Animal Spirits Podcast - Super Bullish (EP.195)

Episode Date: March 17, 2021

On this week's show we talk about taking cash out of your house, the coming economic boom, why the Fed isn't printing as much money as you think, Beeple's $69 million NFT, why commodities aren't setting up for a supercycle, 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 Y Charts. The crack research team at YCharts sent us this really cool chart using their custom securities tool that we talked about a couple weeks ago. And they took Disney, which credit to me, was maybe my best call ever on this podcast, that Disney Plus was going to be huge. So they broke down Disney's share price over the past, looks like 18 months or so, maybe a year. Then they broke the revenue out because they input it. So ESPN Plus revenue, Disney Plus revenue, Hulu,

revenue, which I think maybe a lot of people don't know unless they follow closely, that Hulu actually is part of Disney. And then Disney Parks. And so, of course, Parks revenue is down like 50%. But ESPN Plus is up 200%. Disney Plus is up 160%. What's ESPN Plus? That's pretty impressive growth. I mean, I'm sure it's still tiny, but still. Part of it is because you can bundle ESPN Plus, Disney Plus, and Hulu together for a cheaper price. They're going in on MMA, right? Yeah. And it's part of the fact that people are just cutting the cable. I think. But this is a really cool chart. I might want to retract my credit to you. Did you put $10,000 into Disney? I bought shares for each of my kids. Not $10,000 worth. I have money in Disney.

Yes, I bought at the time. So Disney passed 100 plus million subscribers worldwide. I think they said Netflix CEO, Reed Hastings, didn't think it was possible that they could get 60 million in its first year. Now they've passed 100 million. Obviously, the pandemic is part of it. But this is a really cool chart. This custom securities will put a picture of this in our show notes, just to show. show how it's broken out. It's a really cool tool you can play with. Go to Y charts. Someone just asked on Twitter today, how do I get my animal spirits discount from Y charts? There's no discount code necessary. Just go to them, say you're a listener of the show. Tell them that you've heard Michael's terrible movie takes before. You got to go to Metamask, link your wallet, got to pay some

gas fees, transfer Ethereum. It's very simple. Yeah. Go to Y charts. Just tell me Animal Spirit sent you. They'll give you 20% off your initial subscription. Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast.

All right. Welcome to Animal Spirits with Michael Laban. We're going to start out talking about real estate. There was an article in the journal last week showing that U.S. homeowners cashed out $152 billion in home equity last year, a 42% increase from 2019 and the most since 2007. Obviously, there are a few things at play. One is people needed cash. Two is they need cash to survive the pandemic. Two is ultra low interest rates. Three is rising home values. And maybe number four, is people staying put and doing a lot of home renovations? It is surprising. They show this by year going to 2000.

It was double this in like 06, 05, 7. And so even though this is increasing, it was way higher back then. And honestly, it would shock me if this didn't continue to rise for a number of reasons. One is, how often do you hear these anecdotal stories of people trying to buy a home? We talked about it last week for some listeners, but I just heard again this weekend, hey, my co-worker's son is trying to buy a house. in every house he tries to put a down payment on, it ends up going for 50,000 over asking. You're hearing all these stories. So eventually, people are going to say, all right, you know what,

screw this. I'm not going to try to buy a new home if this is going to be the market. I'm just going to renovate my current home and make it better. Rates being so low, and the fact that everyone has equity in their home now, if you bought a home in the last, any time within the last year or longer, you've got some decent equity built up already from the leverage, right? So why aren't people going to start taking that out at low rates and take some equity out of their home and just make it better or use that money for something else. So it would shock me if this number didn't go higher in the coming years. I'm curious to see what happens in the spring when people that were planning to move but

didn't want to move because of the pandemic put their house on the market. I suspect that there will be a lot of supply, but will probably be gobbled up by demand because there's so many people my age that are still first-time homebuyers that probably missed their window last year. Yeah. So there should be more people who just said, I'm not going to have people walk through my house during a pandemic. I'm not going to sell.

you could definitely see it like this summer. I'm sure there's going to be hopefully a lot more supply that comes on because it is so, so low right now. The other good thing about this, the Federal Reserve, the New York Fed breaks it out by, they bring out these mortgage originations by credit score and these originations contain the refis. And the vast majority of them are for credit scores 760 plus, whereas in the past, especially in that 2005 area, a lot of these refis and mortgages were going to much lower credit scores. These are more high quality borrowers now. So this is not like a bunch of subprime borrowers taking money out that are going to default someday. This is worthy borrowers. A few more data points that I want to

highlight. Before the housing market crash that followed the crisis, almost 90% of borrowers chose to extract cash. Last year, about one-third of refinancers chose the cash-out option. So what happens is you take cash out of your house. What? You just tack it onto the end of your mortgage, right? Yeah. So you just take a had a little bit of a bigger mortgage. Right. So they said there could be other pitfalls to cash out refies. When you do refinance it to a new 30-year mortgage, you essentially reset the clock on your payments. So over time, that obviously could add years to the life of your loan, potentially. And you could end up paying tens of thousands of dollars in additional interest, not to mention

closing costs. Right. If you've been paying your house off for five years, you would technically have 25 years left if you have a 30-year fixed mortgage. But if you refinance after that five years, now you have another 30. So you have to think about that. One of the things that I did with my first house, I refinanced like four times. Every time I refinanced, I kept paying the same exact amount. And honestly, by the end of it, I think I went from six to three or whatever. I was almost making a double payment by that time I was done refinancing. Obviously, the rates have probably hit their lower bound and are not moving up now, but that's the idea. I also wanted to talk about the fact that last week we mentioned why real estate is a good hedge against inflation.

And some people were saying, oh, wow, I've never heard it that way. That actually makes a lot sense. And other people were saying, no, you guys are idiots, but especially for thinking it through the middle class. So this data from Edward Wolfe I've always come back to, this is a chart I made using his data. And if you look at the top 1%, they break it out, he broke this out by wealth by primary residence versus financial assets. And the top 1% has nearly 80% of their money in financial assets and like 10% primary residence, because they have so much more money than it else. The next 19% of people is more like 40% in financial assets and 30% in their The other 80%, the whole bottom 80%, has over 60% in their primary residence and like 10% in

financial assets. Their house is their nest egg for most people. Right or wrong, that's kind of the way it works out. Housing is a form of forced savings. These people don't have enough discretionary income to save whatever the case may be. Their house is it for them. And if you look at it, you think about, so the U.S. homeownership rate, so there's this chart from Y charts on this, it's like 66%.

For some reason, I had this huge spike up to 68 in the middle of pandemic. Now it's come back a little bit, but still 66%. So a lot of people were saying that, well, that's an elitist way to think about the world because if you're saying that people are going to benefit from inflation because they own a home, a lot of people are screwed. You know who's just really screwed here is kind of millennials? Because if two-thirds of the country already owns a house and you're in the group that is trying to now buy your first home, Gen Z we talk about is probably in a good position because they can rent more cheaply now in big cities if that's what they choose to do. I think millennials just got They were just in a horrible position, right? Because if you own a home right now, it's going up in value. Rates have come down so you could refinance. You're in a pretty good position where if you locked in rates for 3% or 2.5% or whatever it is, if inflation comes in at 2%, you're effectively after interest costs are borrowing for nothing. Well, first time home buyers, yeah, it sucks. Did you know that the oldest millennial is now 65 years old? That's me. A lot of people didn't really understand that. It's like, yeah, anytime you borrow for a long period of time, inflation is a pretty good thing for you because it's the opposite of being a bondholder. If you're a

bondholder, your biggest risk is not interest rate volatility. It's inflation, eating away at the money that you're being paid back in a fixed amount over time. Anyway, I just wanted to kind of mention that. That I think overall, you know, housing price is going up and interest rates going down and stuff is benefiting homeowners. Unfortunately, for people who are just trying to buy their first home and come up with a huge down payment, that they're at a huge disadvantage right now. Yeah, it's brutal. Okay. I cannot imagine being a bear on the economy right now. How about this? This is from Goldman Sachs. We have raised our GDP forecast to reflect the latest fiscal policy news and now expect 8% growth in 2021 and an unemployment rate of 4% by the end of the year. The lowest among census

forecast that falls to 3.5% in 2022, 3.2% unemployment by 2020, Goldman is calling it. for. Is anybody bearish on the economy? I feel like people are bearish on the stock market. I'm not seeing you can be bearish on the stock market and bullish on the economy. It's sort of like when people were bearish on Bitcoin but bullish on the blockchain, which turned out to be pretty terrible, pretty bad. Don't you think we're going to get the anti-fed, anti-government people are going to be so angry at this, like I think we're going to have an economic boom for two to three years. People are going to be mad about it. Can you see that happening? People are always mad. Just like when the stock market was rising, well, if you took out the Fed, if the Fed wasn't propping up, this wouldn't happen. And they're going

to say the same thing about the economy that, oh, if it wasn't for the government. But I always go back to this one from Bill McBride wrote three or four years ago, that 2% is the new 4% for economic growth because of demographics, population growth. And that always kind of stuck with me. But now, I think politicians realize economic growth is a policy choice. You can hate that if you want, and you can write newsletters about how it's not fair and it's all going to be fake growth and it's manipulated, but if politicians want economic growth, they can create it by spending money. Obviously, there's risks to that, but that is a thing. And I think politicians are realizing that, like, can you imagine if we get 6% growth for a couple of years or something, how is that ever

going to be taken off the table unless political will decides they don't want this anymore? What's your price tag on the Dow? Let's go. Put some meat on this. Again, I'm saying this is probably more bullish for the economy than the stock market in some ways. Just say it. That's a cop out. I'm super bullish on the stock market. I'm not afraid to say it. I think I would be happy in the coming years with just average returns, 8 to 10%. I'm not saying 20% a year. After the financial crisis, every economist was, you remember that Robert Gordon book, which I think is still one of the better statistical books I've read in a long. I go back to that

book. The rise and fall of American growth is excellent. I reference that one all the time for how things have changed over time and how all these economists for so long, we're talking about secular stagnation and things getting worse and were screwed, basically. So Neil Irwin at the New York Times wrote a piece about how he's finally, after like 20 years of writing about the economy, he's finally optimistic for the first time in his career. And he gave like these 17 reasons. And he talked about battery technology, for instance. He said that the price of these lithium ion batteries has fallen 90% since 2010.

Then you have these things coming like driverless cars and remote work. The fact that like a crisis like this spurs innovation, like vaccines, tight labor markets. Like, places are going to have to innovate. If you have a 3% unemployment rate, you're going to have to either innovate or become more productive or more efficient. He's talking about how millennials are earning their prime earning years. Economic growth, you know, again, it's a policy choice. And the Fed has said, like, we're stepping out of the way and we're going to let this thing run a little hot. And it's weird to think that that is happening. At the same time, people are calling for the stock market to just fall out of bed and completely crash and fall 60%. I just can't square that in my mind right now that, that you could think that. I mean, maybe you say, well, it's a bubble and bubbles always get worse. And so the bubble will go for three more years and then it'll crash. But you think people are afraid to like be vocally bullish. We often tore the line. I'm super bullish right now. Caviot. I'm not like doing anything about it differently than I ordinarily would. Like I'm always invested in the same posture. I wouldn't be surprised if I'm completely wrong and I'm

like a moron. But I'm not afraid to say it. I'm very, very bullish on the stock market. I think that we spoke about this last week briefly that people are getting too cute and overthinking this. It's hard for me to see an economic boom without the stock market joining. And maybe we already got those gains in the last five years. I don't know. I guess that's possible, but I would be fairly surprised if that's the outcome. I do think by nature finance people are just apt to look at the risk and the downside of things. Sure, I get it. Yeah, I think that I have an optimistic bent, but I do agree, like we have to still look for the range of outcomes and what if something comes out of left field that we don't know about.

In 2012 at Barry's big picture conference, I remember listening to Dylan Grice. I don't remember if he was at Sachtjean at the time, but I was blown away by his intellect. He sounded so smart and he scared the shit out of me. He said, I get paid to worry about the downside. The upside will take care of itself. I thought that was like so intellectually stimulating. But for goodness sakes, if you're too worried about the downside, then you're not going to get the upside.

Yes. And I think too many people in finance have been conditioned to realize that talking more about the downside sells way better than the upside in the past 12 to 15 years. So I think people are still so scarred by the 2008 experience. Well, because if you're bullish and wrong, you're clearly wrong. Like you have egg on your face. You were cheerleader. You were naive to the risks. But if you're bearish, then you could just say I'm early. There's no end date, right? You could be perpetually bearish because, listen, an 80% decline. I know I've been saying it for 17 years, but just one 80% decline away from me being right. I just saw.

Harry Dent last week was calling for another crash this year. There you go. If you can believe it. He means it this time. All right. So this was some good myth-busting, I thought, by Morgan Housel. You've seen this chart, this M1 money stock chart, and it just goes vertical last year. And people use that as the, I don't know, the overlay that chart on everything, the stock market, interest rates, whatever.

I don't think anyone really that posts that chart as a scare tactic even really realizes what it is. so it's just cash. M1 is cash, right? What are you laughing at? Sorry. I just got distracted by Joe Wiserth, I'll tweet. Sorry to Trump. This is pretty great, though. People accuse me of being a Fiat shell. Well, I've decided to put my money where my mouth is. In 2021, I'm elected to take my entire salary in USD. We're speaking about money supply. It's appropriate. All right. So M1 is money supply. So it's like paper and cash and coins and checking accounts. And M2 includes like money markets and savings accounts. And Morgan says, yes, this thing charged higher, but the Fed also said that, like,

they eliminated this rule on savings account that you could have a six withdrawal limit in a month or something. That shifted savings accounts from M2 to M1. 11 trillion of this $14 trillion increase came from moving savings accounts to checking accounts. It was basically an accounting change. Okay, got it. So 80% came from an accounting rule. Okay, fine. Fair enough. But that doesn't take it away from the fact that we still printed a shith ton of money, which I'm fine with, but we did. But not as much money as people thought. This is, I thought, like, one of the greatest charts I've seen in a while. So someone posted it on Twitter this morning. It's government debt from 1990 to 2020. And it also shows a net interest cost. Government debt is up threefold

almost in that time. In net interest costs, the amount of interest expenses you pay on that, has almost been cut in half. You say. So because interest rates have fallen so much, we're paying half as much as we did in 1990 on government debt for interest expense. So people always say, like, who's going to pay for it? Well, we have so much more. If rates stayed this low, we have plenty of room to print more money. I just paid my 1942 bill off taxes. I was pretty happy to pay it. I got to be honest. Yeah. Yeah. Thanks a lot, Grandpa. You saved the world. Now I'm just paying off my bill. This tweet made me smile. Somebody tweeted, American Airlines is telling 13,000 workers who receive notices of April 1 furloughs, quote, you can tear them up, house passage of $1.9 trillion

stimulus bill extends airline payroll support program once again. And people will see this and legitimately get mad about airlines and buybacks. Right. People just had their job saved. Right. Right. Yes. Unequivocally a good thing. We could argue about the details later. Maybe if you want to put some guard rails in place for next time. But come on. Come on. We're saving people. Yes. Again, I get the fact that people were mad. of the 2008 bailouts and a little that has stuck around, but this isn't nearly as bad as people want to make it out. And the weird thing is, we talked last week, this is going to potentially cut child poverty by 50 percent. And you have people out there, like these Silicon Valley

people who say, my greatest goal in life is to reduce wealth inequality. And then they complain about this bill without ever having read it once. It's okay to say everyone's a while. You know what? I think this isn't perfect, but we got it more right than they have in the past. That's where I stand on it. It's nowhere near perfect, but they got it more right than before. All right. I'm going to read something from the Wall Street Journal, an article on deregulation and utility and energy and all that sort of stuff. And I'm a free markets person. I think most people like free markets. However, we need some guardrails. Sometimes deregulation is bullshit. I'm sorry. Just sometimes it is. So here is from the Wall Street Journal.

20 years ago, a new breed of energy companies promised consumers that deregulation of the electricity industry would cut their power bills. The opposite happened. U.S. consumers who signed up with retail energy companies that emerged from deregulation paid $19.2 billion more than they would have if they'd stuck with incumbent utilities from 2010 to 2019. Retail energy companies buy electricity from generators, power plant operators, wind farms, solar power farms, and sell it to consumers, usually over the local utility wires. Giving consumers a choice between their old utilities and new rivals, the argument for deregulation went, would create competitive pricing. But in nearly every state, they have charged more than their incumbent utilities in each of the five years from 2015 to 2019, the journal analysis found. They looked at power prices

in 13 states in the District of Columbia. This is obviously from the Texas fallout where people got these like $16,000 bills. Don't you think in the future internet's going to be utility as well, or shouldn't it be? The exceo of Amazon, you want him to take over this project. What do you mean? Oh. Oh, he's the XE. That's right. He is the XEA. Okay. You thought that Bezos should take this project on. Yeah, sure. Why not? Before you go fix space, fix the, make sure everyone has the internet first or make it free. Oh, the market is going to sort this out. People will have more choice. Yeah, what? To read the fine print? Right. This is the kind of thing that I don't want. Surge pricing at exactly the wrong time.

How about we regulate more in this particular case? And if you want to send me an angry email, I'm happy to read it. Yes. All right. you're communist. Guilty as charged. All right. There is somebody on Twitter. His name is Ed Clissold. Ben, do you follow this person?

Yeah, he's a Ned Davis guy. Chief strategist for Ned Davis, and he puts out some killer charts. So they showed one chart showing large cap growth earnings per share versus large cap value earnings per share. And the upshot is value has way more earning mean reversion potential. It's way below trend. Growth is way above trend.

That's not so surprising, but I've never seen it broken down this way. He has another chart. So this is a good way of saying growth stocks have had earnings, value stocks have not. What do you mean exactly? Well, growth stock earnings are up. Value stock earnings are down. Yes. But if you're looking for the mean reversion play, then yes.

Growth stock earnings are above trend, value stock earnings are below trend. This is great. FanMag earnings nearly doubled to 25% of the S&P 500 in 2020. surprise, surprise. What percentage of the S&P 500 are they been? 27%. There you go. Magic. That is a good looking chart right there. It's not market manipulation. It's just sometimes the market is the economy. Sometimes businesses are the stock market.

I bet you could pull a headline from every year from 2013 to 2019 calling for the end of the fang stocks, right? Or calling it a bubble. Pretty easily, right? Yeah. All right. Kevin Zatluke. I hope I said his name right, wrote a piece two weeks ago called Quality and Value and Growth. And most of the time, value is not investing in high quality companies, call it, I don't know, Costco, for example. Most of the time it's investing in junkie companies that are trading below their intrinsic value because they're shitty companies and people just go too far with discounting them. They're value companies for a reason. Yeah, nobody wants to be a value stock.

Nobody chooses that. That is the market imposing its will on these stocks. Okay, so he looked back at the dot-com era, which is obviously the golden age. The end of the dot-com era is the golden age for value investing. He wrote, the period from 97 to 2001 is the only period on record where the value factor had a strong tilt toward quality rather than junk stocks. At the height of the dot-com bubble, the value portfolio had a sustained correlation of almost 50% with quality, something that had not happened before and has not happened since. And here's the coup de grace. The dot-com bust is seen as a triumph for value investing. And rightfully,

So, but we should also keep in mind how unusual that period was. Deep value investing was at that time able to buy high-quality stocks at low multiples. That was a once-in-a-career occurrence. Last thing. Someone who became a value investor in the early 2000s expecting a repeat of this performance can be waiting a very long time before it happens again. Right. All the high-quality companies now are highly priced in terms of valuation. And that shows you how crazy that the dot-com bubble was that even high-quality stocks were being pushed aside for tech stocks. That's a different story, whereas today, yes, you have a lot of speculative plays, but you also have these really high-quality companies that are being priced to perfection or just priced

higher, and for good reason. So that makes sense. We've been speaking lately about the correction in growth stocks as an opportunity, or did we lose our mind that we woke up to the fact that we were overpaying. I think it's the former. I think it was a gift. So Stripe yesterday announced that they raised money at a $95 billion valuation. And one of the things that I wanted to talk about was they wrote, only 14% of commerce takes place online today.

14%. Doesn't that sound like we are still, despite the market prices and the market caps of these companies, what I get as seems astronomical. Only 14%. Doesn't that seem very early innings still? I wonder how much of that needs to be like auto sales that have a huge number, or if you shifted half of that online or if that would like balance it out a little. obviously that's not the whole of commerce. But yes, I agree. But on the other hand, because these companies are so highly valued, you're going to see like this bifurcation of when they report earnings, you're going to see some way increased volatility in the next, whatever, 12 months probably, where some of these stuff. Stitch fix. Yeah, it's a company that I bought right before it got crushed 30% on earnings. And now it's coming back a little. But I think you're going to see a lot

of that where these companies that were so priced for perfection. If they have a little bit of a hiccup, they're going to get slaughtered. And maybe that's the kind of time when you can find high quality companies that at a more value-oriented space, even though if the traditional value metrics aren't there. All right, here's one that is entering cigar butt stage for me. Beeple sold for $69.3 million for his highest price JPEG in history. What a steal. By the way, the person that bought it said it's worth a billion.

Okay, here's the interesting part to me. And obviously, we've talked about this NFT stuff for a little while. I do think it's really cool for creative people that they can now write into their contracts, that they make a percentage of, I think from that perspective, this thing is really cool. Have you heard people speak yet? Have you listened to him on podcast or anything like that? I've seen a few interviews with him. Seems like a really just normal, regular, nerdy kind of guy. He is so incredibly likable. I hope this guy sells a billion dollars worth of stuff. He is so likable. Yeah, I like him too. So this is from Christie's, which is the auction house where it was sold.

Christie's reported that among bidders, 55% were based in the U.S., 27% in Europe, 80% in Asia. 64% of those who participated were millennial or Gen Z under 40 years. So two-thirds of the people who were in this bidding were under 40 years old. So this is people with a lot of crypto money. The place who won it was an NFT fund. This guy, right? So crypto people are basically making NFTs a thing. Like, there's obviously other people that are jumping on and seeing this. I just think it's so impressive that these people with all this money, but this gets back to, like, what I think is the biggest investment factor of this century. Rich people have a shitload of money. And if rich people want to make something worth something, they can do it. They can't

prop up markets forever. But if you want to know why stuff is happening in markets, it's because rich people have money and they want something to happen. And so the reason that inequality got so much worse during this pandemic is because rich people had the assets and the income to step in and buy when stocks fell. Have you poked around on Nifty Gateway yet? No, I don't really know what that is. So Nifty Gateway is where the digital art is sold or at least one of the places. So I was just poking around. I did a threat on Twitter yesterday. Just a... I picture you like, Matthew McConaughey and Interstellar floating in a space suit behind the bookshelf, like looking for your Ethereum. Like, where are you? I want my Ethereum back. This is you floating around

the blockchain. I mean, the prices are just, they're truly laughable. You've got your use case here. And the people that are speculating, it's just rich people moving stuff from one pile to the next and basically creating a market out of thin air, which again, is impressive to me. Rich people, they set the prices in markets now. Yes. Because whatever, the top 25% in the U.S. own 92% of the assets of the wealth. So that's why when like bare markets happen, I think from now on, unless the government keeps printing out money and handing it down to the middle and lower classes, the wealthy people

are just going to get even wealthier during the bare markets, I think. I think that's what's going to happen. Yes. Bear markets are a catalyst for further wealth inequality. What are you buying on the NFT gateway, whatever this is called? Well, I haven't bought anything yet because everything is just like $900,000. Okay. All right. There was a survey, how much, if at all, have you heard or read about Clubhouse, NFTs,

Spacks, TikTok, Ethereum, ETFs, all the things that we talk about. Basically, nobody knows what's going on. And they asked 4,200 adults. So this seems pretty representative of the U.S. population. Like Clubhouse, for example, 15% said a lot or some. 83% said not much at all. NFTs were 14% knew about it. I made a bad dad joke about NFTs on Twitter last week. my wife goes, what are NFTs? And I'm like, it's not worth it. I don't want to explain. What was a joke? I said Biden had announced that everyone in America is going to be able to have the vaccine by the end of May. So by the 4th of July, we can all gather. I said, I can't wait to gather with friends and family and watch my fireworks NFT together. Okay. All right.

22% said they've heard of SPACs before. Yeah. So this shows how online people like you and I are, right? And people on Twitter, this is the whole Twitter is not real life thing. And people will probably listen to this podcast. By the way, last week, week on the show, we spoke about how, yeah, we're probably not going to be clubhouse power users. And I wish there was like a before, like that thing in a movie seven hours later. Seven hours later, we were on Clubhouse, literally. So Ben and I are going to be doing this thing called Animal Spirits, One More Thing. Every Wednesday at four, we're probably going to be doing it on spaces, not Clubhouse,

because more people have access to spaces. We did Clubhouse last week in a couple dozen people DM'd or tweeted at us and said, hey, I don't have an invite to Clubhouse, which I think it's stupid that they have it set up that way still. I don't know why they have to make it so inclusively. You have to get an invite. Just open it up at this point. On Wednesday, every Wednesday without fail, I listen to the show and I'm like, oh,

I meant to say this or Ben, whatever, you should have said that. So we're going to call one more thing and just things that we want it to clear up. We're going to hang out and chat, and we'd love to see you there, 4 o'clock on Wednesday. And maybe we'll take a question or two as well. All right. J.P. Morgan Guide to Alternatives. private equity dry powder. I mean, $330 billion of cash on the sidelines. Yeah, but I've debunked this one before. Go ahead. Do it again. Okay. It's a dry powder technically, but that money gets

invested over the period of five to 10 years possibly. Counterpoint, look at the chart above. So in 2020, which was, I don't need to remind you, a pretty shitty year for everyone, at least most people, there's a chart young alternatives fundraising. Global private equity raised $641 billion, $122 billion in private debt. I mean, there's so much money, Ben. It was down a little bit 2019, but I mean, if this was 2008, you see a huge drop. It would have dropped to 80%. Don't you think 2021 will see a record year for private fundraising?

Anything and everything is getting funded right now. If you're a startup and you have some sort of fintech in your documents, you had your everything as oversubscribed post. You just keep seeing story after story that backs that up. I think I'm sure it'll be probably a record year. Seth Rogan's weed site crashed when he tweeted about it. Yes, he's probably going to be a billionaire from a weed company he made. I get notifications from Collectible, which is collectible is like rally, but just for sports.

So they do cards and all sports memorabilia. So I get a notification on my phone that this drop is happening. And then 15 minutes later, like every single day, they're filled within 15 minutes. It's incredible. Last week, we listened to Patrick O'Shauna, he had a podcast with Josh Wolf and somebody from the military. I think his name was Tony Thomas. I don't know if he was a five-star general, but somebody big in the military.

And you and I were speaking about, like, does Josh Wolfe have the most fun job in the world? He's pretty impressive. He'd never heard him on a podcast before. It sounds like he's a little bit like Tony Stark almost. He's like going out in the field and helping out these defense projects. And it's interesting to see the stuff he talks about that they're investing in and helping with build. It's venture, but it's really interesting like sci-fi. He talked about how it's like bringing sci-fi to real life.

but it's interesting to compare that with the stuff he's doing and funding defense projects to help the country better protect us from foreign adversaries versus a lot of the venture stuff you hear about that is like we got this app on your phone you're right that can I don't know like I'm not trying to poo poo stuff a lot of this stuff that technology has created has helped entertain us for a while but I don't know if it's really advancing the world yeah speaking of DoorDash not you mentioned DoorDash but door does an app on your phone there was a really interesting substack on DoorDash and the path to profitability. So the person said the door dash of today is in the end state of DoorDash. We spoke about DoorDash a few weeks so, which is why I bring

this up. This is a bull case we've been looking for. It's always really hard. And I did this with Netflix in 2011 when I was short Netflix. I was like, this sucks. The Cadillac here is terrible. Obviously, I didn't know that House of Cards was going to be a thing. But that's the thing. It's like things evolve. And DoorDash today might not be the end state. So they said the bullet case is really this. Dash pass. Dash pass is certain. membership. It's the recurring revenue. This person wrote, Dashpass is arguably the most important development in the last mile delivery industry, and it might end up being one of the largest subscription products in the U.S. reaching Netflix and Spotify status. Obviously, we'll see,

but if that's the case, then yeah, everybody who's like us, poo-poo and DoorDash is going to be wrong. This is just where they deliver everything to you, basically, groceries, food, anything you need. So do you think these companies, Uber and DoorDash and Lyft, I guess Google and Waymo in some ways, are they going to be the ones that push forward the drive? driverless technology, because for them, they're the ones who really need it. Getting enough drivers is part of the problem for them, too, right? Well, but one of the things is like, yes, this person said only 10% of DoorDash drivers do it full-time. Have you seen the stories of people getting a job with DoorDash so they can get the vaccine early? Oh, really? That's... Because food's...

Is you getting the vaccine, you're getting the vaccine? I don't care at this point. He was saying there might be like fulfillment centers where everything gets shipped there and then the driver brings you like your clothes and your groceries and your Home Depot order or whatever. Don't you trust Amazon more to do that than DoorDash? But Amazon's not doing it. Okay, but Amazon brings me that stuff, and it's there the next day. We've been talking about how there's these backlogs and everything. We ordered some chairs for our front porch the other day from Wayfair, just some rockers to sit

out in front and watch the kids. I ordered on Friday afternoon and said, hey, what do you think about these? I said, yeah, do it. They're there in the next morning from Wayfair. Obviously, it depends on where the stuff is, but I don't know. Maybe DoorDash can be this, I don't know. I feel like Amazon has so much more delivery infrastructure already built in place. wouldn't you trust them to do it more than DoorDash? If they said we're getting into food delivery,

wouldn't DoorDash fall 20% the same day if Amazon said that? We got a delivery driver going to your neighborhood 12 times a day anyway. Why don't we just bring your food too? I don't know. So there is an interesting thread that I want to share from macrocephalopod about how screwed up asset management industry can be. I want to highlight can be. I don't want to overstate that this is like what it is. I just thought that this particular story was like interesting. And again, this is not definitely not the entire industry. So with that caveat aside, here we go. Many years ago, we had a fund that was down 20%. The PM was fired and a new PM with new strategies took over the fund. Allocator at a big pension fund with $100 million invested,

literally begged us to start a new vehicle running the same strategies because they wanted to stay invested but couldn't justify to their boss being in a fund that was 20% underwater. If we agreed it would have crystallized their losses and they would start again with the new high watermark, obviously we didn't do it. Can't remember whether they redeemed or not, but the phone was back above high watermark within 15 months. Our performance fee was 20%. So this allocator was willing to give up $4 million, which was 20% of $20% of $100 million of their investors' money rather than have a difficult conversation with their boss. My experience with the institutional money world that this is not that far away from reality. If you're in a hedge fund, you want them under

their high watermark at some point because you're not paying them performance fee. So if they play catch up and come back up, then that's a good thing for you because you're not paying that 20% carry. But there's such a political nature to the institutional money manager side of the world in terms of committees and boards and optics and career risk is such a bigger role there than at other places. And I gleam on to the bad stories more than I should. Those are the ones that stick out to me where you see these decisions where you're like, wait a minute, that's not why you do this, especially when you're managing money for your beneficiaries. But that's the way things work for some of these funds. All right, here's some potentially good news. So this is from the

Investment Company Institute. They show how stock ownership has changed over time. They show it in millions, but also percentages. So as of 1989, it was like 32% of U.S. households owned stock in some capacity. It got up to 53% by 2001. This is to the end of 2019. It stayed about 53% after dipping by 2019. I'm guessing by 2020, that is actually increased. But the biggest change has actually come from lower income households. So in 1989, the lowest income household was like 3.6% ownership of anything in stocks. Now it's up to 15%. Even the middle quintile, the middle 20%, has gone from lower than 30% ownership to 56%. So I think this is good news. More people, and we should do our best to try to increase this, right? Because they have a total is 53%. So it's still just a little

over half of households actually own any stock. And of course, it's at the highest income levels. But this is, on the margin, good news, right? Oh, absolutely. This is how we help inequality a little bit. It's not, yes, taxing the rich might help a little bit and giving more to it. But I think the reason the rich people have become richer is because they own all the financial assets. That's the thing we need to change. All right.

So there was an article in the Wall Street Journal talking about are we going to see a commodity super cycle? And they showed the three ones over the past century. One was the U.S. industrialization in the early 20th century. The second one was post-World War II with Japanese growth and European Reconstruction. And then three, the third one was in the early 2000s with China's growth. They basically said none of those things are in place today. Even though we're seeing oil prices up a little bit and you're seeing soybean and copper and things like that rise, that's more of a supply demand imbalance that will sort itself out. Not really a super cycle, but just sort of a cycle.

Right. And maybe some mean reversion, too. It is hard to believe, though. I guess it was 11 months ago, oil was trading at negative $37 a barrel. Man, I wish I took delivery. Unreal. So, Corey Hofstein tweeted this, and he talks about us a lot, and I couldn't agree more. And I have no data to prove this, but I just intuitively make sense. I think this is so overlooked. He said, when discussing inflation and commodities, I think financialization is a massively overlooked variable.

William Bernstein wrote this in one of his books about correlation. until basically 1991, it was more or less impossible for individuals to invest in commodities all. Pimco is like the first fund that actually did that. So you're right. Like back in the 70s and 80s, it was mostly hedgers and a few hedge fund people that were trading in this. And the futures markets were way, way different than they are now. So he says the 70s are really our only data point in terms of inflation.

And since then, we've seen a dramatic rise in passive commodity access, managed future strategies, and alt-risk premium to share a link that says J.P. Morgan was arguing that CTAs were a huge part of the 2014 oil price downturn. And I think that there's a lot to that people just don't think about. Yes. In the past, you could, because the futures markets were so inefficient because it was all just companies hedging out their risks. And there weren't all these hedge funds and CTAs that were trading these things. You could actually make a good return on the futures market. Now it's completely backwards. It is not as easy to just shoot fishing or bear like it was. All right. Listen to questions. Hey guys, I need your help on how to get

over a missed opportunity. I'm 26 years old and live with my mom outside Toronto, Canada. About one and a half years ago, I was looking at houses worth around 550. At the time, I thought they were expensive and I wasn't ready to move out. So I passed. I figured the only reason at that time I would be buying was to speculate on housing prices. My plan would have been to rent it out and then move into the house when I was ready. Now I'm about ready to move out in the same homes just selling for 900K. I can't believe it. I have no idea what to do now. I also can't stop thinking about real estate. I've never felt phoma like this before. How can this market keep going higher. This is a terrible, terrible thing. I think if you're focusing on the prices,

you're never going to get over it. And this is why I keep saying, like, just trying to time the real estate market is impossible. Listen, if this is your home, really and truly, if it's a starter home, that's one thing, but even still, let's just say that you pay 10% higher. I mean, is it the end of the world now? If you're speculating with houses like this person was thinking about doing, that's different, right? Speculation, you could get blown up. But if it's your forever home and you have to There are greater tragedies in the world. In trying to speculate in a place like Toronto or Vancouver or anywhere in California, basically, where the supply demand dynamics are so tilted.

I don't know how you ever timed that. I just want to amend what I just said because I think that was a little bit harsh. I guess the problem is people can't overpay because they can't afford to. If you saved up for a house house, that's $5.50, you can't afford a house that's $800. So you're priced out of the market, and that's terrible. The way that I look at owning a home is I don't really look at it like an investment at all. think it's consumption. And if you make money on it, I think that's like icing on the cake as far as I'm concerned. I don't look at it like that. Okay, we did have one reader right in from Grand Rapids.

We had someone asked recently about, should I buy a rental in Grand Rapids? And someone said, they owned two duplexes in Grand Rapids. They did better than they thought during the pandemic, didn't miss any rent payment. They let one tenant break a lease because of COVID. But they just said, here's some good advice I thought. If you're going to buy into rentals, make sure your spouse is on the same page as you. It's very important. And watch out for the uncapping of property tax. Rentals can serve as a hedge against inflation. Again, getting back to the real estate versus inflation. And this person said that they actually used a consultant to manage their duplexes and recommended it because they don't have to deal

with the operations of it because that's a big piece of it as well, the ongoing stuff. So anyway, that was a pretty good feedback. All right, one more. What works for you in terms of studying tips for the CFA, currently plowing through level two material? You're probably closer than I was. What were you studying hacks? God, I hated it. I've kind of blocked it out of my mind. I was so dedicated to study. I really feel like I devoted like my life to this years of it, because when I took level two, I really had very little industry experience. Actually, the first time I took it in 2011, I had zero industry experience and it was a complete foreign language. So when I retook it, I guess, in 2014, I had a little bit more, but still.

Yeah, having experience helps just from the language. I thought taking the test as I was progressing through my career was actually very helpful to me. Yeah, for me, every single bit of it was foreign. The only study tips that I could really give are focus less on memorizing the material, get rid of the textbook, and just take practice tests. And even if you're failing miserably, you'll get better. So I would just say do as many practice tests questions as you possibly can. The textbooks are so dense that I bought the study notes where they take the stuff from the books and they condense it down to bullet points. I didn't do that at the first one the second one. When I got out of CFA level three, I think I passed it in 2009 maybe. I thought

the second one was the hardest one by far. I got out of number three and I felt like I passed it and I went to chilies with my wife. And I think I drank a whole bucket of beer by myself because for six months I didn't do anything but study, right? The third one was way harder than people give a credit for. I thought the third one was the easiest one for me. Okay. Not to brag. No, but it's different for every person. I thought two was hard and I know some people thought it was a breeze. All right, let's do some recommendations. How about I start? Okay. I watched the sound of metal. We finished this weekend finally. We had it go and watched half of it and finished it. Good movies on Amazon Prime. I'd say very good movie, not great, but that Riz Ahmed, I think is awesome in the movie. So he's the guy from,

what is it called, The Night of? Yes. He's been in a bunch of stuff. I think he's great. So it's about a drummer who loses his hearing and has to go through losing his hearing in his like 20s or 30s and dealing with that and what it's like. And also, he had gone through rehab before. And his performance, I thought, was just even better than the movie. Somewhat based on a true story. Did you watch it? Oh, it's based on a true story?

That it happened to a drummer like that for heavy metal. So just loosely based on a true story. I did watch it. Yes, it was a very good movie. He was excellent. You know who else was excellent? This guy, Paul Racy, the instructor at the house, he is actually up for best actor in a supporting role.

He was phenomenal. Did you read his backstory? his whole family was deaf, that guy in real life. So he has experience with it. He was so good. I thought so, too. I like that one. Everybody wants some. Have you ever seen this? Never heard of it. So it's a Richard Linkletter film. He's the guy who did Days and Confused. It's essentially the follow-up to Days and Confused. So you've never seen that either. I never saw Days and Confused was based on his high school life. Everybody wants some. It came out a few years ago, and I don't think it had much fanfare at the time, but it's based on his college experience. So he went to college to play baseball. It's basically just a college party movie, and it's way more lighthearted even than dates and confused, if you can believe it, but it's just a good college party movie, good, upbeat, and they

nail the personalities of a college baseball team, I thought perfectly in terms of, like, the older guys and the younger guys. I didn't see that one in a while, so that's a good rewatch too. And I started reading a while ago, the short history of nearly everything by Bill Bryson, like you and I talked about doing a podcast on it, never came out. I've been picking up a bunch of books that I started before the pandemic and now starting them again. It's the kind of book that makes you realize how little you really know about anything. Like that whole chapter on Einstein and what the theory of relativity really is. I read the whole

chapter and I still don't quite get it. You read this one, right? Yes. I don't remember that chapter. Afterwards, they're interviewing this guy. They're like, basically including Einstein, three people in the world understand what relativity really is and one of the people is probably lying. But that's great. my six-year-old is really into space right now. And I got her, the kid accompanying one, it's called a really short history of nearly everything. Every night we read a few pages and it talks about space and like how big the universe is and it's really mind-blowing and she likes it. So that's a pretty good one too. All right. I watched a lot of movies this week. Days and Confused falls into that category of I was just too young. I was eight years old

when that came out. And for whatever reason, I just never got to that. So I've been spending like the entire pandemic basically cleaning that up. And I feel like now that the end is in sight, my movie watch is going to enter a bare market, and I'm very, very okay with that. All right. So, in that vein of early 90s, I watched New Jack City, which was just on the rewatchables for the first time. I don't know. Well, I was supposed to say, I don't know how I missed it.

I was six. That's how I missed it. So New Jack City is Wesley Snipes and Ice T, Chris Rock. I sent to you this at the beginning of the movie, literally, like, as the credits a roll, and they talk about inequality at an all-time high. In 1991, it never changes. This is, unfortunately, what our country is. Wesley Snipes was a massive star, like massive, massive, massive.

And even before his going to jail, like, what happened? This queer fell off a cliff. Think about someone like Bruce Willis, or I feel like for action stars, it just sort of happens that way. They're just like a stock that has a 70% drought on that never comes back. Huge blade guy. Is Wesley Snipes the GE of acting? All right.

Also in 1991, I saw a backdraft. You ever see that one? That is a great movie. Been a long time. 25 minutes too long. Okay, it's been a long time since I've seen it. But I remember seeing it back then. How did they shoot that movie?

Fires Everywhere. When you open the door and the gust comes in, like that, oh, he just scared the crap out of me when I was a kid. That movie, I saw it on the shelf and blockbuster. I remember that was like the giant movie that I was just a little bit too young for. So Bobby D. was in that, okay? And I saw this weekend, I watched on Mean Streets. You ever hear of that one?

I never watched it. So Mean Streets is one of Scraise's earliest movies. It's from 1973, so Bobby D. This is his first big movie. He did this right before he did Godfather Part 2. This is like, I guess, his first coming out movie. So it's De Niro and Harvey Kytel. And De Niro basically plays, it's a gangster movie. De Niro plays dope, just a moron who owes money all over town. And it's sort of similar in that respect to uncut gems. He just owes money and he's going to pay back. He's going to pay back. So him and Harvey Kytel together as like, I don't know how old they were in their 20s. The movie wasn't great, but it's worth watching.

pretty good. That got me thinking after I saw De Niro and Backdraft, I didn't even realize that he was in it. So I went through his catalog. He's got the best IMDB of all time. Probably true, except for the Bullwinkle movie, but... He's been in some clunkers, for sure. Last one, the way back. Ben Affleck, snubbed from the Oscars. That was a good movie, right? It was pretty good. It was a good movie. So, best picture this year. We've got The Father, Never Saw It with Anthony Hopkins, Judas and the Black Messiah, Mank, Minari. I never heard of Monari. Have you? That's one of the Korean farmers. I just saw the trailer.

Okay, I never heard of it. Nomadland. Promising young women, which I really want to say, I haven't gotten into that yet, Sound of Metal and the Trial of Chicago 7. This has to be the worst crop of all time. Not one of these, and I very much like Sound of Metal, but that's not a great movie. It's a good movie.

It's a very good movie. That's why I don't get why all these studios decided to push their movies back. They could have run the Oscars if they put out any good movies this year. Why did they not put out all their good movies this year just so they could win the Oscars and then re-release them when things open up? I don't know. So if Nomadland wins, my God, I would vote for Junis and Black Messiah, which was a very good, not great movie. It was like half of a good movie. I really enjoyed it, but like, man, just a lousy cropping movies for a lousy year.

Borat, too, got nominated for an Oscar in some categories. Well, she was awesome, the supporting actress. I forget her name. It was awful, though. I liked it. Sorry. An Oscar? No, I know.

I know. I know. Yes. Worst year for Oscars in a long time. Maybe we have a mean reversion next year. All right. Animal Spiritspot at Gmed.com. Again, next Wednesday. We're going live. This Wednesday. Oh, this Wednesday. I'm sorry. We'll announce it on Twitter. So if you don't follow us on Twitter, follow us there. I think we'll try spaces this time, right? Yeah, we're going to go for spaces. We asked Twitter for spaces. They delivered. We got it. Thank you, Jared. Yes, we got access. All right, Animal Spiritspot.com. We'll see you on Friday. Thank you.