Animal Spirits Podcast - Stocks Work Best at Night (EP.242)

Episode Date: February 2, 2022

On today's show we discuss the market correction, why stock-picking is so difficult, small caps in a bear market, Bitcoin to $1 million, the Fed inverting the yield curve and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at YCharts. Now, we get our research from Y charts, but YCharts also provides us with research. So they sent us this new 2021 fund flows data. So they looked at fixed income, large blend, growth, all this stuff. And they sent us the asset flows for 2021 by these broad categories. And this includes mutual funds and ETFs. We kind of have to bunch these together since ETS are so big now. So they did it for fixed income, equity, money market, alternatives, all this other stuff, commodities. This one, maybe it shouldn't surprise this anymore. Biggest inflows for the year, by far. Fixed income. Fixed income. Is it like that every year? By more than basically 50% more than stocks almost. And we're looking at mutual

funds and ETFs, right? Mutual funds and ETFs for 2021. What is that? Is that money market? Looks like must be commodities. I can't tell. Okay. I think that's commodities had a slight outflow. So bonds blew stocks out of the water again. We're going to talk a little bit today on today's show about why. Well, is it really, though? I don't know how much like bond ETF purchasing the Fed actually did. This is not Fed. This is investors. No, listen to me. I'm the captain now. The Fed bought bond ETFs. Don't you remember that? Yeah, that was very small and minor than they moved on from that, I think. That's what I just said. I just said that. But this is mostly investors. So we're going to talk today about inflation and interest rates rising and basically like, can investor flows continue to put a

cap on bond yields. And is that the reason? And I think they potentially can. Baby boomers versus the Fed, baby boomers win, kind of, right? Or baby boomers versus the bond market. Baby boomers are bigger than the bond market. Don't fight the boomers. If you want to check out this research from Y charts, we'll have a link in our show. Also, if you want to subscribe to them, which you should, go to them and your initial subscription get 20% off if you mentioned animal spirits. Welcome to Animal Spirits, a show about markets, life, and investing. Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by

Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. All right, Michael, I did some research over the weekend. This is the stuff I do. Russell 3,000, which is a good gauge for the U.S. stock market. You know how many stocks are on the Russell 3,000?

3,000. 2,700 now. That's deflation. That's not inflation. By my account, almost 800 of these stocks. Again, this is basically the Russell 1,000 plus the Russell 2000. Get it? 2000 plus 1,000?

Oh, I know where that works. I'm letting the listener in on this because some people might not know this. Around, this is as of Monday morning. morning. 800 of these stocks are down 40% or more from 52-week highs. That's like one-third of all stocks. Basically, how much? 40% or worse from 52-week highs. One in five, over 20% is down 50% or worse right now. Last week, the Russell 2000 of small caps went into a bear market. It's the fifth bear market since 2008. So this happened in 2011, 2016, 2018, 2020, and now 2022. And all of those were

well over 26% losses in the small caps. The S&P 500 is just, it almost defies logic at this point, how well it holds up, because now it's down, I don't know, six or seven percent from highs after Monday's takeoff. You know where I fall on this? You said the S&P, it's basically the Titanic. It is truly the unsinkable ship. For now it is. Here's where I fall on this, though.

I'm done picking stocks. I'm out. That's it. I'm retiring. I've had like my fun portfolio. You get the higher highs and the lower lows from stock picking. and the reason I did it, I've done this like three times. I'm like Brett Fav where I've retired from stock picking. I started picking stocks when I first started out in my career and I stopped

and I started again and stopped. And I picked it up again in like 2020 because it was so fun to just look through the wreckage. I think I'm just done. 2020 was great, but then 2021 and then the early part of this year, I probably hold six or seven stocks. More fun for the rest of us. I'm not going to sell them all, but for me, it was scratching a niche. And partially I think I get that now from just talking about this stuff in the podcast. And also you and I are investing in startups now. We invested some money in art. We invested in funderize and real estate. There's all these other stuff you can get. I feel like here's a good example. So I've been bullish on housing for five years now. Zillow goes down 50% and I think, oh, this is the best brand in housing. I'm

going to pick up some shares. And it's down 50% from there from where I bought it. And my whole thesis on housing has been proven right, but not on the stock. Is this the Ben Carlson bottom? We're going to bottom as soon as you bail on picking stocks. I think this might be the bottom anyway. I think that's stock market at your bottom. I'm 51% sure of that. But I just think, like, there's so much more that can go wrong when you're picking individual stocks than just, like, if I'm bullish on housing, wouldn't I be much better suited to just put money in fund-rise and invest directly in those or buy a rental house or something

like that instead of, like, there's so many first, second, third order effects and picking individual names that, for me, it's not even worth it anymore. I'm done. That's where I'm at. Fair. Can I just open the window? You don't have to permanently be done. If you want to take a break, take a breather.

Of all the six or seven stocks that I own, I'm going to hold on to them basically forever, I think, and see what happens. I'm done buying new individual stocks. How's that? Fair enough. Listen, maybe it's not your cup of tea. It's not my cup of tea, but I do it anyway. Just keep going. It's just not my cup of coffee. All right. No, that's fair. I own one individual stock right now. And why do I do it? Probably as a reminder that I can't do it. Because if I pick no stocks, I will fool myself into thinking that I can. So this way, I stay a little bit in the game. It does humble you. I'm doing it with a very, very small percentage of my portfolio. For me, it's entertainment more than anything. Did you know, I was looking at sectors today as I do? And I'm thinking like,

oh, why is X-L-Y up so much? Let me check Amazon because I knew that Amazon's like a fifth of the exposure in X-L-Y. And that doesn't explain it because Amazon's up like 2.3 percent and X-L-Y is up 2.6 or 7. I'm like, huh, let me check out the holdings in X-L-Y. And I had no idea the second big as holding in XLY, the consumer discretionary ETF, and how big it is. Do you want to take a stab? Best buy? I don't know. I have no clue. Tesla, 17%. Tesla is 17% of the consumer discretionary ETF. Now, I guess it has to go somewhere.

So I guess what are you getting 50% of Amazon and Tesla if you buy that? 40%. So you might know it as my background. I'm not at a hotel in Miami. I'm actually not in a jail cell either. I'm in the new office space or new for me. store to Josh. She's been here for a couple of years. And so this morning, I didn't go to Miami because of the snowstorm. And this morning... Plus Miami's in a bare market because crypto's down so much, probably. And the weather's in a bare market, but I didn't care. I was bummed. I would have been thrilled to be in Miami in 50 degree weather right now. I'm on the side of

the street. There was a ton of wind with a snowstorm. So I think we got around the foot, but my driveway... You probably don't have a snowblower, right? I don't. I have one in the family, but I don't. And anyway, so I was doing all of the shoveling. And I'm shocked that my back is not like destroyed right now because I legitimately had like two and a half feet of snow again because all of the wind blew it onto my side of the street. And so this mording, there was a little bit of ice under the Robin's car when she left to take this kids to school today. It's like a sheet of ice. And I thought that we had some snow salt, which I guess I used all of in the previous seasons. So I figured that I would go get some table salt.

Sean my head did that. And so I'm out on my driveway. Like with the salt shaker. Like this. Turning the salt. And Robin is home today. She called me. She's like, hey, I think we need some actual salt.

So I got home and we were laughing. She's like, can't believe you're a homeowner. Like, you're putting like table salt on the driveway. We had a bag of salt for our driveway. And my son, my four-year-old son was helping us out. And I'm getting something from the backyard. And he took the whole bag and dumped it and spread it across our whole driveway. That's going to leave a mark. How bad is the salt for your driveway?

Because one of my neighbors is like, dude, what are you doing? That's going to destroy your driveway. But I'm like, well, what choice do you have? I don't think that matters, does it? I've never heard that before. That salt like cracks the driveways. Really? I don't know. I'd rather not have ice and not crack my skull open than have a cracked driveway. That's true. Okay, so let's say I'm just playing scenario analysis here. The stock market bottomed last week. Let's say it did. I don't know if it did. And it comes roaring back. And then in a few months, we have all-time highs again. It doesn't feel like investors just expect this to happen now. Like, they expect to get crushed much quicker and they expect to break even much quicker. That is just like what we're being...

Well, that's what we've been conditioned to believe? But doesn't this seem like the kind of year, what was it, 2018, where we could just get two corrections in a year? Like, if something like that happens, like the Fed stuff is just going to linger. I did a piece this weekend where I looked at what happens historically when the Fed raises rates. And if you just take the hiking cycle to the end, stock market performance is not that bad. The average return was like 23%. But if you look in and around those periods, stock were very volatile, very volatile. Even if they had decent returns at the end, you had times where they're crashed right afterwards, sometimes during. So I think that's actually pretty good expectations to put into it. Is that like we're just going to have way more volatility

as they figure this out? You know the guy that emailed us asking you if we're projecting volatility because our lives are more volatile? I did a post that. this week showing when the five-day average range from high to low is where we are today, which obviously it's been very volatile. I think I went back to 1970. I can't remember how long I went back. On average, the market is down 32% when you're experiencing this type of volatility. Right now, we were only 10.5%, which is very odd. It's not just how I're imagining the market is more volatile. I was thinking about growth stocks this morning. Dan Rasmussen wrote a post saying that there's still a big gap between what growth investors pay and what the new batch of

investors are going to pay being like value investors. And I think that we have to take historical episodes with the grain of salt, that it's going to take a while for these names to find you. Table salt or driveway salt. It's going to take a while for this group of names to find new buyers. Because if markets are moving faster, then what if the 70% down, I'm not saying they're going to make it all back. What if these names recover quicker than they have in the past, too, because sort of the same thing with the meme stock, how many times did AMC moon and die? What if these moves quicker as well or recover quicker as well? Also, let's think about a scenario where inflation starts going from seven to six to five or whatever. I don't know if inflation is now longer term, or at least for a while, going to be three or four percent instead of two to three percent like it was in the past. Does that ding value stocks or just because it's elevated? Does that help them? I do think that repricing mechanism, Also, because this scenario was so weird, we talked about this a couple weeks ago that all the business cycle right now is fake. I agree. Any of the historical stuff, like, well, historically bottoms happen when this happens and then they're going to get retest it. Like,

I say throw that stuff out the window. The irony, considering we just spoke about historical returns during rate increases. Yeah, but I think it's safer to think that, like, don't you think you could think of the stock market as a really, really long duration bond? Like a 50-year duration bond. Some people do. And when you're raising rates, the TLT, the long-term bond, the 20 to 30-year treasury, is going to be way more volatile. Upside and downside. I think you can think of it the same way, that those re-ratings are going to happen way, way quicker. I don't know.

Just real briefly, I just thought this was an interesting chart. We don't need to get too much into this, but Jeffrey Patak tweeted the Vanguard balance index fund and how much downside capture it has of the S&P when markets are going down. And right now it's capturing a lot of the upside because rates are going up. So bonds aren't giving you protection on the downside. Then he married that with, well, what about tactical funds? And they're basically taking all the downside right now. I mean, these things, generally speaking, just don't work.

It depends how you want to look at things. On a relative basis or an absolute basis, relative to history, maybe a 64, we won't protect you as much, but on an absolute basis compared to other stuff, it's going to do much better. It's still going to provide you something, maybe just not have as much margin as you thought of, like, safety. Turns out there was a Reddit post talking about overnight gains. So somebody emailed this us a week ago. And I'm reading it. And the post is called they still haven't told you. It's basically about how all the overnight gains are because hedge funds and big money come together to somehow manipulate the market. It's not even worth spending time on. Well, actually, that's not sure. We're about spend time in it. But I Google the guy. I'm like, who is this looty tune? Because yes, it's true that the gains happen. overnight. That is empirically a fact. The bizarre thing to me is that people think this is some weird Illuminati thing that like there's something going on here. So this guy, his name is Bruce Knutzen. I don't know if the case, silent. And I'm looking at this guy's resume. And it says

after a decade as an experimental particle physicist, so immediately I'm like, wait, this is a smart person. Five years at a physics professor of MIT and six years at a quant, D.E. Shaw. So I'm like, Wait, what? By the way, that's like one of the biggest hedge funds in the world, D.E. Shaw. Yeah, so this is obviously a brilliant person talking crazy. And then it just so happened that Robin Wigglesworth also must have been sent this thread because he responded to it. And so the basic premise is that, yes, gains happen overnight.

In other words, if you only bought stocks at the close and sold them at the open, you would have had marvelous returns, obviously, before any fees or taxes or anything, versus if you just bought at the open and sold at the close, you have no gain. So, Ben, what's going on here? Or if you just bought in hell, you wouldn't have to worry about any of this. That's true. Here's what's happened. I mean, people think it's this big conspiracy. I don't know what the conspiracy would be. Here's my reasoning for this. Markets are more global than ever before. People all around the world are investing now. Companies report after hours. Or before. Or before. Markets are faster to price stuff in. Things happen. They price stuff in.

And I don't see why this is a big deal. And how about this? One more thing. Economic events oftentimes are released at 8.30 in the morning. So everything important, not everything, but most of the news happens outside of market hours. So how is anybody controlling this? It's just nonsensical nonsense. This to me is a big fat nothing.

It's like interesting, but doesn't matter at all. Like are you selling your whole portfolio at night and buying it back in the morning? If you're doing so, here's a hammer. or hit yourself in the head with it. Like, what? Who does this? I've got a crazy take. Wait, you're telling me that all of the gains accrue to people that buy and hold? Yes. Wow. Who would have thought? Holy moly. Let's move on because, yeah, you're right. There's a whole lot of nothing there. All right, let's talk about the economy for a second.

George Perks tweeted a chart of nominal GDP growth quarter over quarter. And he tweeted the biggest policy success since at least World War II maybe ever. I didn't go through the replies, but I'm guessing that there were some takes. On a real basis, the economy grew at 6.9% annualized. A bunch of people asked me the questions. I think we've talked about this a little bit in the past. But first of all, they said, why do they report GDP on an annualized basis, which does seem bizarre to me? I still don't quite get it. And why is this one of the only things that they report on a real basis? They report real GDP more than they report nominal, which is interesting. But this was, again, after inflation. So why do you think they do that? I mean, I think it's pretty

obvious. Why? Because prices go up and you need to strip that out to see how the economy is actually doing. I know, but most everything else is reported on a nominal basis. Like what? Retail sales? Those are real too, no? No. Retail sales are nominal. I think the annualized thing is bizarre too. I know they want to show like how it would do over the course of a year, but it's a quarter. Are they saying like if this quarter, I don't know. It's confusing the way that it stayed. But if someone also said that like if you looked at nominal GDP growth for the year now, I think you could like kind of back into it and say it was 11.7% or something. So take inflation away and now it's four or five or whatever. Still pretty obviously you have like base effects because 2020 was not quite as strong. But I guess George's

point is that like we were able to turn this ship so quickly. And I know inflation sucks and people aren't angry about it. But still, it's pretty bizarre how fast this growth is happening. No one seems to really think this is a good thing. That growth is as fast. It is funny though. Because a year ago, we were talking about the policy success being like an absolute thing. thing to marvel at and why wouldn't they do this next time? And now with inflation and how strongly people feel about it, not so fast. Look at this. This is GDP. I know you could say I'm not using a log chart or whatever here, but just look at this long-term trend of GDP. So if you look at that huge drop down from the pandemic, this is truly a garbage chart. No, I'm just saying, draw a line from

pre-pendemic to now. And that line just follows right on trend. Yeah. So what I'm saying is we had this huge drop. Then it comes back up. And you're right back to trend. And you're right back to trend. So I'm just saying it was like a 1987 for the economy and now we're back to even to where we were. We did this, through this, and now we're back. That's my technical analysis. Exactly. So the Fed is now basically

inverting the yield curve. The long ends have moved up a little. The short end has moved up a lot. Basically just what the Fed has been saying. Do you think it's going to be hard to do a correlation causation thing here? Meaning what? Okay, let's say the Fed raises four or five times this year, whatever they're going to do. What if inflation was going to

fall anyway? What if what the Fed does? has no bearing on it. And I don't know how we'd ever know this. What if what the Fed does has no bearing on what happens with inflation and we just think it does. And it's all psychological. The Fed's pandering and talking and saying that what they're going to do matters more to markets and speculative junk and whatever, the stock market and the bond market than the economy. Good take. Impossible to answer because even just the Fed talking before they take action, look what it's done to the market. Look what it's done to interest rates. That's what I'm saying. But is it more of a psychological thing for the markets than it is for the real economy. This is similar to when the Fed's set

that they were going to buy bonds and bond ETFs, and that was the bottom. And you're right, I don't even think they purchased that much in the grand scheme of things, but just the fact that they were going to, no, I'm agreeing with you. Hello, I'm agreeing with you. Okay. My whole conclusion here is, though, the Fed matters way more to markets than the economy. I know we think it matters a lot to the economy. I don't think what they do with interest rates right now. I don't know about that. Credit markets, sure, but that's markets. I'm saying what they do with the short-term interest rate is not going to have any bearing on economic activity for a while. I think what was happening with economy was going to happen anyway, and it's like turning a battleship to try to change that.

Yeah, I think that's fair. But I do think that the price of money matters immensely, maybe not the short term. I'm saying it's like 70% markets, 30% economy. It's way more tilted towards markets now than it is the economy with whatever the Fed does. Government spending has a way bigger impact on the economy than the markets. Well, definitely than we thought previously. Yes, especially when it comes to inflation. I did not read ARC's Big Ideas report. Do you think they have fewer readers of this now that they were in a 50% drawdown? I don't know. But they still have their accolades.

I do enjoy their research. But the price of one Bitcoin could exceed $1 million by 2030. Let the record show it's 2022. It could. What would the annualized rate of return have to be in order to get there? It's like 40% a year. 40% a year. Okay.

Yes. What would the market cap of Bitcoin be at that point? A lot. I don't know. greater than the U.S. economy, it would be a lot. I mean, I don't know. When they say, like, it could, sure, it could. This is getting down to my point last week. So they said, he's like the other side of that. They think stable coins, and this gets back what I was talking about last week, I said, why isn't the volatility in crypto more bullish for stable coins? And why don't we see

that adoption? And they're saying that all the, a lot of the trading and lending and payments stuff that's going on in crypto has been fueled by the growth in stable coins. And they actually think stable coins could be the bare case, not bare, but that could keep them from hitting their price target of a gazillion or whatever. The percentage of assets in crypto that are in stable coins as a percentage of the overall pie is growing dramatically. Did we, where did I see this chart? Was it wisdom tree that we were talking about this? I can't remember. But I saw a chart floating around that the amount of crypto that's in stable coins, not just in a dollar, but like as a percentage of the overall pie, is growing dramatically. I mean, don't you think, let's say you read that

original Bitcoin post of the piece, the white paper back in 2008, don't stable coins kind of get to what that was looking for? Everything you want out of crypto without the volatility. Yeah, I think so. If you're one of these people that is like the blockchain is the whole thing, stable coins kind of get you there. Well, if we're talking about like peer-to-peer, permissionless, instantaneous settlement, then yeah. Yes, all like the things that you want out of crypto, stable coins get that for you. They don't make you a billionaire, but they have all those crypto elements to them. State Street did this research report, and there's two charts in there I want to spend a second on. These are inflationary charts. And they're showing that the magnitude and breadth

of inflationary pressure suggests that inflation might not be so transitory. I don't know why I just read the title of this chart. I'm sorry. But basically, we're looking at different inflation measurements and consumer and business inflation expectations. And these are not going in the direction that we had hoped. So this is the psychological component of it. this is potentially when it seeps into the markets. I guess that's what they're saying is if people expect inflation to happen, they change their buying habits potentially. And then that impacts the actual level of prices. Yeah. Last week, I went to buy a microwave. I was talking about this on spaces. Robin blew up my microwave. She just did popcorn forever. She did like five

minutes as opposed to just listening to when the colonel stopped popping and taking it out. So my microwave blew up my kitchen. I still don't understand how they did. technology hasn't gotten there yet. Oh, it's awful. It smells so bad. So anyway, we went to PC Richards. And there's like no microwaves. I couldn't believe it.

I mean, I guess I could believe it. There are no microwaves. And I was equally a shock to learn that on Amazon, there's plenty of microwaves. Explain. How come PC Richards? I don't know what PC Richards is. PC Richards is an electronic store. Okay.

I feel like New York in some ways is still in like 1950. Like, you guys have all your own like Sears and you have your own drug stores. You have all your own stores in New York that no one's ever heard of besides people in New York. Is that fair? Or is that like that everywhere? I wouldn't know. I wouldn't know. You always throw out stores and I've never heard of them before.

Okay. Yeah. I mean, we do have regional stores like every other region does. But I don't understand why you can get them so readily on Amazon. And another thing that surprised me, I went to Best Buy in the city the other day. Do you know what Best Buy is, Ben? Do you have one of those? I went to Best Buy to get a plug from my Apple laptop, a charger.

Don't have. Don't have any. Don't have the old ones. Don't have the new ones. supply issues are still hurting. I actually believe that Apple did mention that on their conference call, which we're going to get to in a little bit. Are they having supply shortages still?

They're having supply shortages. Okay, here's the thing. So you're saying inflation expectations arising. That could mean it's here to stay. I'm not saying that. People are saying that. Many people. Yes.

A survey saying that maybe. The bond market still does not care. On the short end yields arising, yes, but like long-term bond expectations. So my guy, Tale Smith at New York Times did a piece on inflation and deficits and how this is what we talked about in the opener for Y charts, that people are still buying bonds. And so he interviewed someone from Deutsche Bank, who's like their head economist. And he's saying that over the long run, post-pendemic world is likely looked very similar to the pre-pandemic state of the economy. Basically, long-run inflation expectations are still anchored to the rate of about 2.4% over the

next 10 years. So I'm not saying the bond market is smarter than everyone else, but if it is, the bond market still says, I believe it when I see it. Something. Fool me twice. By the way, there was a handsome guy in here named Ben Carlson. I've got a quote in this piece, too, if you want to take a look at it. Really? Good for you. New York Times? No big deal. Someone asked about this. Every time I post about, I think I posted about the Fed saying what happens of the stock market when the Fed and someone goes, well, what happened? Well, look at where the debt levels are. So he posted this thing. The cost of government debt, interest payments as a

percentage of gross domestic product are basically almost as low as they've ever been. They were much, much higher in the 80s, 90s and 2000s than they are now. Why? Interest rates or lower. So our debt has skyrocketed in the United States. One of the concerns is we will not be able to continue to service the debt that we need to run this country if interest rates rise. Counterpoint, the highest ever was in the 1990s, possibly the best economic decade ever. And that's the high for this number, interest rates as a percentage of GDP. They could do it back then. Yeah, I guess. I think every time we think there's a line in the sand on this stuff, it doesn't really exist. I don't think debt is a big

boogey man that a lot of people did. But what was debt as a percentage of GDP in the 19th? these versus today. I'm guessing it was a much, much lower level. Sure. That is way higher. But yeah, this is saying interest has a percent of GDP, like the interest payment. So I think that's what a lot of people worried about. Like, okay, so rates go up to 5 percent, then we're screwed because then all the government's budget is going to pay back interest. That's the scary thing. Counterpoint. Legitimate fear. No. No, it's not. The counterpoint is if the government cannot fund itself, the Fed sets interest rates at zero in the short term debt, we borrow all short-term debt. Guess what? Funding secured. Right? I don't know. That's my theory.

Let's do great quarter guys. Download the quarter app. If you haven't already, what are you doing? Q-U-A-R. Let's start with Microsoft, Ben. What a report, I actually think Microsoft is down in the after hours. Actually, I know it was. It was down in the after hours before turning around was up 5% the next day up pretty decently since this report. I think we're going to start a new Instagram channel, like Instagram Live, Michael reacts to after-hour stock price moves. You love it, don't you? I love it. Revenue is up 20%.

Azure and cloud service is up 46%. Office 365 up 19%. LinkedIn still boggles the mind. I guess I'm not a recruiter or so, but LinkedIn up 37%. Record revenue. Probably us. How many people mocked that deal when it happened? Oh, yeah.

95% of people? No, because LinkedIn was still okay-ish when they bought it. I think, well, anyway. Okay, so this gets back to our point. We make it a few weeks ago, and we're going to get to Apple next. These big stocks now are no longer growth stocks. They're no longer value stocks. They're in a class of their own.

Every growth stock in the world is getting just annihilated after earnings. Apple and Microsoft are the only ones that just did fine. And after hours, they were up a lot. I feel like these stocks are just in a class of their own. They're also like, if you look at the business lines of Microsoft, it's like a conglomerate at this point. They are everywhere. That's not saying they're not going to get hit because all these stocks did sell off a little bit, but all the gross stocks are not moving together.

These stocks are marching to their own beat and they're not moving with all these other growth stocks that are flying one day and getting crashing the next day. Yeah, just a monster number. All right. I listened to the Apple, Ernie's call. This stood out to me from their CFO. The growth in the installed base were broad-based as we set all-time records in each major product category and in each geographic segment. Unbelievable. What was the revenue last quarter? $130 billion, something like that. iPhone revenue, $71 billion, up 9% year-over-year. Services,

which didn't exist a decade ago. I don't think it did actually. Maybe I'm wrong. Up 24% 19 billion. Others, which is the watch and AirPods. Up 13%. 15 billion. 15 billion for watches and AirPods. I don't consider myself like a Mac fanboy. I was never with a who got like the new thing right it came out but i have a mac laptop i have an apple watch i have like three sets of AirPods because i always lose them where they break we have a bunch of iPads in our house i have the iPhone obviously my wife has the iPhone like that whole ecosystem and then apple music i don't know what could break that monopoly in my family it would be so hard to break that up and use other things because they all work together now remember how hard it was when you used to

get a new phone, like the very first iterations of the iPhones, and you'd have to like plug it into your laptop, download everything from the phone to the laptop, then plug the new one in. Now you get a new phone and it's like, I see you've got a new phone. Would you like to transfer everything over? Click a button, yes, transfer. And it's done. It's magic. It's so easy. They are gross margins, 43.8%. Again, 124 billion dollars in revenue, 44% margins growing at double digit. I mean, we've never seen anything like this. And it's not just Apple. And it's not just Apple on Microsoft. There's a handful of giant companies growing this way. And it's just totally unprecedented. Here was a quote that I was referring to earlier. Supply chain improving, doing

okay with leading edge chips, but still having issues with supply of legacy nodes. Q4 supply chain issues set to have cost $6 billion in lost revenue. So there you go. Even with these headwinds, they still did amazing. Returning gobs of money to shareholders, just an absolute. Since 2013. their shares outstanding are down almost 40% from all the stock made bought back. It's crazy. Now they're going after Square. Here's a quote from Bloomberg. In order to accept payments on an iPhone today,

merchants need to use payment terminals that plug in or communicate with the phone via Bluetooth. The upcoming feature will instead turn the iPhone into a payment terminal, letting users such as food trucks and hairstylists accept payments with a tap of a credit card or another iPhone onto the back of their device. So I'm sure this will be a $3 billion revenue business in 10 days. another thing we don't even talk about with them that is just like a throwaway Apple TV Plus

which I don't know I never hear anyone talk about it We watch Swan Song this weekend there I'm gonna give it on my recommendations later Haven't heard of it They're gonna be a huge player in movies eventually too They have so much money Like if they want to completely take over

The movie industry they probably can It just do they want to I don't need that in my life What? I'm just saying I don't need Apple dominating movies It's enough for them But to our thing about like

There's no good movies anymore And there really aren't searching for a movie these days for something new, like there's nothing. I know part of it's pandemic related, but we need someone like Apple and Netflix and some of the other places to spend gobs of money to make sure good movies stick around. Because otherwise, it's going to be all Marvel and comic books and there's going to be nothing else. Listen, you're part of the problem here, all right? The last duel did $5 million in the box office. I think they're done making good movies. Did you see it in the theater? No, you did it. I paid $20 to rent it, though. And listen

to this. Actually, then you're carrying it because you paid more than I did. Yes. So, exactly. but also so like we rented sing two for my kids last weekend and you get it for 48 hours and we paid 25 bucks for it which sounds like a lot but taking three kids to the movie theater and getting all the stuff 24 dollars is actually a bargain true i'll gladly pay up for the digital version but i saw a preview for like a something death on the nile or something movie uh i'm out the new one stunk murder on the orient express no no no but there's a new one like death on the mind said yeah i'm out okay that's in the same but anyway we saw it and preview looked good and my wife and i go to each other I'd see that, but not at the theater. I'd pay for it on digital. Some movies now, like,

that's the thing. Like, I'll pay for it on digital on the weekend, but I will not go see to the theater. Sorry. Yeah, yeah. I'm out for that movie. We speak often about the ability for companies to grow quicker than they ever have and to get to scale quicker than they ever have. Sammy from quarter flagged this for us and sent it to us. This blew my freaking mind. What we're looking at here is a cumulative revenue since the founding of Google, which was a long time ago in 1997. So, all right, whatever. But DoorDash, Uber, and Lyft, those companies are only a decade old. And comparing it with Bird, the Bird scooter.

Does Bird have anything else other than scooters? I don't know. I've only used it the one time you and I were driving around Austin in those. That was so much fun. I don't really use them. Anyway, it's showing the cumulative revenue since founding. And Bird is off the charts, again, compared to Google, DoorDash, Uber, Lyft. Off the charts.

So this is all these companies at like 40 months or something, 45 months. And Bird is way ahead. That's pretty shocking chart. And it's an electric. scooter company. So the importance of this cannot be overstated. Right. How quickly stuff can grow? Yes. I agree. And does that still make it a good stock? I have no idea. This is why I'm retiring from stock picking because I have no clue whether this is a good thing or a bad thing. Correct. But this is why market caps get so much bigger, so much

faster than they used to. Yes. I agree. Okay. Let's talk about Robin Hood. No, AT&T. Oh, did you want to do that? What's going on there? Do we say how many subscribers I have? It was not that many. 13 million? I think HBO Max is a phenomenal service. I did too. It's by far the best movie selection of any streaming player. 13 million subs is a pretty crappy app, though. Of 21% year over year? Not great. I'm about Robin Hood. Do you think the worst bag holder stance in the world is, well, someone's just got to take this over? Because I like you, I chopped off two fingers trying to catch this falling knife and got out like a week later. And I'm like, right, that's it. And now, of course, it's screaming higher. But this is fun. I love it. Not fun.

This is one that I wouldn't want to take a stab at because this could probably be a $5 billion company potentially. But like my whole thing is if you were one of the Robin Hood founders, unless you thought you were going to go out of business. And it does seem like some people on like finance Twitter think Robin Hood's is zero, which I can't imagine that tech is not worth something. It is also crazy to think that we're talking about what was a $60 billion company a year ago. Now people think is going bankrupt or something. tech, look at that photo in the dock, a listener sent this to us. This is Fidelity. Fidelity's beta mode app, investing app, looking just like Robin Hood. And why shouldn't it? Robbins did a great app.

I can't imagine some Charles Schwab or some company couldn't say, like, why don't we just buy all these millennial customers? Do you think that their brand is almost like tainted at this point of everyone thinks it's gamblers and so we don't want that? I don't know. I don't know. I mean, I was thinking about this too, like why Robin's still a $10 billion market cap, which is tiny. FTX just raised at $33 billion. They've got a hundred. Okay, FTX was a public company at all. It would be a 50% drawdown probably, just like Coinbase. There's $100 billion on the platform. There's 22 million customer accounts. Now, I guess the question is, if you're like Schwab, does Schwab say, let's just let this company go away. They're losing gobs of money. The equity markets are not supporting them anymore. Why would we pay $6 billion, $12 billion? I don't know, whatever the number is. Why wouldn't we just let them go? out way, and then when this company bleeds out its business, they just come to us. I mentioned this to you on Slack. They're talking about putting a wallet out. If they put out a crypto wallet that allows you to move crypto on and off the platform, that's bearish, no?

I think that's hugely bearish because unless they say, we're going to pay you 8% on your crypto, I'm moving that off of Robin Hood immediately. The only reason it's not moved off right now is because I can't. If they open that up, I feel like they're opening themselves up to a huge stream of outflows of people with crypto on their platform that could move it somewhere else. I would move that to BlockFi immediately. So Robin, what do we learn? they're still losing tons of money, like a lot of money. So what if their $12 billion private round was just crazy to begin with? So FTCS, you said, raised at $32 billion.

Coinbase right now is a $40 billion company. Like, are we really to assume that FTX is doubling itself right now as crypto gets killed and the public markets are getting crushed for all these gross stocks? But FTX, just because private investors say, ah, we think it's worth this. Like, aren't private investors the delusional ones here? I mean, they're certainly more forgiving. Because they're essentially making up a number. They're saying the five VC firms here,

think it's worth this, so it's worth this. The other thing that Robin Hood has going for it in terms of future growth streams are ACATs, meaning you right now, you can't even transfer over an account from Schwab to Robin Hood if you wanted to. It's all new accounts, which is pretty impressive. The other thing is there's no retirement accounts. You can't open a retirement account in Robin Hood. So they do have opportunity. So is it cheap here? I think that's a stretch, but I mean, obviously we're going to be watching closely. One more thing on Robin Hood. actually two more things. It says, I think, if I'm reading this correctly, their customers lost $9 billion in the third quarter. But they were at $100 billion in assets. Is that about right, though?

Is that the number I heard? $100 billion in assets, yeah. I just don't see why this could be a zero. I could live to eat these words. But between their tech and their desirable demographic, hold on, it's not worth a zero. I mean, that's ridiculous. This is not a zero. I saw people saying, like, Robin Hood's a zero. Just let him go out of business. Like that, boy, it's crazy how quickly we're having this conversation versus what it was six or nine months ago when, I don't know, we were kind of bullish on this company and now this happens.

It is a shocking turn of events. But it does make sense that during a bare market, that they would be under siege. I don't have to think about this one. Would the Robin Hood founders even sell out at these levels? Would that be seen as like a failure to them? Who knows? Maybe we spoke about this on the podcast, Ben. I can't remember.

I know we spoke about this offline. Was the pandemic bad for them? Because it artificially juiced these numbers. In other words, if Robin was just grown with slow and steady, Could they be a $15 billion company on their way to 20 that never ran up and crashed? Abs of the pandemic, would it just be like a nice growth company? I think you could say the same thing about Peloton, Robin Hood, and Zoom, maybe even Netflix, like that those expectations were pulled in so much and competition came.

So now Robin is not growing its users anymore. So it's hard to say that you're a growth stock, which is what their CFO did on the call. He said we're a growth company. They're not growing. I think that's the thing that was like the best point Josh made when he was talking about Spacks when they first got big. He's like, listen, eventually what happens with this stuff, there's no more supply coming in. So we said a couple weeks ago, there's 25 million new brokerage accounts. What if they've just reached their saturation and it happened way quicker

than they thought? And now it's like, okay, you're not going to bring in as many new accounts anymore. This is what you have. What are you going to do with it? Instead of having that future to look at and say, hey, no, we're going to bring in 10 million more people. Like, that already happened. It is bizarre to think that some of these companies that we thought were the biggest beneficiaries of the pandemic are now hurting because of it. survive back to school when you can thrive by creating a space that does it all for you, no matter the size. Whether you're taking over your parents' basement or moving to campus, IKEA has hundreds of design ideas and affordable options to complement any budget. After all,

you're in your small space era. It's time to own it. Shop now at IKEA.ca.ca. Anyway, it was a busy week for earnings. What do we have next week? Obviously, I don't want to say Apple save the day, but Apple Microsoft kind of saved the day. So this week we've got on Tuesday, man, it's another busy one. Google, PayPal, Starbucks, GM, UPS, Exxon, Facebook, Spotify, Amazon. We got a lot of work to do this week. Just want to congratulate quarter. We are shareholders in this company. They're now doing commercials on CNBC. So definitely. That's cool to see. Pretty exciting to see that. All right, let's talk about real estate. Maybe not so surprising. the U.S. mortgage refi applications are down 50% from over a year ago. I don't think this is a bad

thing. Last year, again, talk about artificially bringing stuff forward. I don't know if artificial's right word, but whatever. At a certain point, if you didn't refire your mortgage, what's wrong with you? Yeah, everyone who's had the chance has done it probably. And rates are moving up a little bit. Now, not too bad, but they're moving up a little bit. Who shared this chart? I can't remember where I pulled this from. Mortgage payments as a share of the median family income. Why do we think they're on the rise like this? Home prices are growing up. Obviously, it's that simple. Yeah. That, I think we're going to look back at that period after like 2008 to 2015. We're going to look back at that in like 20 years ago. Man, why wasn't everyone buying like three houses?

I think that's going to be like the generational bottom in housing. When? Oh, after the GFC. 2008 to 2015-ish. Oh, because nobody had money. That's what happens in a recession. Yes, but I'm just saying, I don't worry, Black Rock did. But I'm just saying that blip on a chart, everyone's going to go, oh, my lord, the housing market back then. I'm looking at this chart. I guess the reason why I asked that dumb question. So it went down from 2018 to 2020. Was that just lower interest rates, I guess?

Yes, because in 2018, rates got up to like 5%. Then they lowered again, then housing prices took off. So Yahoo Finance had this piece about the housing inventory shortage. It just keeps going down. We got a letter in the mail last week. And this was not just like a one or two line thing. And like, here's my business card. This was like a four paragraph letter from a realtor.

being like, hey, I've got people who are interested in this neighborhood. They don't have to sell their house. They don't worry about that. They're already pre-approved. They will buy your house immediately. Please call me. Like, it was a typed out letter, like signed letter. I just think if you're in that spot right now where you have to find a house,

that's got to be devastating, that whole process. It sucks. Oh, let's give a plug to Easy Knock. We had a podcast over the weekend, a really innovative way to get money out of your house. Apparently, this was news to us, but I guess it makes sense, given that. these lines of credit with banks. If you have a credit score below a certain amount, even if you own the home outright, you can't pull money out, which is a travesty and an opportunity for companies like Easy Not to get in there and do their thing. Yeah, I've been saying for years,

I don't know why more people aren't pulling money out of their house because there's so much, there's $25 trillion or whatever in there. And Jared from Easy Knock told us a lot of those people can't do it because they changed the banking regulations after 2008. So you could own your home outright. And a bank will not give you a loan to take a home equity line of credit out of it, which is crazy because that house access collateral. Like that makes no sense to me. So easy not because, okay, we'll do that. And we'll give you the equity and we'll rent your house back to you.

It's a really cool idea. So Redfin reports that rents rose 14% of December. Biggest jump in over two years. Not great. Jake tweeted, and Ben, maybe this is to your point about stopping buying stocks. Quitters never win. I'll just say that. Jake said never invest in technology companies that aims to supplant real estate agents

may be up there with never invest in exercise or diet fads. Negative returns through one of the more competitive housing booms of all time. He's showing Zillow, Open Door, and Redfin. Just absolutely brutal. Yeah, stock picking is hard. This is taking my own advice. I was right on the exercise fad thing. I missed out on the realist. I do think we've said for years, how come realtors have not been disrupted? Why is that rate still so high? Maybe housing is like undisruptible by technology companies. Is that possible that it can't be done? Not at a scale to matter. It can be done like, We're going to target three or four cities or a certain part of the country. But to do the whole country, I think it's impossible because that would probably be the most

valuable company in the world if it could happen. Yeah, it's tough. So apparently the pandemic really effed us up as a country. There's this chart, this survey from the general social survey. And they've been doing the survey since the 70s. So you guess it has some merit. They started this in 1972. This survey is showing the share of Americans saying they're either very happy or not too happy.

For the better part of the last many decades, the percentage of very happy was over 30, and people are saying not too happy was below 15%. And after the pandemic, those numbers just completely criss-crossed, which is... This is obviously pandemic-related. Do you blame any of this on the internet? How much of this do you think is internet-related? Because I know a lot of people who should be happy in their lives, like they have good jobs and nice houses and everything they have, like checks the boxes.

and they're pessimistic and cynical all the time. And I think the internet is partially to blame for that. Absolutely. It's made people more cynical. One more thing. You still watching 1883 yet? No, I can't find it. I don't know where to watch it.

Okay. Do you think in the past, they show how hard life was back then. People died from smallpox and measles and crossing a river. All these people die. Do you think people knew life sucked back then or was just kind of like normal? Nope. Do you think that's the problem these days is we just know too much about what else is out there? Do you think they kind of like thought, well, I'm going to live to him 35?

and that's going to be a good life. And I'm going to work 14 hours a day. Well, I think one of the problems is that a lot of people, like I'm pretty, I don't know if apolitical is the right word. I'm not into politics. It doesn't do it for me. Same with me. And I think that's probably a large percentage of the population where after the internet, I'm not looking for it. Not that I don't care about policy and our lives and stuff in our country, but just it's not something that it interests me. A lot of people have politics as a hobby, not me. But I feel like it's hard to avoid. And it's gotten so much worse because of the internet. And I think the internet obviously has done a lot of great things. But- I know friends and family who had their brains

completely broken by it. They get pulled into that. So Facebook, the internet. Yeah. I don't want to make light of this because it's showing people are becoming unhappier and stuff and whatever. But you never got it all the way to Seinfeld, did you? But there was this clip where Jerry and Elaine are talking about like, what percentage of the people in the country do you think are good looking or percentage of the world. And Elaine is like 25%. And Jerry goes, no way, four to six percent. I feel like that's the thing with happy. And so she says, well, how do people get together? And he said, alcohol. It's anyway, good clip. But I think that the ceiling on this is moving lower because of the way the world works now, the amount of information we have.

Like, even people who should be happy are not going to be anymore, unfortunately. I think that's the world we're in right now. Yeah, it is complicated. I mean, life is hard. Like how many people are happy anyway? True. I'm saying on a relative basis, and again, no one compares themselves to their great-great-grandfather and the 1800s or something. But on a relative basis, if you look back and you go, that's what life used to be like. Holy cow, my life is pretty easy. Doesn't matter. Your brain doesn't work that way.

Yeah, correct. We got listener questions that ran on Monday. Check it out with Henry Rashida. Let's do some recommendations. All right. Did you finish Ozark yet? Oh, my God. Who did this?

My wife just sent me a picture of our big wooden dining room table is scratched to shit. Oh, my God. By the way, when our kids turn like 10, we're just going to, like, rip everything out. Carpet, repaint everything. Kids ruin it. I feel like you just have to, like, with kids, that's just like part of the bargain, I guess. I don't know. Yeah, that's tough.

Sorry. Ozark. I did not start watching yet. Okay. This season to me, it was great. And I wish it was more than seven. I know they're going to do. seven episodes for part one and the seven episodes for part two of the season. And it's going to

come out hopefully soon. But this show to me felt like a basketball team that's been playing together for like 10 years. And everyone kind of knows each other's places to go into court and what to do and the acting. I thought this season was so, so good. And it's just better than all the other ones. And they brought in a new guy who's like a bad, I'm not going to like give anything away if you haven't seen yet because we binged it. But they brought in a new cartel bad guy. And I feel like that never goes wrong on a TV show. Like a Mexican drug cartel guy, it always works. I'm all in on Ozark. I loved it. Oh my God. My dog did that. Logan's pancakes were on the table. This is a good lesson, though. You never buy nice furniture when you have kids or dogs.

This is like the only nice thing that we have. That's not true. But maybe it is one of the only things that we spent money on in our house. Okay. All right, P. All right. So we watch Swan Song on Apple. I never heard of it. So it's with Marshall Ali, who won up. He's awesome. Yes, he's great. My wife and afterwatch it, like, God, that guy is so, so good. He's an amazing actor. So I'm not giving anything away here because this is like on the IMDB thing. So let me put this out to you. It's in the near future, which I love futuristic movies and they don't go too far, but it's like, ooh, if that actually happened, that'd be amazing. Wait, what year? Like that's 70,000? It doesn't say, but it says near future, like self-driving cars, way better technology.

So here's the thing. He figures out he's going to die. He's having seizures that are going to kill him, like in a matter of months. He doesn't tell his wife. And there is the technology to create a clone of himself, transfer all of his memories to this clone. DNA is great. Everything is exactly the same, except they took away this brain aneurysm or whatever he was going to kill him.

He goes to a place with the clone for a week and gets to know him to make sure he's going to sign off on it. The clone goes and lives his life. The clone has no idea to clone. No one in his family knows that it's different, but he doesn't give that to his family of him having to die at a young age. Would you do it? Of course.

The whole movie is him working through this, not having to say goodbye and he's going to die and he creates the clone in his... Oh, you mean, would you do it because you don't get to say goodbye to your kids? Yes. Oh. Oof.

It's a very heavy movie, but it's a kind of movie that you think about it. Dude, it's a Monday. It's too much. I know. But it's a really well-done movie and I really, really liked it. It's on Apple TV Plus.

Oh, it's a movie? Yes, it's a movie. Not a show. His acting, he is. so, so good in this. I liked it way more than I thought I would. What was that show with Paul Rudd? That was a similar premise. Oh, yeah. That was a little quirkier. Yeah, that was silly. That was a Netflix one. Silly but dark? I can't remember. All right. So, I watched Station 11. And you're right. Not my cup of tea. That being said, I did binge it. And I haven't binged

a show in a long time. So I obviously did enjoy it. It was a very creative way of telling a story. I liked it because I watched it in three or four days. Not my favorite show. So I liked it. didn't love. I understand the massive appeal because there were some things about it that were very interesting. Maybe just a little bit. I'm not sure what about it didn't do it for me, but. I like character-driven stuff. I feel like you don't. Who is your favorite character? Jiven, for sure, and Frank, the two brothers. I love this. Javan's great. That guy's a good actor. He was good in yesterday. I thought even like the young Kirsten was a really good actress. She was. Yeah, that was good. I liked Jeevan the best. Okay, I saw for the first time in my life,

Apocalypse Now. I saw Redux. I don't know if that, I don't know what the differences are. Have you ever seen these movies? I never saw Apoclops now. Okay. I don't think I want to see it really. But I feel like you have to because it's like one of the greatest movies of all time. It's in like that category. Truly an epic movie, like three movies and one. And it was not a hard watch. The interesting thing about this movie is it came out. It's Francis Ford Coppola who did The Godfather. This came out in 1979. Did not win Best Picture. Kramer versus Kramer won that year. I never seen that movie. In 1978, you're turned into a really big Oscar guy.

Well, it matters, right? That doesn't matter to me. Well, it matters for posterity. I'm talking about it. In 1978, the Deer Hunter won, Best Picture. That movie sucked, as we've discussed. That was such a difficult movie to watch today. It hurt.

It was three and a half hours. I had no idea what was going on. Disjointed storytelling, in my opinion. Whereas Apocalypse now felt modern-ish. It aged very well. And it was three hours. I watched it in multiple sittings, but truly an epic movie and would recommend if you haven't seen it. I'm guessing Deer Hunter was a gauge of that time. It was like a snapshot of that period in time.

It was only 10 years removed from the war. So it meant a lot more than than it does today. Anyway, Apocalypse Now, worth watching. I rewatched. Okay, Caddyshack. I haven't seen Caddyshack since I was like six or seven. But the memory that I have of watching it was when Rodney Dangerfield farted and said, did somebody step on a duck? That was the first time in my entire life that I belly laughed. And I remember that. The stuffed animal for the groundhog is a tough watch that they couldn't replace that somehow, CGI it or something. So the movie made no sense at all, literally made no freaking sense. And I was glad to hear my thoughts affirmed when I listened to the rewatchables.

There was no flow to the movie. It was completely all over the place. And I didn't realize that Bill Murray's brother. So I'm looking at this guy. Now, again, Caddyshack was a long time ago. Was it 1980? Long time ago. Bill Murray's brother is in that movie.

And I'm like, huh, that guy looks familiar. The guy looks familiar. I'm like, oh, that's Noah Vanderhoff from Wain's World. So I went on the IMDB machine. And that's Bill Murray's brother. Did he realize that? See, you're way more plugged into Wayne's World than I am. Wayne's World was like a big, big, big staple in my childhood.

Okay. I don't remember that much. Anyway, I feel like Caddy Shack is very, very, very rewatchable. If you saw it today not knowing anything, I'm not sure that you would get all the hoopla, is all I'm saying. It's one of those movies that definitely has nostalgia tied to it. Totally. And people that have seen it like a million times, it means a lot more to them than it does if you see it now for the first time. I understand that.

All right. We went long, a lot to get to, a lot to discuss. A lot of moving pieces, as they say. There's a lot to unpack here. That's what you have to say in a podcast. Tons to unpack. We're going to do it all again next week. All right. Animal Spiritspot at gmail.com.