Animal Spirits Podcast - Something Has to Break (EP.310)

Episode Date: May 31, 2023

On today's show, Michael Batnick and Ben Carlson discuss Ben's guiding philosophy on life and markets, why people buy and sell stocks at the wrong times, NVIDIA's crazy run, why the economy remains so resilient, historic income gains at the bottom, greedflation, The Succession finale and more. Thanks to STF Management for sponsoring this episode. Visit https://stfm.com/ to learn more about their ETFs.  Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by STF management. Ben, I've got a blog post. Remember those things? I've got a blog post that's bacon in the oven right now. And the premise is that at the beginning of the year, why take risk when you could get 4% risk-free? Right? That was like reasonable thinking at the time. Yes, a lot of people are saying that. Well, guess what? Now, it's like 100, almost 30% year to date. And this is why if you are going to invest, you need rules because intuition gut just doesn't, doesn't work. And for a lot of people, when it's scary and uncertain, you need rules to keep you invested, right?

Like to keep you long when things are going up. So SDF management has two ETFs. They're both active tug and tug end, TUG, TUGN that offer tactical risk management exposure on the NASDAQ 100. Basically, trend following the NASDAQ. Trend following the NASDAQ, it goes to either treasuries or cash during a downtrend, invested in the NASDAQ 100 during an uptrend, right? Which makes sense because this is a very trending index, as you could see. We'll link to this in the show notes, but as always, especially with things that might be new to you that are not simply a buy and hold.

You have to understand the pros, the cons of every strategy that you're investigating. So please, do your own research. We'll link to the show notes. If you're looking for rules-based, way to stay in the market when it's going. up, visit STFM.com. 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. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ridholz wealth management.

This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholt's wealth management may maintain position, in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, did we create a supply chain crisis?

We might have. I think we did. I mean, supply chains were looking good, and then... We talked about our new Animal Spirits, Tropical Burl's shirts, last week, and the demand was so high that we sold out of small, medium, and large already. I thought you were going to say that the price of shipping containers went back up. Nope, we sold out. The demand was way higher than supply.

economy is still going strong based on Tropical Brothers demand. So if we follow this as our rule of recession, things are still going fine. So we are working on restocking these now. It might take a few weeks, they tell us, because we just, we didn't know that this many people were going to buy them. We should have. We should have known. But we created a supply chain crisis. So thanks to everyone who bought them. And again, a great 10% of all proceeds going to No Kid Hungry, which is a great cause. And we're going to restock these so everyone can have one if they want one. There we go. Thanks to everyone who bought. I can't wait to see them out in the wild. All right. So the debt ceiling deal, I wasn't really paying attention to anything this weekend. I was out on the water.

I was enjoying myself. Were you on the jet ski all weekend or the beach or it was hot, right? It was, uh, it was, it was a, yeah, it was a beach for me. So I didn't even realize. Is Memorial Day weekend the best week. Well, best weekend of, that's, that's a stretch. Fourth of July is better, but the weather was so nice. It kicks off the summer. Yeah. You know, I heard, I heard some people this weekend saying happy summer at like the, like the, I was getting a drink somewhere. People were saying happy summer to each. It seemed like a strait. I was like,

eh, that's pushing it a little. The happy, you know, like, all right, weather's good. People are having an Oberon by the pool. Great. So I didn't even realize that they came to like this debt stealing thing. My phone was away and, oh, there's a debt stealing deal.

And it didn't surprise me at all because this is just what happens, right? And it feels like there's a lot of brainpower expended on this thing and talking about trillion dollar coins. And I'm sure people are going to talk about, well, the vote, do they have enough votes? And that's going to be a big argument. And can we disagree to not talk about this as a market? moving event in the future. I'm out. I mean, I didn't pay attention to it. I don't know any of the

details. The good news is the market saw right through this, right? And the market also saw through the banking crisis. Remember the banking crisis? And I guess if your default, which a lot of people is, maybe not a lot, maybe a lot of people we hear from, the default is every crisis is the next big, big thing. And this is going to bring down the system. This is going to bring down the markets. sure, sometimes there is a crisis that causes huge market-moving events, but most of the time, I don't know, things just work out. And I've said this before, that's my guiding philosophy in life. Sometimes it, most of the time it serves me well, sometimes it comes back to bite me and they ass. But I think that's just the way that you have to look at these things is that

not every, the world's not going to end all the time. That's good, that's a good philosophy, especially with something like the debt zone, which is mutually short destruction. And one of my guiding philosophy has been is risk, like real, real risk. It's never what everybody is worrying about. Exactly. Everyone's talking about forever. Yeah, that's not, that's not where risk comes from. Yes, that's a good, that's a good point, is that the stuff that's true risk is the stuff that kind of comes out of left field and you go, wow, no one saw that coming. This is crazy, like the pandemic, obviously. All right, Bank of America flows. This is from Sober Look. Did you see this one? You're a big flow guy. Huge flow guy.

Okay. So this is, we talk about flows on like a monthly basis or a quarterly, whatever, and sometimes it's hard to put them into context. So this is a cumulative flows since 2007. And this is interesting to me because so 2007 to 2013 call it. Flows were in negative territory. People were net sellers of stocks. Then we get a bump. And I think 2013 is when people really start, okay, this whole like double dip recession is not going to happen. We've moved beyond 2008. The European debt crisis is kind of behind us. We had a leg up and then another one in like 2017. I think this market was up like 30% that year. But then look at the massive spike in 2021. Which is, so here's the, if somebody told, if somebody told that there would be

once in a century global pandemic that shut the economy down and this would happen. That people would go in an epic buying, binging stock spray. You would say, you would do the Von Burger Day. don't believe you. And if we're doing the behavioral finance thing of this, the sad thing is,

surprisingly, no one was, I mean, obviously, after 2008, people were like, get me out. I don't want nothing to do the stock market. It crashed 50% twice in less than a decade. I understand that sentiment for some portion of investors were like, that's it. I'm done. I'm washing my hands. I'm not investing in stocks again. But the fact that throughout the 2010s, when we had a rip-roaring bull market of, I don't know, the 2010s, I think did us 13.5% per year. But wait, I feel like the The GFC wasn't really in the rearview mirror until 14, 15. Because in 13, when we got to the highs, everybody was like, you know, people were not like all in.

Yeah. It wasn't until like really 17 that people were like, holy cow, this really is a bull market. Yeah. But I'm just surprised that that whole bull market that, you know, eight or nine years into it still didn't bring a huge increase in equities. And then the pandemic, like you said, just dwarfs everything. And it's, I don't know. just behaviorally, this is, and it's almost too bad that people weren't buying stocks from 2009 to

2013 or whatever when they were underwater that whole time. That's the time you want to be buying stocks. And obviously, this is just human nature and this is what happens. But it's kind of a shame that people weren't buying stocks then. Ben, you say the phrase often that X broke people's brains, right? Whether it's whatever, whatever the case may be. Ed Borgado had a great quote about this. He said, investor frustration often stems from. not being able to bridge the gap between what they think should happen versus what is happening. I think that's part of the, like, early on in my career, I met so many smart people that blew me away by their intelligence, and I felt like, gosh, these people know exactly what's going to

happen. And I saw so many times where these people were wrong. I remember in 2010, 2011, like, a really smart hedge fund we were invested in that, that all they focused on was European equities. And they were like, this is it. Within the month, the European Union is done. The Euro is done and we were like, holy crap. And obviously, that didn't happen. I saw enough of that kind of stuff where I just, to myself, kind of thought, I'm not going to try to be right all the time anymore because even the smartest people out there cannot do it. And I think that's part of it is just thinking about what should have. It's okay to just like let go and not worry about that stuff. Yeah, the alpha is in not being massively wrong. Yes. And staying

out of your own way. So we talked a couple weeks ago, actually, about the Gallup poll. I think I was Googling it as we were doing this show, and two weeks later, Gallup releases a new poll, saying stock ownership, 61% of adults say they have money invested in the stock market. The highest percentage Gallup has measured since 2008. It fell to 52% in 2013 and 2016. Most surveys prior to 2008 found 60% of more adults owning stock. This has basically flatlined since 1999. It got a right around there to 60%. I think it was 20. If I do a quick history for you here, I wrote a blog post about this.

1% of all people owned stocks in America and the Great Depression, 1929. I know everyone thought everyone got ruined in the stock market, 1% of the population. It was still 19% in 1983. And then the 1980s and 90s bull market really charged it. And then by the end of the 90s, it got up to 60%. And it's basically flatlined there. Is this kind of the new normal of where it's going to be? could we ever get to like 70, 75%.

Yeah, I think so. And I think that this is more a story or less a story about stock market performance and more a story about the ease of getting into the stock market with services like betterment and things like that. Yeah, the other thing we have to mention, too, about the flows and this data that is trending up. And it has seen a nice little spike since 2020. People had money.

It was only access. People had money finally that they could invest or they want. wanted to invest. So I do hope most of these people stick around. I don't know. How many of them do you have piled into Nvidia? Did you ever own this stock? Is this one that I've never heard you do it? I never bought Nvidia. No, too volatile for me. The stock is too good. No one goes there anymore. So I looked at this and so Nvidia's price to sales. I think you were talking about this on your compounded friends this week. Like the price to sales ratio is like 35. It's 35. It's an enormous number. So I wanted to look at this in in, in, in,

relation to the tech stocks in the dot-com bubble. So I pulled up Cisco, Qualcomm, Intel, and Oracle. The highest one back then in 1999 or 2000 was Cisco at 39 times sales. And that was the one that got to be the biggest stock, and it's still underwater from there. Qualcomm got to 31. Intel was not much, was like 16, and Oracle was 27. And so I'm sure you could pick out another few names that got even higher, but Nvidia now is higher than some of the tech stocks back. then. Also, what was like Cisco's peak inflation just in market cap? Did it get to a trillion? I don't think so. It was 400 something, I think, at the peak. But to have a, to have a trillion company trading at 35 times sales is pretty wild. Although, how about this? Do you think more money

will be lost chasing this stock or shorting it? Can I say both? The funny thing is, you would be right to say this stock is going to have a massive crash at some point, but it literally just did. Look at the drawdown. It was on 66%. Yeah, I was about to say, yeah, it felt like 70. Two thirds of its value from the high last year, and now it's totally round-tripped. And this is the kind of thing where if AI continue, it does push us into a stock market bubble. And Nvidia really is the, what's the quote, the only arms dealer or whatever?

It could go to 70 times it wouldn't surprise me. Right. If this is the one, there's going to be other companies that come along and have dot AI at the end of their name and go, crazy. But if this is the stock, it's going to, to your point about volatility, it's going to be those volatile stock in the world probably. One of them. It's up for the other 6% today.

But you do have to wonder, like, literally who's buying you today? I mean, obviously, there's a lot of people. 25%. Yeah, that's a really good. So I looked at the NASDAQ 100. Top seven names. I tried to tell this the other day. He said, Ben, I know what they are.

So obviously, you're well informed here. For the listeners. Apple, Microsoft, Amazon, Google, Nvidia, Facebook, Tesla. You know what? That's not, I feel like, you know what? I bet you 60% of our audience knows the top seven stocks. Maybe even more. 60%?

Yeah, I'm bullish on our audience. Duncan, give us a survey on that on YouTube. Do you know the top seven stocks and the NASDAQ 100? That's all, okay. I mean, I had to kind of look about it. 40% in the NASDAQ 100 in Apple, Microsoft, Nvidia, and Amazon alone. Just the, that's a huge, huge number that I'm not sure a lot of people understand. Market cap on steroids.

Yes? And the NASDAQ, as you said. So when Apple goes to zero, that's really going to hurt the market. It's, I don't know. I do feel like if you're looking to get the best from the winners and you just don't know, then the NASDAQ 100 is a pretty simple proxy for this kind of stuff. Like, I don't know, if you were just wanted to toe in the water to the AI stuff and like, I don't know, I'm not a stock picker.

Like the NASDAQ 100 seems like an obvious answer, right? Yeah. I took COVID to the mall yesterday. And why am I saying? Oh, so there's an Apple store in the mall. And it's like every other Apple store, it's always packed. There's also a Samsung, like, rip-off type store. There was like, you know, six or seven people in there.

And then you have the kiosk where the guy is trying to sell you like a flip phone. Not anymore. Remember? You know what I saw yesterday in the mall? A lava lamp. Remember those things? Oh, yeah. I had a friend who had a waterbed and a lava lamp in high school. What do you think that says about that person?

He never had any females to his house? I don't know. A laval lamp and a woodland. Poor choices. Why are you at the mall on Memorial Day? That's a choice. Well, that's a fair question. Because it was super windy. Like super, super, super windy. And like, we were already at the beach for the prior two days. So, Rob went with Logan. Kobe didn't want to go to the beach. And guess what? I didn't want to go to the beach. Okay. Because you and I were at the beach last week, actually, we did our show from Miami. I've never seen a person put on sunscreen like more two times close together.

Like you put it on and like 10 minutes later you put it on again. Oh yeah? Guess what? It wasn't enough. Credit to you. And you still burnt a little bit. No, you can't see it. So my head was peeling a little bit over the weekend because it was SPF 30. Here, SPF 30 is like, you know, okay. The Florida sun said, uh, you just need a hat at all times pretty much, right? pasty bastard and it yeah wasn't enough okay so anyway well any more for your mall sir is that uh no that was it i'm good okay all right so a bunch of people were dunking on arc and kathy wood about selling in video so bloomberg had this story that they dumped it in i don't know january or february right before the huge run-up it said it's added 560 billion in market

caps since kathywood sold it 200 billion of course of that coming after one day when it's up 25 percent or whatever. I think this says less about like the innovation fund and her stock picking skills than it does that like this stuff is really hard. You think? And how many people like a year ago were saying, oh, there's going to be this this chat cheapy teeth thing that comes out and it's going to totally change how people think about AI and the future and that no one was predicting that this was going to happen. There was also massive supply chain issues with semiconductors. I mean, Obviously, it's why the stock was down almost lost two-thirds of its value. It was looking pretty bleak.

And then, yeah, and then the AI thing, which... To my point about ARC versus, like, the NASDAQ 100, I think you're better off at indexing innovation than you are trying to find someone who's going to pick it for you. That's my thinking is that the winners are going to rise to the top. So own a lot of different ones and let the winners rise to the top as opposed to looking for someone to pick them out for you. I don't think people are going to be able to pick the innovation winners.

I'm sorry. My opinion right now, which, you know, it's an uninformed opinion, granted, is that we're seeing a lot of startups that are trying to do this AI stuff. And just from like that point of view, I'd much rather be late than early. Yes. Because I don't know if there's going to be any winners. I think, you know what I mean? Like, I think a lot of the value might just accrue to the users. And there might not be trillions of dollars in business opportunity.

Maybe there is. I mean, Nvidia sure looks like it. But I'm just saying like when the dust settles, this might be like the airplane where great for the users and just a really lousy, lousy business. And I could be incredibly way off. Well, to your point about who's going to lose more money, the longs or the shorts and saying both, there probably will be a ton of stocks that just go bananas when they come out, when the IPO or when they change and have a pivoting strategy or whatever of it. And you're right, those ones probably won't be the winners. It'll probably be something we don't even think about it. Or it'll just be the incumbents. It'll be Microsoft and Google, and that will be the thing that, like, those things will be fine. I don't know. I wouldn't want to try to pick them as my whole, is what I'm saying, though. I would not want to pick the winners here.

All right. This is a good chart. Well, I don't know if it's good, but it's an interesting chart. The number of S&P 500 members beating the S&P 500 over the last three months is, is at the lowest level since 2000. So we had this, you had that really amazing chart last week showing that concentration

is not necessarily like a harbinger of really lousy future returns. That being said, broader participation, all sequel is better than narrow leadership. But we're in the situation again where if you're not long, these mega cap tech names,

you're trailing. So the weird, every good investment strategy in history, size has been the enemy of outperformance. When people figure out that a strategy works, eventually money pours in and it stops working. If anything, it's gotten harder over the last 20 years to beat an index fund, which is sounds correct. Because all the hedge fund managers have said, just wait, when people leave the table, there's going to be more opportunities. It's gotten harder to outperform the indexes. And there's maybe there's going to be times. It's just hedge fund battling with each other, although that's not true because there's a lot of retail traders that got involved.

So I don't know if that's exactly true. And it's part of the market environment where it's these huge mega cap stocks that have been working. And boy, was that a, how many, I mean, I looked at the dot-com bubble and it took 15 years to come back or whatever. The tech stock, what did we have, a 15-month break in tech stocks going crazy? Now they're going nuts again? Was it even that long? You saw the stat about the cues beating every growth. manager over a 10-year period. It's directionally right. I don't know if I have the stat

exactly right. No. I wouldn't doubt it, though. All right. So this is from, I don't know where this is from. Estimated U.S. recession probability in the next 12 months. So they poll 50 different economists. They did one in January and they did another one in April. And nobody's, for the most part, nobody's coming down. So 66% of those pulled say a recession in the next 12 months, which, you know, might not happen, but people are not budging at all on their recession calls. Where are we in the dock here? I'm lost.

Under economy. Okay. Oh, I'm sorry. Did I skip stuff? My bad. Maybe. No, it's fine. All right.

So, this is a good one. Barry actually posted this. Wall Street says a recession is coming. Consumers say it's already here. The recession calls are growing louder on Wall Street, but for many of the households and businesses make up the world economy, the downturn is already here. More than one-third of Americans believe the economy is now. recession according to a poll last month by civic science.

This headline and story came out in July 2022. We're already in a recession. It's almost a year now, and we've been talking about this for longer than that, right? It's, I think everyone would have been, you remember for a few years there when we had the zero bound, I don't know, I don't really, I never really understand the zero bound, like getting off the zero bound. I don't really understand the bound part, but whatever. It sounds cool. When we had zero percent rates, there was a lot of people saying this economy cannot handle coming off of zero percent. If we raise above zero, and I probably would have thought something similar, like we probably can't handle more than three percent rates or whatever.

Yeah, I thought that was a reasonable thought. The resiliency of the economy with rates going parabolic is really impressive. And again, I don't know if anyone would have predicted that ahead of time. Oh, I did have another moral thought, actually. I was thinking about this because what powers the economy? It's, you know, consumer spending for the most part and a lot of physical stimulus help, but consumer spending. I think this is a social media thing. When I was growing up, I don't remember like kids wearing Jordans. Like, I remember, I remember my my budget for sneakers was like $50. And whatever Jordans were at the time, maybe they were $100. Not like not a lot of kids had those. No. it was like we had like the one rich kid in our class had them maybe exactly right there was like one or two whose parents you know spoiled them rotten and got them everything but i feel like now it's like every kid is everything yes you see like toddlers with georgias now i was always i remember the big day in my life in like fourth grade when i upgraded from nikes to nikey air remember you kind of got laughed at when you just had regular nikes you didn't you couldn't see the air cushion getting the air cushion was a big upgrading your life yeah sneaker sneaker day was a big day one time i got a pair of barclays Because they were, like, marked for, like, $50, even though they were, like, said that they had the wrong sticker on them, but people at the register hooked it up. Thank you, uh, foot action or whoever it was. How many pairs of Jordan do you have now? What's that?

I have, I have, like, two pairs of Jordan. Three? Four pairs of the Jordans, maybe. But I have, like, the jogging shoe ones. What do you have? How many do you have? You have a lot of Jordans, right? Kind of?

I have several. Not to brag. Several is more than a few, right? Several is several. All right. But, yeah, the economy is not slowing down. So this is from S&P Global Market Intelligence. We're looking at the flash PMI output indicators of G4 developed economies.

Quote, economic growth across the four largest developed economies has accelerated to the fastest for 13 months in May. Growth was driven entirely by services. So manufacturing is, you know, mostly stalling, but can't stop, won't stop. All right, Carl, continue. I do think this is one of those things that you mentioned them all. Like, this is when the annex data actually can help you. When you see packed restaurants and packed bars and packed flights and people are still spending money, that's not exactly the economy, but it kind of is. And when you see that happening, it's hard to think, oh, people are raining in their spending and pulling back.

U.S. screened nearly 9.8 million airline passengers over a four-day holiday weekend topping pre-COVID levels by 300,000. So we're back. And domestic airfare is getting cheaper with the average round trip ticket at 273. So it's too late to say that inflation is definitely peaked. I think that's probably like, you know, the odds would favor that. But, you know, we'll see. Soft landing, who knows. But like, are we trending towards that?

I don't know. It just keeps charging head. All right. Kudos to the Wall Street Journal. This is just Ben and Michael Bate, Blackjack inflation. Blackjack players lost more than a billion. to casino in the skisans under the strip last year, the second highest loss on record after 2007. Some casinos are cutting back on the number of tables in raising minimum. So they're talking

about how they're raising minimum bets to like $25 and $50 a table or a hand. When I was in Vegas, I don't think they, I don't think the casino hours that had tables under $25. So blackjack inflation, yeah. The first time I ever played blackjack and I, like the dealer taught me, you know how if you go on a cruise, I don't know if you've been in a cruise before. Nope. They have a casino on the cruise. I was 18 years old, and in international waters, you could gamble at 18 before it was 21. And it was $2.50 a hand, which is just, and it was great.

So I would go there with $20 and play all night. So they also said, blackjack, when you get a blackjack, historically paid out three to two. And now it pays out six to five. So instead of winning 15 for every $10 bet, you win $12 for $10 bet. So this is so weird. This is like chip flation. This is like chip flation. You know when you get a bag of chips

and they just keep putting more and more and more air in the bag and less chips? So when I was at one of the tables, I said, hey, wait a minute, why am I not getting three to two? And she explained that they don't, this is not a three to two table. And I was like, not a three to two table. Are there other tables that are three to two?

I didn't know that they could change these things. She goes, yeah, right over there. So it's like, well, what am I doing here? I didn't know that they could actually, I thought that was like written in stone. And so they've, they've, the number. of tables are down 19% from a decade ago. So people, I haven't, I haven't played blackjack a ton lately.

The only time I ever do it is sometimes when I'm with you, we occasionally find a casino. But this is one of those things. I have no record to prove this, but I, I'm way up in my career of blackjack. And you, just following the blackjack card, you know, when to stay, when to hit, all these things. That's not possible. I have a positive lifetime earnings in blackjack, for sure. You don't think you do?

I've never I know I don't I've never lost big I've never won big but no there's no way I'm off I mean I had one Vegas night where I was playing two hands at once after I was a little

over served and got wiped out but I for the most part I walk out of there with a big smile on my face and some money so I'm not going back though if it's going to be six to five all right good one from political historic low income games

fueled by worker shortages the lowest tiers of earners, people making an average of 12-15-hour, saw their pay grow nearly 6% from 2020 to 2020, even after factoring in inflation. They're saying that's significantly bigger than the low-age workers got, even during the entire administration of Barack Obama following the Great Recession. Numbers particularly striking when compared to the 3.9% raised the same cohort found from 2009-2017. If you look at this chart here, it's showing the 10th percentile, which is the lowest 10 versus the 50th percentile and the 90th percentile. The bottom 10 percent have

seen the biggest after inflation gains from 2020 to 2020. And people at the top are actually seeing their wages fall after inflation. The top 10%. So the bottom 10% is seeing their wages rise 6% above inflation. The top 10% has seen them fall 5%. Here's a... We've been talking about this all year. This is another thing that is just mind-boggling to if you were an economist or you like taught economics in school. I got, not to brag, I got economics, minor in college, not a major, a minor. And I feel like everything that happens in the real world has nothing to do with my textbooks that I learned. None of it squares at all. But here's the thing. This is Powell, this is Paul said this in this piece. To be clear, strong wage growth is a good

thing. But for wage growth to be sustainable, it needs to be consistent with 2% inflation. I feel like that that sounds intelligent until you realize, like, guess what? The wage growth can't or won't happen if we don't have higher inflation. Right? The higher inflation, I think, led to the higher wage growth for low income people, which seems counterintuitive but true. Anyway, another sort of mindbender to me that this actually happened. Did you read this greedflation piece from All Street Journal? I did not. This was pretty good.

A couple of good stats in here. They're saying greedflation is actually good. And this is, this, and I think that this for the economy. Greedflation, for lack of a better word, is good. There you go. Good one. That's a Photoshop with you on Gordon Gecko. But Duncan, you've got to put the hair on him.

Average earnings per share fall in 1.4% year over a year, but people thought the expectations were 5.9% drop. The stocks, Europe 600, earnings per share were forecast to grow at 2.1% instead of jumped 18%. Holy moly. Yes. So here's why they're saying this is a good thing that corporate profits continue to be high. One third of the growth in prices in the U.S. from 2020 to 2022 can be explained by higher corporate profits and only half by higher wage. Historically, including in the oil crises of the 70s, capital accounted for around a 10th and labor for almost two-thirds. So they're saying this is, look at this chart here.

It shows the growth in prices by compensation and by profits. And so the fact that profits is such a big part of this actually means we're not, this is not the 70s. We're not having this wage price spiral. So it's going to corporations, but that's actually a good thing because that means that inflation is probably not here to stay. Does that make sense? Yes. That's a good chart. So this also says, here's the kicker.

Inflation may be higher as a result of corporations flexing their pricing muscle, but it is probably also the reason why the recession everyone expects always seems to be six months away. Basically, people keep spending is kind of what they're saying. And this is not what was happening in the 1970s. So that's the whole point is this is not the 1970s. This is why it always comes back to the labor market. As long as people have a job, they're going to keep spending. Yes.

Right? And of course, like, yeah, the banks and the credit stuff, like, not that it doesn't matter. Of course it does. Everything matters. But the labor market is a big one. Yeah, but this chart is, if you're a policy wonk, it's kind of interesting. So last year we spoke a lot about shipping costs and all the way up, all the way down, up 836%, down 85%.

It looks like Zoom. That looks like Zoom share price. That's an incredible. roundtrip. Yeah. Apollo, key supply chain indicators are now fully back at 2019 levels. So they have a budget charts in here, putting down pressure on inflation. If inflation re-accelerates, where is it going to come from? The housing market, consumer spending, I don't know, because wage growth is already slowing as well. I think it's just consumers continuing to spend down that excess savings. All right, well, mortgage rates. Are we ready to take layoffs out of here

and bring it back when the recession starts? That's a good point. Point. Layoffs, the layoffs, you know what, I'm not ready to retire just yet. I feel like it's been dormant for a while, which is a good thing. I think we should have, I think we talked about rules-based investing at the beginning. We should have rules-based Google Doc stuff here. So, like, if we haven't mentioned it in a month, it's gone. I'm not ready. I'm sorry. Okay. The average 30 year is now, I think the last time I saw was 7.14% highest of the year. I can't. And the spread between treasuries keeps growing because treasures are not growing this much. So, yeah, this mortgage news daily has a daily rate. And it was above 7%, which is just

insane. Okay, what's this buy versus rent thing? Look at this chart. The mortgage, this is from Nick Garley won on Twitter. Mortgage rates back to 7%, meaning that the cost to buy a house in America is now approaching $2,700 a month when including mortgage tax. insurance and maintenance. Meanwhile, it costs for rent is 1850. Biggest gap we've ever seen something has to break. I continue to not like... Does something have to break? I mean, this chart is wild. I'm just asking. No, obviously, it doesn't because rates have gone from 3% to 7%. Prices have gone up 50% and it hasn't broken yet. Yeah, that's a good point. I feel like if something was going to break, it's because it's a structural thing with there's too much demand.

There's too many millennials. And I do. think that if rates stayed above 7% for the next two years or something, yeah, prices would continue to come down and activity would be slow and the housing market would essentially be broken, but not break like prices falling 30%. Well, so, but this has had an impact on home purchase applications. You see the next chart? Yes. Which makes sense. Yeah, so rates go down, activity picks up, rates go up, activity falls. That's how it's going to mean. So Redfin has their home housing payments, and it shows by year, 2020, 2021, 2021, 2022, and 23, the, based on the median

home price and the prevailing mortgage rates, what the housing payment is. This is bananas. My God. In 2020, the average was less than $1,500 at this time. Now it's $2,600, and that's at 6.6% rates. It's going to be higher. I just, I don't know. really do feel for anyone who's in the market for house right now because this is just

it's the worst of all worlds yeah i mean the home buyers are now we're getting a real deal yeah not fair life's not fair um okay u.s home prices were zero point seven percent the smallest 12 month increase since 2012 but we're seeing declines in seattle down 12 percent. San Francisco down 11 percent. Vegas and Portland down five percent. It's like not enough. All right. So this is good. At least the least, uh, I don't know. L.A. If you've been waiting for a house in L.A. for a while and prices rose 40 percent. Now they're down three. Do you feel better? I mean, right? You need, you need prices to fall 30 percent to feel better about this. Well, how about this? Three. So, uh, Zillow's forecast

model, this is from Lance Lambert's, Lance Lambert, excuse me, Zillow's forecast model predicts rising home prices between April 2023 and April 2024 and 390 of the nation's 400 largest housing markets. Well, that's not great. And of course, this is just a prediction, but my God. Look at this one. Chase Emerson tweeted this out. Toll Brothers actually raised home prices by an average of $25,000 per house over the past quarter. They're also raising their guidance for gross margins, new home deliveries, and new home prices for the rest of the year. I think home builders realize now that, like, oh, we're the only game in town here. And they're actually raising, there's a builder by me who just keeps raising prices.

Like, we, you know, you get the Zillow alerts. And there's a subdivision that I watch, like, new phase of houses going up. And the prices over the last year are probably up, I don't know, 15 to 20%. Stock is up 37%. On the call last week, an analyst from UBS said, have you seen any impact of demand thus far? And if rates sort of stay at 7%, would you expect incentive activity and cancellation rates to pick back up again for the industry? And the CEO of Toll Brothers said, we have not seen any drop in activity over the last few weeks. All right.

So I have a new... If you build it, they will come. I think it's the only game in town right now. I'll say, okay, so you had your house that we were watching on your block for, what, five months or something that finally sold? And you said it was like an insanely... We have one that went up on my block. It's a forced sale by owner, and it's probably $250,000 over what it should be going for. And so this is my new Ben's housing market watch to see what this actually goes for.

It's an insane price. How big a house? It's like a close to, what did we say mansion was? 5,000 square feet. It's close to that. It's a big house. But it's still way too high of a price. for West Michigan.

1.4? I think it was 1.1. That's way too high of a price for Grand Rapids of Michigan. Right. We shall see. Wow, look at this chart. Alex Thomas tweeted,

Ouch. One in every five flipped homes was sold at a loss in the first quarter of 2023. Holy moly. I feel like that's the way it should be, though. Like, flipping a house, I don't know, remember all the,

did you ever get to those house flipping shows on TLC? no like i remember getting into those like oh six oh seven these they would come in and cut corners and i don't know the whole house flipping thing to me is has never really made like i wouldn't want to buy a house that got flipped however ben the other day so i i've said this before but i am not a i am not a scroller of tv i don't think most people are anymore right who scrolls i watch what i watch i don't i don't flip through you know You know the worst scrolling experience ever in a hotel?

It takes like six seconds to change every channel. We were trying to scroll in a hotel. Yeah, you're right. How come Mario Lopez is the default. Every hotel in America. Every time you turn on a TV at a hotel, you see Mario Lopez telling you what shows to watch. I mean, how do you get that gig? And how come every TV in a hotel is an LG?

The only time you ever see LG TVs in a hotel. So anyway, so I was scrolling. It must have been at the hotel. And Pond Stars is still kicking. I used to love that show. I mean, who didn't? But it's been like, what is it, year 20 at this point? How is that still interesting? I never got into that one. Never? All right. Personal finance. Let's get into this. So we had Ramit Satie on an animal spirits a couple weeks ago. And we put it out on YouTube. And then Nicole, our social media manager, put it out. on the compound feed, and I asked for me to question. I said, I've seen these studies that say, if you teach personal finance to high school students or to anyone, it doesn't really stick, or it only just makes them more overconfident.

It doesn't actually help their financial habits. And so I always thought, like, that doesn't make any sense to me. Like, we should be teaching personal finance people. And I asked Ramit about this, and he said, no, I actually don't think we should. And I actually, I thought he made some valid points. I didn't agree with everything. His points were basically, how are we going to decide on who teaches what? And do teachers in America really have the ability to teach this anyway?

And most people don't need to learn about this stuff until they actually have to experience it. Like, it's going to go right over their head, in one ear, out the other. And holy cow, do people have strong opinions on this. I was surprised about this. Like, this video got a million views, and people were commenting up and down my Twitter, because I was tagged on this. You don't ever check your Twitter mentions anymore. But there, and a lot of people were teachers saying,

listen, I teach this. I have good, like we had students chiming inside. I learned from this teacher. And so people had very strong opinions about this, which I was surprised about. I did look at some of the things. And people were like super nasty. There were some nasty comments.

I don't know. I didn't think he said was that offensive. You're allowed to disagree with somebody? I didn't think it was that offensive. There was people who took, I think it was teachers took a lot of offense. but I think you can say I'm a teacher who knows how to do this

and I stand out and that's my point is that like but to his point there's probably aren't not enough teachers that have the ability to teach this but I don't think we should not try though I haven't thought about

I haven't spent a lot of time thinking about should personal finance be taught in school so maybe you don't like my take that's fine too please don't clown emoji me although if you want I guess you can

so here's my take I used to be of the opinion that uh What do kids learn in school? Wow, this about sound bad. I was a really bad student. I did not, you know, this might surprise you that I have attention issues. So I did not retain much of what I was taught in school. And so I don't, I don't know that teaching personal finance would really do anything. Would it sink in? That was my take. And then I was like, but wait a minute. But just because I was a horrible student doesn't mean that a lot of other people can't benefit from being taught the basics of personal finance. Furthermore, We teach biology and, like, chemistry and shit that you will never, ever, ever use ever again. And so if you teach personal finance and only 10% of students take something away from it, well, that's great.

So that's my thinking, too. So like, why not, why not teach it? Yes. Why not teach it? Yeah, we teach people at taxes and budgeting and stuff. And 90% of the people, it goes in one or not the other, but 10%. It's like, oh, I'm thinking about this stuff. And I remember it permeates.

I had to read where the red fern grows in a tale of two cities. I love one of the red fern grows. I know. Point taken. Dante's Inferno. All this stuff that was useless to me, that I think if, again, if 10% of students latch onto this and are more thoughtful about it when they, oh, yeah, that's right. And maybe I should look into this more.

I think that's a win. One of the points that we made that I thought was sort of, what was reasonable was a lot of people don't even, we can't even agree on the basics of personal finance. True. We can't agree on the basics of a lot of stuff we teach. I think that's a reason to not try. Yeah. But I don't, yeah, I don't, the vitriol with which he got some comments, I thought people.

That was a bit, that was a bit over the top, I thought. Okay. Speaking of my lack of attention to detail, I was looking for straws. And, Robin goes, you have me a straw? So we have like a pantry. I'm like, I don't know where they are. And she had a great line. She said, if you knew where they were, then you know where they were.

then you know where they'd be. I was like, well, yeah, but I don't know where they are. She kind of got you there. I was in Target the other day, and I feel like the electronic section in Target keeps getting smaller and smaller, as it should. I can't imagine that their electronic appliances are doing that well, but they still sell DVDs, and I saw cocaine bear. Really?

I saw cocaine bear. And I can't imagine. I really, really, really can't imagine the person that would, purchase a cocaine bear DVD. And then put it in their little stand next to the TV to show it off. Yeah, like that's, I mean... Where is this one going to go?

What is this, 2002? I can't remember what book it will. I was reading one of the books on the streaming war, and DVD sales are one of the reasons that we have such crappy movies now. Because even if a film bombed at the box office back in the day, most of the time, they could actually count on DVD sales to make up for it. And they made, and like the margins on DVD sales were enormous. And that's one of the reasons that we don't have such good movies anymore because they have to go for the sure thing.

You can't put out a comedy anymore that's going to make $20 million at the box office and then $100 million on DVD sales, whatever, because that doesn't happen anymore. Yeah. All right. We spoke about Netflix briefly last week in terms of like their transition to disallowing sharing and ads. And Beth Kinding tweeted, Netflix revealed 5 million ad tier subscribers last week per Reuters at $7 a month. That's already at $100 million. at a quarterly run rate, and we'll monetize at a higher rate than other plans potentially because of the bottom line.

And the stock had a hell of a week based on that. So as a shareholder, I like that. What's that? Okay. You like saying that about Netflix. As a shareholder? Yes. Just facts.

What's the meme of the guy on the, he's standing on the porch looking down on people in his English attire? Although, although I do, so I do stand by my comment the other day. So Warner Brothers looks disgusting, Paramount looks disgusting. And Disney, I mean, maybe it is a value trap. So I also own Disney. I might have to take the L on Disney because I was doing a victory lap for a while because I said Disney Plus is going to be huge.

And they broke through any of the highest expectations you could imagine for a number of subscribers. But it did nothing for them because they didn't charge enough. So I'm just saying technically the stock looks like a mess. And if it breaks, like, its recent support, I know this is whatever can go a lot lower. So I'm not sure. I mean, I probably should sell, but this isn't, this wasn't a trade for me. But I don't know.

The business is challenged and it might just be a value trap. So, uh, here's something I was wrong about in the past week or so. I, the first time I went to go log on to HBO Max like 10 days ago and it said, okay, you have to now download the Max app from HBO Max. And it automatically downloaded. Does it sync to your, because I haven't done it yet, does it sync? to your... It automatically did, yes.

But it was so glitchy and the picture looked bad and it was starting... And I can't believe that on Sunday night the succession finale didn't like go out because people watching.

I was shocked that it didn't go out. I mean, this is just... They bungled the shit of this. Ben Gilbert tweeted the slow descent to madness and it's four pictures. HBO Go. HBO now.

HBO Max. Max. Why would they kill the name HBO? It's like... I don't know why they don't just call it HBO. It is... bizarre to me. All right, good one from the compound survey channel, which is weird to do by yourself. Go to a movie. Go to a sporting event. Almost 2,000 voters. 74% said go to a sporting

event. Kind of agree. Did you get any weird looks? You're sitting at the heat game by yourself? None. But no, I agree with that. It's way weird to go to a sporting event alone. All right, quick feedback from the pod today and Michael's complaints about the ticket site that shall not be named. Oh, man. We had so many people jumping on your side of this. the ship for this thing, like, I can't stand this company. Last year, I posted tickets to a concert on various ticket resale sites. It sold on a competitor, and I failed to bring my post down in enough time as a buyer purchased them from the ticket company who shall not be named, maybe an hour or two after I had sold them via Seek or something. So the ticket company who shall not

be named said I had failed to hold up my end of the bargain and charge me the amount the buyer paid for my tickets as a penalty for not selling my ticket. After listening to Michael's story on the heat tickets and based upon my experience, owing now to believe that the ticket provider who shall not be named would not refund Michael and yet still penalized the seller for not completing the sale. So they did to this guy what you wanted them to do to you last week. Yeah, which thereby means that they collects double the amount of the sale for a sale that did not occur. Essentially, a seller list tickets for 100, buyer pays 100, sell it does not complete the sale, seller is penalized 100, and buyer is not given a refund. I would go to my credit card

company immediately and tell them to avoid that transaction. That's crap. Yeah. So this is timely. Walsh Your Journal wrote an article about Taylor Swift. Nine days before she was scheduled to take her 17-year-old daughter to see Taylor Swift in concert in Philadelphia, Janine Travia, realized that the pair of nosebleed tickets for which she paid a total of $1,000 were canceled. Stubbub, the resale site where she had purchased tickets after found to score face value seats on Ticketmaster, told her, via email that she was entitled to alternative comparable tickets, but there were none left anywhere near the price she had paid originally. After days of refreshing the site and desperately asking

around parent groups at one point, offering her best friend $1,000 for her ticket, she sprung for two-floor tickets totaling $5,500. Stubbub later refunded Travi about $4,500 toward the difference in price. Oh, good for them. Okay. But this Taylor Swift stuff is nuts. So dollar sales for Taylor Swift's tour this year are seven times out of Bruce Springsteen, eight times Morgan Whalen, who I don't know who that is, and cold play, nine times Adele. I am definitely middle-aged because I don't know who that person is. And Beyonce... You don't know who Adele is? No, I know Adele. I don't know Morgan Whalen. And 13 times what this year's Super Bowl did, according to Sub-Up. But this is kind of nuts. So Stubbubb said 70% of orders for Taylor Swift

tickets on its platform are fan sellers, as opposed to professional ticket brokers, double what it normally sees. And this is, this is sending gold. sorts of glitches as you as you can imagine i will so my daughter my nine-year-old is a huge taylor swiss fan and i was always kind of like it's you know the new i just the new music stuff she listened to taylor swift all the time uh and and i've totally come around like her music is good that's not making a big leap there but uh it would have been nice to see her be like i'm not selling my tickets for anything any more than fifty dollars a ticket or something like that just put a ceiling on it and and don't allow resales or something i don't know it this

kind of the prices of the tickets to me is kind of kind of gross. I don't, I'm not a, I don't like it. Here's this, Kudegra. Stubb's penalties for sellers not delivering tickets ranged by the degree of error and end result for the buyer. The company can charge a seller what it costs to replace the ticket, in many cases more than five times the seller's originally listed price. So this article in the Wall Street Journal corroborates my experience, so it's not very kind. All right, another poll. You eat alone. in a restaurant and they add 20% gratuity to the bill. Fair or not fair? And 87% said not okay.

So somebody emailed us. This also makes sense to me. We had a lot of people say this. They said, I think they auto add the 18% to 20% tip in most places here because it is tourist heavy and international tourists don't typically tip. And if they do, it is under 10%. So the restaurants auto add it to satisfy the staff. I'm okay with that. It was a Miami thing.

I would just like to see a sign. Tip automatically added. I'd like to give a heads up. Yeah, that's okay. I get it. But we know that you go line by line on every bill because the price of the tequila, you have to look. Oh, no, I don't. We were at the bar in Florida getting a nice Miami Vice for lunch, and you saw Kase Azul, and you said, hey, how much for Kase Azul? I'm just curious. You've now price check it everywhere we're going.

Wouldn't she say $60 after taxes? Yeah, that's a lot. And you said 87 or whatever you paid in Chicago, 86, and she said, that's crazy. Yeah. But $60, that's fair. Okay, recommendations. What do you happen? All right. I did watch... I was having a hard time finding a movie on Delta on my flight home last week,

and I got sucked into a few good men, haven't watched it in forever. So good. One of the... I think the scene with Cruz and Nicholson at the end is one of the best scenes in movie history. And everyone remembers the Jackline, obviously, but Cruz, toe to toe the whole time when he's yelling back at him, just I got... I was watching it on the... I got chills watching it on my flight on a little six-inch screen.

Do your recommendations now because I want to talk about two finalies and give a spoiler alert. So you go ahead. Once again, I'm dry because I've just been watching basketball and succession. I noticed, you see this. He's the poor man's Liam Neeson. You see this, so there's a, my brain's broken. What is this called? An advertisement, I guess, but what is it actually called?

A movie poster, I don't know. It's a movie poster. There you go. Gerard Butler is in Kandahar. And this is the tagline, 400 miles, 30 hours, a race for survival. I am automatically in.

This is going to be terrible. I gave up on the, it was like White House Down or something where he's protecting the, he's a Secret Service guy. Terrific movement. That was my last, Gerard Butler.

I'm sorry. I've got a soft spot of my heart for this guy. I know. All right, all right. We're talking about succession out. We're not going to talk a lot, but let's do spoiler alert here. Duncan put it up.

Way to beat. Way to beat. So if you don't want to hear our thoughts and Succession, you haven't seen it yet. But honestly, if you haven't seen it yet, what are you doing? Right. All right. I liked the finale. I loved the last season. I thought the show was, it's on my Mount Rushmore, like, definitively.

I thought I actually thought the second to last episode, and I hate when people call it Penn Ultimate. I just, it's such a, every TV person, the Penn Ultimate episode of Succession, I can't do it. It's the Winnie the Pooh meme. Second to last, I thought that was better than the finale, but I didn't guess how it was going to end because I didn't, I didn't care really, but I liked

how they ended and I thought it fit with the show and it's the best written, best acted show I've ever seen, and the craziest thing is, is none of the characters were likable and they still made you care about the show, which I think is just like, like Breaking Bad, you liked some of the characters,

Sopranos, you loved a lot of the characters, the wire you loved a lot of the characters. Mad Men, you loved a lot of the characters. You didn't love any of these characters, really. And you still... Well, what you mean is, no, you love the characters, but you weren't rooting for any of them. They're all terrible people.

They were terrible people, but they took turns being the most deplorable. And you still wanted to know what was going to happen to them. And I actually thought the way that they did it. And did you listen to the last five minutes after the show where the creator talked about, like, he kind of explained where everyone ended up and why they ended and I thought that was worth the Jesse Armstrong guy

listening to but I just thought Tom taking the seat of the throne was I don't know I thought it was perfect I liked it plus Thomas from the Midwest so he he elbowed his way in and pushed the coastal elites out of the way um I had two thoughts uh the show could not have gone on without Logan no I thought it it definitely sputtered there for a couple episodes midseason and it Finn is strong, but yeah, killing him off early was, like, a really good idea, but it, yeah, you're right, it couldn't have gone on. Actually, three thoughts. I thought Kendall was going to kill himself at the end of the vote.

I thought he was going to die, too. And then lastly, the only thing that I didn't like, and I like Scarsgaard a lot as an actor, I just didn't buy his character. Like, I just didn't think it was effective. I think it just didn't work for me, but it's a nitpick, I guess. They probably took the kooky tech billionaire thing a little too far. Yeah, it was just... I think that guy's in a fantastic actor, though.

I think he's really good. Yeah, he's great. I just didn't like his character. I just think the act, especially on the second to last, the funeral episode, I thought the speeches, the acting was just phenomenal. Anyway, I am bone dry. Should I revisit Barry? Because I've got no shows. Okay, so the Barry finale was also this weekend.

I can't believe they did two finale on Memorial Day weekend. Is it worth me, me? I left the show with a smile on my face. and not in the way you'd think. So it was very, I said it got very dark. I think you should watch it. Okay, okay. I think you could even watch the last two episodes

if you didn't want to watch the whole thing. No, I'm not doing that. Okay, so watch it. And the end of the show made me laugh, like in a dark, dark way. But like the last 10 minutes of the show, and after it was done, my wife and I turned to each other and we just said, what a weird, weird show.

It's unlike anything we've ever watched. And so I didn't come away being like, that show was great. But I came away going, I've never seen a show like that before. And the ending me laugh. All right. All right. Say no more.

I think it's worth, worth revisiting for you. All right. Animal Spiritspot at gmail.com. Thank you very much for listening. And we'll see you next time.