Animal Spirits Podcast - Physical Delivery (EP.141)

Episode Date: April 24, 2020

We discuss why the stock market isn't falling more, craziness in the oil market, why "normal" portfolios may be performing better during the crisis, the death of department stores, banks, bailouts 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

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

Welcome to Animal Spirits with Michael and Ben. Unemployment numbers just came out, another 4.4-2 million, bringing the four-week total to 26 million unemployed people. So that looks like 16% unemployment, basically, in addition to what we had before. And that gets us to 20% unemployment already, right? I mean, we're sub-4%. That's close to 20%. Do you think the market is waiting for, obviously, it was right in line with expectations,

which I can't even wrap my head around. That was the expectation. But is the market waiting for this number to go down eventually to show that some of these programs are finally working? What do you mean exactly? Well, shouldn't eventually this, because a lot of the businesses taking loans, they have to keep people on their payroll or potential to hear people back. Shouldn't we eventually see some of that filter into these numbers?

Or do you think that there's so many businesses out there who aren't being helped that it hasn't really mattered yet? Or what if the economy doesn't reopen? and the money runs out. And then they do have to lay these people off. Right. They have to keep them for a while. I don't know. The market was slightly up before this and up a little bit more after. Not a huge reaction either way, but just awful numbers, obviously. Yeah. So we've been taping this every Thursday morning right when these numbers come out. So it is almost kind of a depressing start. But again, the only silver lining for me is that these people are being taken care of. They're making

more money for unemployment in some cases. That's a short term bridge. But, That's honestly, I think one of the few things the government has done right here is give that boost in unemployment to people with the understanding that this was coming, I guess. My hope would be that they're probably going to have to extend some of those benefits. I think they did the extra $600 a week for four months. I'm guessing they're going to have to extend that, and hopefully that will be part of future fiscal stimulus, but it's hard to see any good news from this. It's awful.

So on our last show, we taped Monday afternoon-ish, really before the carnage and the oil market really hit and things went negative because it happened pretty quick. I was watching it at, I don't know, two, three o'clock in the afternoon and that's when it really happened after we taped and things went crazy. And so people have been talking about what's going on in that market and how an ETF fits into it. And I'm still having trouble wrapping my head around negative oil prices. Isn't it bizarre that this is like the 12th craziest story this year in the markets? I mean, any other time negative oil prices would just dominate the headlines for weeks and weeks. I feel like at this point, it's probably almost off the headlines.

It's very bizarre. This was an incredible lead from the New York Times. Something bizarre happened to the oil markets on Monday. Prices fell so much that some traders paid buyers to take oil off their hands. Right. And obviously, it's, I don't know if you can even use the term perfect storm because this is just an awful storm, but you had all these things happening at once. Obviously, demand has fallen off a cliff for oil. There's this glut of supply and there's basically nowhere to put the new oil that they're pulling out of the ground. Well, that's why prices are going negative. Right. Which honestly, it makes sense when you think about it in those terms because

people who held those futures contracts did not want oil. So they're paying to not take physical delivery of that oil. And so we had a bunch of people ask us about investing because the idea, you talk about this a little bit of, well, if oil goes negative and I buy it, then eventually I just wait and I'm going to make a massive return on this, right? So we had an email from a listener who said, hey, a bunch of guys on a text thread and I just bought a bunch of USO because oil is zero dollars. That's literally the only reason why. Now actual investors on Twitter are all tweeting extreme caution. Can you explain in layman's terms why this is a bad idea? Can I just correct you? Yes. You said USO. They're buying UCO, which is the levered version.

Oh, okay. I thought that was just a typo. Okay, so this is like the two or three times lever one. Yeah. Okay. He said this is all play money for our portfolio and the basic premise is the world is not going to quit using oil anytime soon. So this is a good idea and we're going to make a ton of money on it. Thoughts. I have a few thoughts.

One, I understand if you don't know anything and even if you do know something, the idea that oil can go below zero is never going to be on your radar. So you say, okay, what's the worst I can happen? I can lose all my money. What if they start getting margin calls? It's like, actually, no, no, no, no. You didn't just lose all your principle. You actually owe us money.

And I don't even know how that would happen. So USO keeps reverse splitting. But is there a world in which Robin Hood has to take physical delivery because they owe so much of this? So there was a chart showing the number of Robin Hood users that are buying USO. And to the email that we just got, listen, is this a great product? Is this a great idea? Probably not. But if you're fully funding your 401K and IRA and you're just playing around now, it's

like 1% of the people doing this. I don't know. But if you're, I guess I'm talking on both sides of my mouth. It's, yes. Obviously, this is pure speculation. There's definitely going to be some people that are being incredibly irresponsible that are just putting way more more than it than is reasonable into this thing. So I don't know where this shakes out. People are looking at this like it's an arbitrage opportunity, which it certainly is not because I think that's one of the hard things to wrap your head around is that this is using futures. And obviously, it wouldn't be the Robin Hood investors. I would have to take physical deliver. I think you were joking, But the thing is an ETF can't go below zero.

I mean, it would go out of business, but you can't owe money on an ETF or a mutual fund that you buy. So this is more about the fund structure of that U.S.O changing, and it would trade a discount or premium because it sounds like they're changing the contracts. The Wall Street Journal had one, and they interviewed this 36-year-old who said, I'm either going to get my ass handed to me or I'm going to be really smart. I'm just going to write it all the way. He'd put $1,000 in, which I'm sure probably plenty of people are doing.

The crazy thing is, so the USO ETF is down 80% or so this year, which honestly makes sense since oil is down so much. In some ways, it actually is tracking the fact that oil has fallen off of a cliff as well. Now, because they're using futures contracts, you can't track it one for one. But the crazy thing is, even with those huge losses, you would think investors are panicking, get me out of this, there has been billions and billions of dollars that have plowed into this thing. That makes sense to me. Because, the idea that oils could go negative was never on anybody's radar. So I think I read that U.S.O owned 30% of the May contracts. So they're moving the market ostensibly. Is this thing a

systemic risk? Should it just be delisted? I'm sure that's something they're considering. And so, yeah, they ended up running out of shares in the ETF, which I frankly have never heard of before. I don't know if that's the first time this has happened. Some more ETF-centric people can probably tell us that. There was such a huge demand that they were just creating more ETF shares than they knew what to do with because people are just piling into this. I think this just proves how hard it is to track some of these things exactly because you're dealing in markets where you're trying to create a system where you can track the price of something that requires storage costs and it requires an actual commodity. I think it just shows how hard this

really is. And do you think this crisis is showing when something like this happens and obviously places asset classes like venture capital and private equity are getting hammered because startup world is very fragile in times like these and private equity had a ton of leverage on and trying to track something like these commodities. We're showing how hard it is and especially when something like this happens, it just makes it nearly impossible to track. Does this make more quote unquote normal portfolios? Does this give them almost a premium during a crisis where liquid stocks and bonds actually prove their metal a lot more than some of these other ones, even if they didn't have the same returns when markets were rising than some of these.

You think that people that are losing money in a traditional portfolio, like at least I don't own USO? I don't know about that. No, just showing the power of a simple portfolio and saying, yes, my stocks are down. But I know, I kind of have an idea of what the stock market can do historically. but I'm not adding on leverage. I'm not adding on futures. I'm not adding on all these other complex variables. And this actually makes it easier for me to sleep at night a little bit, knowing that I don't have these other external systemic risks involved where my stock ETF is not going to see money go negative or the underlying go negative because that's impossible

to happen, obviously. Yeah. I mean, I think that this is a product that obviously buyers didn't understand. And it's now basically an active oil trading ETF because they keep changing the futures contracts in which they're rolling into. Right, which they kind of have to. So here's the thing, though, do you blame this fund or do you blame the people that are piling into it? Because the fund is doing what it's mandated to do. And people are trying to blame this fund forever existing. Don't you think this is more on investors that are trying to put money into it? The reason that this thing is tipping over and basically is because so much money has gone into it. I don't know that I blame anyone. I understand why USO exists. This is capitalism. They saw

a hole and they filled it with a product. And I understand why investors are buying it because who the hell thought that oil can go negative? So I don't know that I blame anyone. I think that this just sort of happened. Yes. And obviously, when people stop driving and oil just backing up and there's nowhere else to put it. I mean, you know who I blame the virus? So Neil Irwin did a piece. he said the broader takeaway is that the COVID-19 crisis is an extraordinary deflationary shocked to the economy, a glut of supply of goods and services and consequently falling prices that surpasses anything seen in most people's lifetime. So they're still pumping out 100 million barrels a day. There's nowhere for it to go. Nobody wants to take it. And that's what's really

moving the market. But it's funny that we were getting a lot of listener questions about inflation. And this looks like it's the exact opposite. And you see this chart, the cost of a barrel of oil in real terms, it went off a cliff. It's negative. I was looking through some of my highlights from the Titan book, which is the John Rockefeller one. And he was talking about how in 1864, the price of oil, a bear of oil, was $4 to $12. That's the range for the year. We've gone to those levels and below them in the last week from what was happening when oil was first dug out of the ground. I don't know if that's an apples to apples comparison or barrel to barrel comparison, but it is really insane. And maybe the lesson here is just,

trying to speculate on these things that have gotten just crushed during something like this, this is like catching 37 falling knives at once instead of just one. There's so many different variables you're taking into account for this crisis that you never had to take into account in the past that I think trying to bottom fish is even harder than ever in this scenario. All right. So people are spending their paychecks. The checks are coming in.

Yeah. So Josh had a piece on his blog yesterday. and this is from Bank of America, and they're tracking, which is pretty crazy that they're able to do this quickly. So they showed that the first payments hit on April 15th to people who had direct deposit set up. And Bank of America looked and they said aggregate total credit card spending for those who received a stimulus payment increased by an average of 26% year over year between April 15th and April 16th compared to an average rate of negative 23% year over year, April 1st and April 14th. So when that money reached,

people's hands, they spent it, which, I mean, duh, people are going to have to spend on necessities and things. But if we want to help keep the economy running at some piece of its former self, sending people money, especially on the lower end of the income scale, is a good way to do it because they're going to spend it because in most cases, they have to. So I hope they think long and hard about sending people more money and more checks because it's going to help people all around, not only the people who need it to spend on necessities, but other parts of the economy that need spending to keep up their revenue and to keep up their profits and to keep people employed. Well, there's a chart from Deutsche Bank showing the largest bailouts

in history and it goes back to 1970 with the Penn Central Railroad and then there's Lockheed on here and Chrysler. And I guess you have to compare this with previous bailouts, even though this is, as we keep saying, this is much more of a relief than a bailout. Obviously, some companies are getting bailed out, but overall it's a relief package. And this is bigger anything that we've seen before. So what's going on is that Treasury is getting money to the banks and the banks are getting money to the customers. And there's an article in the New York Times, banks give richest clients concierge treatment for pandemic aid. Quote, at JP Morgan, nearly all the 8,500 commercial and private banking clients who applied for a loan got one, which includes

companies like Pop Valley and Mankind, the pharmaceutical company. At the same time, only 18,000 of the more than 300,000 small business banking customers who applied through Chase's retail bank got loans. So Chase handed out $14 billion through the program, but still less than half of the $36 billion that customers sought. And I'm not defending the banks here. Is this surprising that this is the way that it played out? This is why the way that they did it is stupid in a lot of ways. Obviously, they had to get this out quick and get the money out and it was hard to place rules and restrictions on it. But that's why they should have never capped it in the first place. They should have just given these loans out to everyone. And guess what? If there were bad

actors or places that got one that didn't deserve it. I mean, you can deal with that in the future. Instead of making it like this lottery system or this relationship-based system where if you had a bank relationship in the past, you got preferential service, they should have just not capped it and made it easier. And hopefully it sounds like this next round, they're going to try to make it more focus on small businesses and I think they did another $500 billion. But trying to pick the winners and losers with this stuff, this is why it just doesn't make any sense where they should just do a blanket amount of money for businesses and individuals just across the spectrum. And if people get it that didn't need it, so what? You're helping out way more people that do

need it, I think. So the good news is that for the next package that they're working around right now, they're trying to earmark $60 billion of loans to small banks and community development financial institutions, which reach more mom and pop than the giant banks. But we can't go backwards. What we can do is, God forbid, we find ourselves in a position like this again in the future. We have to have a better infrastructure. The government is very good at collecting taxes from its citizens. There needs to be a better way to give the money back. Blockchain. Maybe. I don't know. Something. Honestly, this probably gets back to the fact that there are so many people that are underbanked here because we should be able to just do this digitally and push a button and send it out

to people. But there's a lot of people who, frankly, don't have banking and they're dealing with payday loans these sort of shady places. And so it's almost like you have to start from scratch for a lot of places just to make it easier. But yes, I agree. We're showing that there's a lot of cracks in the government system when it comes to something like this. And hopefully this is addressed. Why doesn't the government employ PayPal or somebody like that, some merchant visa or something like that, that knows how to pipe these sort of things? Well, I think they are using Square, which is Jack Dorsey's other place. Okay. I was about to say that company plaid. I forget who bought them. But isn't that a company that works on the pipes? Like, shouldn't the government

put those companies to work for the future? I hope they will because it makes a lot of sense and they make things much easier. I think it's just a lot of people aren't involved in those programs and maybe they should be. And what about this? I know this is not going to excite anybody, especially people who are up the mindset that everybody should fend for themselves. What if there is a new tax for companies of a certain size that are getting bailouts or relief money? Like a rainy day tax, we're going to take money from you and set it aside for you for the future. One percent. I don't know. whatever it is.

Yeah, that sounds good in theory until the government raids it in 10 years. Right. Yeah, I know. So we actually heard from a couple of people who work for the airlines that got bailed out. And it's good to hear from some people who are actually on the front lines and working because people get mad at the executives and the boards. And I understand that because they're the ones who have made a ton of money. But these people were saying, listen, this has helped me stay on a job where we've had this 95% reduction in people coming on.

But I understand why people are mad. And I understand that these bailouts look bad and they're saying, listen, we get it too. We're not saying that we think we deserve these more than other people. It's just a really crappy situation to be in. And honestly, as an employee at one of these places, you have to have some bizarre feelings too because your business has been rocked and your personal life has been rocked. And you see that happening to other places too. And so I don't know, do you feel bad if you got to bail out and someone else didn't?

It's got to be a weird position to be in as an employee as well. Yeah. Yeah. So there's so many charts that are going to look broken forever, like the unemployment one, for instance. That is going to be a stain on that chart for the rest of time. And another one, coronavirus made America's biggest banks even bigger. I think this was from the Wall Street Journal. Yeah, it was. Companies and consumers flooded U.S. banks with a record $1 trillion to deposits in the first quarter. More than half of it went to the four largest banks in America. The $590 billion in deposits they gained in the first quarter is nearly double the previously. quarterly record of $313 billion. So we'll show this chart, deposits its U.S. commercial banks changed previous quarter. This is never going to look the same ever again. You see this? Is this just the fact that all these companies and businesses went to cash and short up their

finances? What happened is that Bank of America said that $75% of the $67 billion that corporate borrowers drew down on their credit lines ended up in deposit accounts. So yeah, they're borrowing from the bank and it's staying at the bank. they put in their emergency lines of credit and they said we're shoring up this cash just in case every chart just has this huge spike up or huge spike down obviously like the long-term oil chart how is that ever going to look the same again getting back to the oil thing real quick they're putting a lot of blame on the ETFs there are also a lot of CTAs that are using these

futures contracts as well and that's a pretty big space to i don't know 300 billion dollars or something that dwarfs any money that's in the three or four billion that's in some of these ETFs that the speculation is maybe they had a little bit to do with this, too, since they were pressing their foot on the gas when these things begin moving as well. So it's kind of hard to place blame on that stuff in a lot of these. Again, I don't think this is a blame thing. I think it's just the circumstances that we find ourselves in. So non-bank mortgage firms, like Quicken Loans, Mr. Cooper, for example, which used to have my mortgage, they account for nearly 60% of all mortgages issued in the United States. And they're not getting any relief.

and that can get ugly really, really quickly. Are they seeing huge problems because the housing market is basically ground to a halt? Well, maybe not today, but like what happened six months from now if we're still in the situation? And if they face a cash crunch, again, they issue 60% of all mortgages. Right. I think maybe my hope is the government realizes it because this is not just the banks and these mortgage servicing companies. And this is going to be everyone. And eventually it's going to trickle down to the states and even the hospital.

are in trouble now because they're not doing elective surgeries at the moment. If you're worried about the debt now, it's just going to get bigger. I mean, there's no way they can just let all this. You can't do it for three or four months and then hope everything's better and then not do it in the future. That would be my hope, at least, that the government realizes this. So I think if you're worried about debt now, it's just going to get much, much bigger because they're going to realize these cascading effects from this are just going to impact so many different places. And you can't have every city and state and every company go bankrupt all at the same time. That would just be so dumb and irresponsible that they're just going to have to keep. And the fact that we

have this happening during an election year, don't you think that actually helps the fact that the government will hopefully step up to the plate and help some of these places out? I hope so. This seems like a very, very underspoken about risk right now. So from the article, it is a cash-intensive business. The servicers collect payments from mortgage borrowers and then funnel it back to investors who own the bonds backed by those loans. This sounds like something we had a decade ago. When borrowers are given forbearance and allowed to stop making the mortgage payments, the servicer has less cash coming in the door, yet it is still obligated to make payouts to investors, along with paying property taxes and insurance bills on behalf

of property owners. And unlike banks, these firms are not required to have large financial cushions that would allow them to withstand losses. So this seems pretty much. pretty dangerous. So hopefully it sounds to me like this is someplace where the Fed can potentially step in. Wouldn't this be a Fed savior? I would think so. This goes in the column of like making people happy, the anti-bayal out people, private equity to get squeezed out of another stimulus program. So for a business taking out a new loan, this is from an article in Bloomberg, its existing leverage can't exceed four times its 2019 earnings before interest taxes, depreciation, and amortization. And if a company wants to add an existing bank loan, its debt load can't,

be more than six times EBITDA. All right, so I have a question. How is this being enforced? That's a good question. I don't know how any of this stuff is. Is it the honor system? I honestly don't know if they put an audit on you or what. Maybe it's kind of like the audit they have in Ozark Season 3 where she comes to the casino and watches. I have no idea. But yeah, honestly, this, to me, this seems like a reasonable restriction, that they're not allowing these companies if you're taking a loan to just lever up. and try to just bill yourself out that way in terms of taking on debt because that just increases your risk. I think this actually makes sense. The reason this is difficult for private equity is because

so many of those companies were levered up going into this. So having to de-lever to meet these restrictions is going to be difficult, obviously. Well, on the one hand, Americans for Financial Reform spokesperson said, we expect that highly aggressive and sophisticated entities such as large private equity firms will seek out opportunities to channel fund. to reward capital owners instead of supporting workers. Yeah, that's obviously a worry. But on the other hand, the firms argue that the more than 8 million workers they employ shouldn't be penalized just because of who owns the business. So what's the right answer here? I wish I had and I'm glad I'm not making some of these decisions, which is another reason why

it's so hard to think black and white in these terms and think of, well, just don't bail out everyone. It's really difficult. There's this middle ground where you think, geez, I can see both sides of this. And I don't know what the right answer is. You know that people are going to take advantage of this and that there's going to be people that do really shady shit. And that's just the reality. Certainly. And I think, honestly, I think at this point, you have to allow for that and say, okay, too bad. If we're helping more people than are taking advantage of us, that's something we'll have to deal with on the other side of this. I think you can't worry about that at this point. Yeah. All right. So let's move on to the market. This is a really good trial. We've spoken about

this. This comes from Goldman. The current recovery in terms of the market has been the sharpest among historical bears. And they show you the average versus the current. And I'm still amazed at how resilient the market is. All right. So I've been getting tons of questions from people saying, we know worse news is coming. More people are going to be unemployed. More businesses are going to be in trouble. This virus is going to be less for a while. It's bound to get worse. I mean, honestly, was the market smart enough to say we fell 30% in four weeks and that priced in a lot of that happening? I mean, is it possible that that happened? Well, yeah, the S&P fell 35%. The Russell fell 45%. That's not nothing. Right. I think that's what people are missing that

it's just so hard to wrap your head around the fact that the economy could ever be worse than the market. I'm honestly leaning towards that being the case. You talked about the banks just growing in size from this. And the largest corporations are going to do so much better that, again, maybe the stock market just doesn't fall out about as much as people are hoping for or thinking because it's so counterintuitive. And everyone, quote unquote, thinks that at the moment. Probably, I don't know, four or five weeks ago, we asked a question, can the market hold up better than the economy? And I was definitely of the opinion, no, there's no way that can happen. And it has happened. And I keep saying, I'm just still surprised.

Because every time historically we've had a bare market, the reason markets have fallen more than fundamentals is for psychological reasons. Because people panic and people capitulate. How is today different? Why are investors panicking? Damn it? I don't know how you could ever measure the fundamentals of what's priced in and what's not. I've seen some places, and I try to back this out, of saying, okay, earnings go to zero for two years and then it grows back and gets back on trendline in six or seven years or whatever it is. If you could really back out those fundamentals, and I think it would probably get you to a place where stocks fall 30 or 35%.

How crazy would that be if the market didn't overshoot this time in what will probably be the worst economic calamity of our lifetime? That would be crazy. Do we now need to rethink investor psychology? Unless the Fed is going to take over for Daniel Kahneman now as like the behavioral sues, I don't know. What if this time, I would never predict that. Say it, it's different?

Of course it's different this time. It's different every time. But this is different in the fact that every other crisis in history, we haven't really known the reason. They still don't know why the Great Depression happened. Did the stock market cause the Great Depression or did the Great Depression cause the stock market crash? What really caused the 1987 crash? It's still debated what caused the 2008 thing. There's a million different variables.

This time, we know exactly the variable. That doesn't make it any more certain, but we do know what it is. What happened in every other bare market is that eventually they come. come for the winners. They come for the Amazon's and the apples of the world. And I think they felt 25% this time. But they've rebounded so quickly to the point where the NASDAQ, the NASDAQ composite is now bigger than the rest of the developed world combined. It's insane. This chart kind of blew me away. I didn't realize this. So this was in the Wall Street Journal. They showed the NASDAQ composite

versus the MSCI World XUS. So this is the other 50% of the stock market. The NASDAQ is now the same size is that, which is crazy to me. And Microsoft is closing in on the entire market capitalization of the Futsi 100, which is the London Stock Exchange. Yeah. And so all four of those companies, Apple, Microsoft, Amazon, and Google are still over a trillion dollars in market cap. Some of them might have dipped below a little bit in that first initial fall, but it is insane

how well these companies are handling this. And a lot of people who are expecting a leg down say, just wait, it'll happen. People will sell those eventually. So I understand some of it. Like, I don't necessarily understand why Apple is holding up so well or Microsoft for that matter. But a company like Netflix, for example, or Amazon, they are direct beneficiaries of the quarantine. So Netflix just had their biggest quarter, nearly 16 million new subscribers. It's highest previously was 9.6.

So an enormous jump. $709 million in earnings versus. is 344 million a year ago. Isn't Netflix the hit your head go like, duh, that this would happen and this would be the best quarantine stock or one of the best? But I saw a few people say, well, this is just Netflix pulling forward future returns. And this has to be the best situation for Netflix ever. But I don't think it really works like that because you're getting recurring revenue here.

You're pulling forward future customers that are going to be customers into the future. So it's not like this is a one-time payment for these people. I agree. How many people cancel their Netflix subscription? What is it, $13 a month? It's not a big line at him. I mean, maybe in nine months when they run out of content, people are going to start getting antsy a little bit. But that's going to be the same thing everywhere.

So I think they're on equal footing there. I'm basically paying a penny a minute for how much I've watched Netflix recently. Seriously. Have you noticed the library of content in terms of movies and stuff has gotten way better? Maybe on a hopeful note, that's what will happen is because there's not going to be as much new content. maybe these streaming services will be flooded with good old content and a lot more movies that haven't been on there. It's coming because the slate of movies like next year is done.

What's coming out? Right. Everything has been put on the shelf for a while. So there's definitely going to be a renaissance and old movies and old programming like we keep saying. So last night I was watching the United States versus Croatia. It was incredible. The dream team, Dina Raja, Petrovich and Kukoch.

When is that going to be on ever again? I was watching John Madden and Al Michaels in the booth. It's amazing. You really miss sports, don't you? Yeah. You've been watching a lot of old sports. Okay, so here's another place that's getting hammered. New York Times did a piece on the death of department stores.

And this is honestly one of those ones that their headline is very few are likely to survive. This is one of those trends that was in place before and is being totally sped up by this. So this guy, Mark Cohen, who is the director of retail studies at Columbia, says, Department stores which have been failing slowly for a long time really don't get over this. The genre is toast, and looking at the other side of this, there are very few who are likely to survive. This is pretty crazy. Department store chains account for 30% of the total mall square footage in the United States, with 10% of that coming from Sears and J.C. Penny.

So I looked at this, J.C. Penny, they've been talking about going bankrupt and Macy's. From their all-time highs, which was, for J.C. Penny, it was back in 2012. For Macy's, it was 2013. J.C. Penny is down 99.4%. It's gone. Yeah, Macy's is down 91, 92%. What are they going to do with all these malls in the future? No idea.

Very good question. I mean, are these going to be social distancing spaces where the mall walkers have to all be six feet apart from each other? And Neiman Marcus, I think, just went bankrupt, which is kind of crazy that a place like Neiman Marcus, if you're really talking about the high-end people getting bailed out, that must be really bad. And maybe we'll have this slew of places. people want to see companies go through bankruptcy. Maybe there will be a slew of places like this on the retail side that realize even if we get a loan, we can't adhere to the restrictions that they're putting on us because business is so bad, so we're going to have to go through

bankruptcy. So I think you probably are going to see a lot of that still, even though the government is offering loans and bailing some places out. I think you're still going to see these bankruptcies. Things are so bad. The journal did a similar article. One U.S. company considered shipping unsold luggage overseas so it could claw back the 40% duty of paid on product. the tariffs from China. But they determined that the freight was too costly, which is nuts. So they're doing like an arbitrage plan tariffs? They're trying. That's how bad it is. They're not going to do it. But luxury brands in the past have taken back their goods. Instead of seeing them like discounted, they just take it back and incinerate them, which is

horrible. But I understand why they do it. I don't know what they're going to do now. How much of this just goes on Amazon? Does Amazon just come out of this massively ahead in the retail game where don't some of these companies eventually have to approach them and say, listen, our stores are shut down. We need to sell on your platform. Otherwise, we have zero sales and we have nothing else to do. Yeah, maybe. But it also seems like online stuff is slowing down. So they showed a chart weekly online sales year over years down. It's falling 20% a week. Right, which makes sense. People are slowing their spending on discretionary purchases. I haven't bought any clothes online in a while. Actually, I bought a blocker charged shirt from Rex Chapman because that's going to charity.

but I haven't done any Instagram shopping. Who are you going to go out to see to wear your new clothes, right? And honestly, all this stuff we're talking about, this is the reason why it's so confusing people that the market is not completely just getting decimated because you see this stuff. Well, here's another one. So Gap suspended rent payments totaling $150 million. If they can't change lease terms, they could be in default. They've drawn down their $500 million revolving credit facility.

So is Gap going to be in business on the other side of this? And then, again, to your point, you hear these stories and you say, why isn't the market getting decimated? But these stocks are getting decimated. Yeah, it's just a stock on the smaller end. The stocks that are in the eye of the storm are getting absolutely hammered. It's just the S&P 500 necessarily isn't. Yeah, what was your pie chart crime that this time it's the five largest stocks in the S&P are bigger than the bottom 300 or something? 350. the bottom 350. So I think that gap is in the S&P 500. This stock this year is down. It sounds 61% this year. It's April. If you're a person who owns individual stocks, you're seeing individual stocks

get hammered. Right. So again, this idea that the market is going down, I just don't think that's necessarily true. The giant stocks are propping it up for now. But yeah, when you look at stocks are in the eye of the storm, all the retail, hospitality, casino, airline. cruises, dead. They're done. Yeah. I mean, by the end of this, are we going to see things like it was in the 80s or 70s where these big companies, the top five, make up 30% of the market, 40% of the market? Is that possible? Is it impossible for these smaller companies all their pain to work their way up to the bigger ones? Is it a psychology thing again?

We're all going to be wearing Vanguard sweatpants in two years. I guess so. Okay. So Harvard decided. that they're not, this was a big kerfuffle online, that Harvard was taking $9 million. We talked about it in the last episode. They said they're not going to accept any of the money. It took them a few days. So I feel like they were going to accept it at first. They said we never applied for it. We haven't received it. We didn't request it. And I think Princeton did the same thing, some of these other big colleges, which is the right thing to do. Don't you think that's a sign? If you're a big business, if you went to the government, if you went to everyone and said,

listen, we had a chance to take a bail out. I'm not saying colleges, but corporations saying, we're fine. We don't need it. Isn't that a sign of confidence in some ways? I mean, maybe it's a PR thing and you're trying to escape blowback. But wouldn't that be a sign of confidence for some companies saying, we'll manage our way through this on our own. We don't need the government's help.

I don't know. I also think that some companies can be fine now, but. Down the line, yeah. But who knows what this is going to turn into? So the college stuff, Axios, had a piece today talking about how, colleges are screwed and they're talking about enrollment could plummet because especially incoming freshmen, they're not going to want to pay sky high tuition for online classes. I can't imagine the college I went to is between $30,000 and $40,000 a year now, which is basically double from

what it was when I went there. There's no way in hell I would want to pay to go there and take on student loans to take online classes and not have the ability to hang out in the dorms and see my friends and go to parties and have a college experience, there's just no way. And so they said, obviously on top of that, universities are going to suffer from lost revenue, from athletics, room and board. Michigan is predicting to lose a billion dollars. The University of Kentucky said it could see a $70 million hit, plus funding for these colleges from the state for public universities is obviously going to dry up because

they're saying that is actually one of the easiest places to cut for state budgets who are going to be in trouble. This got me thinking. I was talking with my wife this morning about this. I was telling her about how colleges are probably kind of screwed for a while, and she said, well, do you think they're not going to go back in the fall? I said, well, probably a lot of them won't. They'll be online. And she said, well, what does that mean for our kids? Are they going to go back to school? And maybe colleges are a unique situation. But, I mean, what do you think the odds are of school in the fall

for other kids that are K through 12 or whatever? I mean, I don't even want to speculate. I have no idea. I don't know that that's, it's all about getting this infrastructure in place for testing and the snail's pace that we've ramped up testing at this point makes me think even by September or August, is that going to be a thing? Are there going to be like thermometers in school? Maybe. I don't know. Just looking at how they've tried to put out online schooling and how bad that's been, I can't imagine they're going to be able to get the infrastructure in place for that at schools. maybe I'm wrong. I think people should probably prepare themselves for the possibility that school in the fall is going to be not starting on time. That's something I'm considering. I don't want to go

there yet. It's obviously a potential reality, but all right. So the other day I caught Robin watching, I wasn't sneaky, but she was watching Good Morning America. So she used to watch Good Morning America every day, but she hasn't been watching it at all because she just doesn't need to see this every second. But it was on the other morning, and I realized like, huh, I haven't consumed the media like this, ABC, CBS, anything like that in a long, long time because everything that we're getting is through Twitter. Right. That's 99% of my news source. I don't know what I would do without it. I mean, I obviously check some of the Wall Street Journal and Bloomberg and New York Times and some of those big places that have good financial media. But 95% of my media consumption is probably on Twitter. and because I have people in place. And honestly, I kind of understand why people are so easily fooled on Facebook because on Twitter, if you have a good filter, you can find experts in a lot of different areas

that will share good stuff and share good opinions and share the right stories that you need to be reading. But if you're on Facebook, you're getting that stuff from old high school friends and people in your parenting groups or whatever. And so you're getting your news sources are people that probably aren't experts in these stories and that's probably why you're getting so much fake news. So it kind of makes sense there. But I was thinking, like, what would we be doing if we didn't have the internet during this thing?

How horrible would that be for getting updates on what's happening and I guess you'd just be glued to your TV to get everything you need? But without the internet, this thing would be, I don't know, five times worse. Would it not? It would be horrible. Without the internet, without Netflix, Disney, plus, all those sorts of things. I guess, what do you do? You read books and play board games?

at that point, people are quarantining for two weeks and saying, all right, we're done. Don't you think the internet helps a lot because it gives people something to do? I haven't heard of anyone complaining about too much screen time for people or get rid of your phones, people, and go do something in the real world. That's obviously lost his case at this point. All right, listener questions. Before COVID-19 took stocks out to the Woodshed, you were discussing whether one should, if possible, pay off their mortgage so that it would be mentally liberating and no longer a burden. I'm 37. No debt. Been in the stock market since I was 20. Do I now borrow against my home and have a mortgage again to buy stocks for the medium

to long term, or do I just allocate my savings to the market each month at the cost of potentially paying for stocks I want? My gut says I should borrow and invest. My refinance closed last week. I did it on Zoom, which was kind of bizarre. Yeah, I'm still waiting for mine. We'll see. They said that they would honor my lock, but we'll see if that happens or not. So my opinion here is why put yourself in a potential position of risk? If you're still investing regularly. Do you really need to swing at the fat pitch? Do you have to be like Warren Buffett? What if you take a mortgage on your house and things go really bad? What if the market goes down to 60%.

Yeah, a lot of this depends on your job as well, how safe you think that feels. I just feel like the risk reward is not there. Okay, let's say that the market is at new all-time high. So what? You'll be fine. Yeah, there's risk in taking on debt right now. I think a lot of it depends on what your other financial situation is like, how much cash you already have set aside. You have to have a pretty high tolerance for risk to do something like this and be pretty sure about what you're doing. And honestly, let's say you did take out another mortgage and let's say you take out 100 grand to do this. That's the case where I would only be comfortable doing that if you set aside half of it as a backstop and say, I'm not touching this. This is going to be my backstop

in case I do this and something goes wrong in my life. I would almost break it up into, yes, I'm going to put half of this into stocks with the understanding of I'm borrowing and paying stuff off. But the other half is going to sit in cash. I'm not going to touch it for three years or whatever it is until we're out of this. And that is my emergency backstop. So I would definitely have a contingency plan in place if you're going to borrow more money right now. I am hoping you could provide the general opinion of what the ideal balance of pre-tax and post-tax is in retirement accounts. Most savings vehicle offered widely are pre-tax, and it seems that most people only have funds in this bucket in retirement. The idea of a Roth

conversion with equity drop as much is intriguing. I've been maxed out of Roth currently in addition to getting the match. But are there legitimate benefits to the strategy? This is a tough one because you're guessing what your future tax rates are going to be, and that's always difficult to say. People have been predicting for years that tax rates are going to go up, and it hasn't happened. And the idea that maybe your tax rates will be higher because you're earning more in the future, this is one of those things to me where if you have the ability to diversify and have some traditional money, like in your 401k or regular IRA, and then some in like a Roth, I think that's probably a good way to not overthink it and just diversify. I think if you try to

nitpick and figure this out down to the penny. It's probably one of those things that is not worth your time. All right. Any recommendations? What did we start watching recently? Oh, Insecure on HBO as on season four. I've always kind of liked that show. It's a good half hour one that

don't think too much on. And yeah, I got nothing. I have a potential recommendation. It's a movie on Netflix called Code 8. And it's sci-fi. it's sort of dystopian, some social inequality stuff. Ben, you're smirking. Are you Googling this right now? I'm looking it up.

It just, it sounds like one of those movies. It just sounds. Are there any people that I would know that are in it, like actors or actresses? Oh, God, no. I like the genre. Actually, no, there is, no, no, no, this guy. I think he was in some of the Fast and Furious movies. Okay.

Is this like a Netflix movie? It's a Netflix movie. It's pretty good. Okay. All right. It's kind of like Minority Report mixed with upgrade. All right. I like Minority Report. I'll give it a try. All right. Potential. I'm hedging. I only saw 20 minutes. Okay. Looks like the stock market is open now and it's up 1%. So is this now five weeks in

or four weeks in a row that stocks have been up on the day of the unemployment numbers? Yep. Investing in the stock market is not easy. I will tell you. that. I mean, don't you think it's probably gotten harder in like the last 10 or 15 years? Investing in stocks is harder than it's ever been. Is that fair to say? Or do you think it's just always been like that and now we pay attention more? I have no idea. I don't know what to make of this. You said for a while that you're kind of speechless about this and you're having a hard time wrap your head around it. I'm of the camp that you just go with it and there are certain things

that are so out of your control that what's the point of fretting over why something's not happening that you think should happen. But I mean, honestly, this is why I never try to guess. I do not try to invest my money based on what I think is going to happen. Because I think that if you tried to do that, I can see why people are mad at the Fed and the markets because they think there's so much smarter than them. And it's just, I don't know. So I want to talk about this on one of our upcoming shows. I do have a little fun portfolio that's 5% of my money. I allow myself to go crazy in it and time the market and go to cash and pick stocks. And I think I've got some decent lessons from that throughout this whole thing that are kind of like this in terms of trying to think ahead.

and outsmart the market. So maybe next week, we'll talk about that. Anyway, Animal Spiritspod at gmail.com. Everyone have a good weekend, and we will talk you next week.