markets that should be down 80, you think the public markets actually more, I don't know, would make more sense for them right now. Oh, this is a good take.

Somebody tweeted Peloton, convinced rich people to pay $2,000 for a bike and to pay $23 a month to use it and still failed as a business. I was jealous of that take. You don't think about the fact that, oh, that's right. You don't just buy a bike. You're paying recurring revenue, and the company still fell 90 plus percent from the highs. Just real quick on the crypto stuff, Joe and Tracy had a really good podcast talking about the dynamics of what exactly happened with the Terra algorithmic stable coin that broke the buck.

I got to say, I listened to that whole podcast. I still don't understand what an algorithmic stable coin is. It still doesn't make sense to me. Sorry. Could you explain it to someone who's a crypto noob? Well, they say if you can't explain it, you don't understand it well enough. So I'm going to say I don't understand it well enough. Here's my attempt.

Terror was a stable coin. And it had a pair trade with Luna. Same thing with U.S. dollar and the yen, for example. It was Terra on the one hand. It was Luna on the other hand. And whenever the imbalance got one way, people could either reduce. redeem terror for Luna, or if it got too far, the other way, they would redeem Luna for Terra. So it was supposed to, like, burn and redeem and all that sort of stuff to keep it in line.

And anytime there was a gap, the arbitrages would come in and immediately close to that gap. But it broke and it broke quickly. I do think this kind of story, maybe people in the mainstream aren't going to pay attention to this very much, but I don't think this kind of story is going to help with mainstream adoption for people because it's got all the bad things about crypto, the crypto bro who was calling people poor on Twitter. The guy found it. Just a horrible person.

Do Kwan, the guy behind this was definitely in the half fun staying poor camp. Just really put out repugnant shit on Twitter. I hope that this is a lesson for people like, it's just stupid. Why ever do that? When fingers are going really well, just don't tempt the market gods. So here's Matt Levine with the correct take on this. He said safe assets are much riskier than the risky ones. This is, I think, the deep lesson of the 2008 financial crisis and crypto loves re-learning

the lessons of traditional finance. Systemic risks live in safe assets. Equity like assets, tech stocks, Luna, Bitcoin are risky. And everyone knows they're risky and everyone accepts the risk. If your stocks or Bitcoin going down by 20% and you are sad, but you are not that surprised. And so most people arrange their lives in such a way that if their stocks or Bitcoin go down by 20% they're not ruined. And then he can contrast that with things that are supposed to be safe where people tend to put more money in and then. That's why Bernie Madoff was such a genius with his Ponzi scheme. He wasn't promising 40% a month or something. like the actual Charles Ponzi. He was promising 11 or 12 percent per year, but you just never

went down. And every month was just a steady return. That's what sucked so many people into that one. Same thing. People are really pissed off about Tom Brady's contract, the $375 million over 10 years. I think, who was I listening to? Oh, who's a guy on the ringer that does like culture and business, the town? Matthew Bellamy, I think it's his name. So he was talking about this. Is the absolute correct take? Who gives the shit who's calling the game? I mean, for most part. At least as far as NFL ratings go, they have proven that it doesn't move the needle. So why would Fox shell out this type of money? Makes no sense. Not bullish. This is one of the things that you do it because everyone else is doing it. Everyone else is spending money so you

have to spend money too. That's the way it works. They're all lemmings. Anyway, I mean, I don't really care. I think Tom Brady is going to be a steal. Sorry, it's going to work out. I'm bullish on this. He'll be okay. All right. What else? Chart of the week. Someone tweeted this to me. And it's Breaking Bad viewers versus Better Call Saul viewers per episode. And it shows Breaking Bad... Slowly but surely builds, builds, builds. In the last season, like, it spikes as people caught up. Better Call Saul had a massive first episode or whatever,

and then has slowly but surely fallen away. So all the people who were hating on me for my Better Call Saul... By the way, I've caught up and I've watched all the episodes this season. It doesn't get better. I'm still hate watching. Sorry. Chris takes on bridge with your take. I heard that.

And my take stands. He watched Fear of the Walking Dead for seven seasons, so I think his opinion is erroneous. Oof. Walking Dead was the ultimate, that horse picture of that back half looks great, and then the front half looks like it was drawn by a child. That show, it was so good for like three seasons, and then it just fell off a cliff. We're going to skip listener questions because we did a whole listener mailbag. That's coming out on Monday. And we're going to do a private mailbag for our NFT holders.

Still going strong in the Discord. We're going to do a private once a month for them. If you want to get in on that, we have a mailbag that comes straight to us, and it's just for people who are in the Discord and the hold of npties. Anyway, I rewatched A Quiet Place 2 on Prime this weekend. Rewatched. Why? I'd like rewatching decent movies or not tomorrow.

Sometimes, I think you have to get like a second opinion because some movies age better, some age worse. That movie was phenomenal. The first 10 minutes when the aliens come, that's my favorite thing like in an alien movie. When you first see the aliens, the first 10 minutes of the movie were so good. That might be one of the better sequels of all time, I think.

when you compare like the quality of the first one with the quality, I still think the first one is like smidge better. So I was trying to think like what are the best sequels ever? I came up with, and this was like top of the head. Godfather 2, Terminator 2, Back to the Future 2, Dark Night and Before Sunset. Did I miss anything? Godfather, Terminator, Back to the Future, Dark Night before sunset. Awesome Powers 2 was good.

Here's what I tweeted. I tweeted in May 2021 after the theater. That was a big moment for me. That was my first time back in the theater. That's one that I kind of wish I would have seen this. theater. I love The Quiet Place. The second one was even better. I wish I would have seen in the theater. All right. Here's one of the worst movies I've seen in a while. It's on Paramount Plus. It was out in the theaters. I think actually did okay in the theaters. It's called The Lost City with

Sandra Bullock and Channing Tatum. And we're like, all right. Why did you see that? I don't know. It looks like a rom-com, but there's also heard Brad Pitt is in it. It was awful. Probably one of the worst movies I've seen in a long time, just really bad. Terrible. Don't see it. Well, I finished the Marksman, the Liam Neeson movie. Yeah, that was one of the worst movies I've ever seen. What's the deal with Liam Neeson? What do you think his kill count is across all of his movies in the past 10 years? Got to be in the thousands, right? That guys killed a lot of people.

I was very upset with the Game 7 loss. That's what I spent my week doing. I didn't watch any movies this week. Just basketball? Which one of you're most upset about? The Sons or the Bucks? Well, I bet on the Bucks to win the East End to win at all. This was like, I don't know, I did it a few months ago.

I really did not think the Celtics were going to beat them. Tatum, Game 6 was sick. And being a New York sports fan and not a New England. England sports fan. I'm mad. And betting on the bucks, I'm bitter. Yeah, I bet on the bucks and suns to make the final. Now, as a New York Knick fan, what do you do? You can't move for the heat and you can't move for the Celtics. You have to just hope that the Warriors or the Mavericks are able to take care of them. I've rided for Luca now. That's my rooting interest. I'm for Luca. But I don't think Luca could win the finals, so I'm rooting for Golden State.

Okay. Anything else? I don't think I watched anything. I'm in basketball as week. All right. Animal Spirspot at g-mail.com. Shoot us an email. We'll see you next time. Thank you.