Animal Spirits Podcast - The Active Management Resurgence (EP.197)

Episode Date: March 31, 2021

On today's show we discuss the most bullish thing about the stock market right now, the catalyst for value beating growth, when the smart money is really dumb, the relationship between inflation and wealth inequality, the best time ever to found a start-up 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. I am a very simple guy, Michael. I know this. My favorite tool on YCharts to check is just the drawdown. So you type in a ticker of an ETF or an index or a stock, and you can see what the drawdown is. From our research, we know, 5% of all trading days in the S&P 500 over the last call it 90 years have been a new all-time high, meaning the other 95% of the time, stocks are in some form of drawdown. I'm guessing it's worse than this even for most individual stocks because they probably have a greater drawdown than that. So I'd like to look at that.

Can I throw a data point then? Let's hear it. I believe the average drawdown on any given day, I think it's like 12%. Oh, that's a good stat. Okay. Thank you. Yeah, we can verify. Anyway, so I use this one on Y charts all the time.

Yeah, that sounds good. Just their simple drawdown. And you can look at it over different time frames. That's one of my favorite things on the tool because you can just. Just flip back and forth. If you can see what the gain is and the loss and the drawdown. All right. What's the point?

If you haven't checked it out, go to Y charts. Tell them Animal Spirit sent you. Try their drawdown feature. You get 20% off of your initial subscription. I asked you what the point was. I thought you were going somewhere with that, but it was just a general. That's a great feature. It's a great feature.

It's a great feature. And we're going to be talking about stocks and drawdowns today. Ah, there we go. That was a tease, they call it. There you go. In the podcast world. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick 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 Rit 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 and Michael and Ben. All right, I'm going to hit you with some numbers here. Hit me.

On Friday, the S&P 500 hit its 15th all-time high of 2021. Just barely eeked out on all-time high. That's 47 closing all-time highs. I'm not an intraday guy like you. Sorry, but that's 47. If the data's on the screen, it's in my brain. Sorry, that's just me. I'm a data guy.

All right. That's 47 new all-time closing highs since the start of 2020. Kind of a lot. We're three months into the year. These are the drawdowns through last Friday as the S&P is hitting its 15th all-time high. Tesla, down 30%, Salesforce down 26%, Apple down 15%, Amazon down 14%, Netflix down 13%. These are some of the biggest tech stocks I could find that are in the midst of a pretty good drawdown. These stocks, these five stocks make up like 13% of the

S&P. So this happening while the S&P is hitting all-time highs, I don't know. You would have told me that at the beginning of the year, I might not have believed you. Isn't this massively bullish that we've been able to have this baton handoff from tech stocks to energy and financials and small caps and value stocks, all this stuff. That almost didn't seem possible nine, 12 months ago when tech was the only world-beating thing coming out of the pandemic crash. Here's this for a statistic. 93% of stocks in the S&P 500 are above their 200-day moving average.

That is by far the highest reading since 2013. I think previously the high was like 85%. So basically everything is sort of in an uptrend. So these techs are a huge, huge outlier right now. What's a little bit worrisome, if there is a worry, it's that we're not used to seeing industrials, materials, energy leading a market rally. So it feels like we're an unfamiliar territory because the previous leaders, the names that you just mentioned, are not leading us.

Apple hasn't made a new high in a little bit. Amazon has made a new high since like October, Facebook, October. if you look at the NASDAQ, 78% of stocks are above their 200 days. So overall, still pretty healthy in the NASDAQ, but you're seeing some carnage in the high beta names. And when that happens, people's antennas go up and I understand that. Okay. So the worry would be this is the canary in the coal mine and everything else is going to roll over eventually. My thing saying this is massively bullish is we've done the handoff here. And I don't know if. Correct. Here's what I said yesterday. You can, I mean, you can, but it's not good investing. You can't, you can't

be worried about all-time highs when there's narrow leadership, and then also worry about all-time highs when there's broad participation. Now, I said you can. You can be nervous at all-time highs, but that's going to make for very difficult investing. Yeah, that makes sense. Because we had those charts going around last year that said four stocks right now are accountable for 90% of the gains in the S&P, whatever it was. And that was through like August. And now we've had a complete sea change. This is a nice segue because the market today, it looks and actually. It looks and acts different to the market, forget about a year ago, even three, six months ago. So Corey Hofstein had this amazing chart showing the great momentum quality decoupling.

What he meant by that was last year, the strongest momentum names were the highest quality names. That is no longer the case. So if you look at the number of names overlapping in strong balance sheet companies and high momentum quintiles, he broke it down by, it's as low as it's been since 2019 in this chart. And Ben, look at the next chart. Somebody said, can you pull this back to show us how it looks longer term? The overlap between momentum and quality is as low as it's been ever going back to 1998.

And maybe what this means is, and if you're looking for like a hole to poke in this rally, it's that the quality names aren't the momentum names. It's maybe more of the junky names, which is like... Okay. So what else? This also means that if you're a portfolio manager or a hedge fund manager and you're writing your Q1 letter to your investors right now, junk stock rally in big bold letters saying, hey, don't blame us. This was a junk stock rally. We don't own crap like that.

Right. Look at the next chart. This is from, I think, A, B. The value stocks, so we've been talking about this a while, value stocks are starting to screen as momentum. So they have a chart showing the number of stocks which screen as both value and momentum. And this drives with the last thing because value tends to be more of the junk, lesser of the high quality. Value momentum, it's as high as it's been really for the last 25 years. It only got higher one time in middle of 2016. I don't really remember what that period was about off the top of my head. But value of momentum, they're working together.

Now, there are a number of reasons for this change we've seen. It's like a regime change. You could say you could point to the election and the fact that Democrats are going to spend more and we have those fiscal stimulus and rates are rising and all this stuff. But I think I've been doing some research on this. I'm going to write a piece. Recessions are huge catalyst for regime change. So people have been wondering for years.

What would the catalyst ever be that would cause value to find the outperform? A virus. That's almost it because we see a recession and then things. So I looked back as far as like the early 70s when we had the go-go years and the 1850 stocks. Yeah, I could have probably with Schiller's data. Post-Civil War was a big regime change. Yeah, you went from railroad stocks to railroad stocks. But so like even in the 70s, you had all the big name Nifty 50 stocks for a while.

And then the 73-74 bare market came in, and after that, small-cap stocks and value stocks just ripped. Same thing happened. We're all familiar with, like, the dot-com bubble at the late 90s, and then the 2000s value stocks and small-caps ripped. But then after the 2008 crisis, it was different, and you had growth tech stocks do well. And a lot of this is because these recessions, you're always fighting the last war, so you get different policy choices coming out of them. So the policy choices coming out of the 2008 crisis were perfect for tech. it was low rates and then you had growth working and now it's looking like high rates worrying about inflation all these things and now it sort of makes sense that you've had this catalyst but it's almost

always the recession that provides one of these shifts and obviously picking the winners coming out it's hard to say like is this going to last or is this just going to be another blip on this thing but it does make sense that there is a catalyst this time that could be cause for change because we could have this more spending we're talking about like a three or four trillion dollar infrastructure bill now and all this stuff, it's possible that we're in a new regime. If you look at some of the stocks that are working well, it's hard, from a trader's point of view, it's hard to get excited about this because they're not what you would think of as the high beta sexy names.

So if you look at what's really working, look at like KSD and CSX, some of the railroads, or look at the home builders, or Caterpillar, the industrials, Alcoa is working, US Steel is working. These aren't names that really get people's juices flowing, you know what I mean? you would prefer to see the Amazon's the Apple's leading. And by the way, if that does happen where Apple, Amazon, Facebook catch up and take the baton back, my God, the market is going so much higher. Probably, right? Because those are the biggest names. If those get their mojo back and they haven't worked in a while. And you know what could help make them work is if some really rich family office decided to buy swaps on them and then really juice the returns. I don't know. I can't

tell if this is a story. Can I tell you something? Before the story, I had never heard of I'm not embarrassed to admit it. What was this term CDF or CFD? What were the contracts that they were buying? Honestly, I'm not going to lie. I hadn't either. There you go. We're not afraid to admit that we don't know everything.

On Friday, I... It's CFDs. It says a contract for a difference. You ever heard that? I never even heard of it. Okay. No, that's a new one to me. Is that CFA level six?

I guess I didn't get there. So on Friday, I sent you, people were saying, why is ViacomCBS? It's down like 50% in two or three days. And I sent you a Slack saying, why is this? what's happening. You said, I don't know. I thought it was Berkshire getting a margin call, but it was somebody else. Come to find out, it's this family office who had $10 billion, and they were levering up their book huge to buy some of these names, and they had pushed these stocks up high. And so if you look at it, so Viacom, CBS, this is a big company. It was

$60 billion. Now it went from 60 to 30 in like three days. But over the previous 12 months, as of a couple days ago, this thing was up like 700%. Then it falls 50%. Now it's up 260% over the last year. So this is the kind of thing where you think, okay, for seller, margin call, you want to dive in, but it's weird that you could see a stock fall 50% in three days and not think like, oh, now is the time to jump in because they had sent the share price so high this year alone that like it was the margin that these people were using shot this stock up so high. And I mean, this doesn't even seem like it's a, it's obviously not a systemic thing. It's screwed with some of these stocks. But again, a simple-minded guy here. If you're a family

office with $10 billion. Why the hell do you need to lever up your book that many times? What is the point if you have that much money? The dust will settle. We'll find out. Why are smart people so dumb sometimes? Yeah, I don't know. It's a great question.

I just, it makes no sense. Is that going to leave this person, I mean, bankrupt? Is that how these things work? I don't know how this works. Is this person going to go from, I don't know if he's a billionaire, but is all his money gone? This is going to be a huge, huge loss of wealth. If you gain 300 percent and then lose 100 percent, Ben, you're not even. Yeah, that fallout.

from this is going to be. And he apparently had some insider trading stuff in the past. And I'm sure there'll be more to the story. But I just don't, if you have that much money, why are you ever using that much leverage? I don't know why you're ever using that much leverage. So my joke on Twitter was, can we call this thing short-term capital management? Instead of local capital management? Zinger. Not bad, right? It's a niche joke, but I'll take it. This is a good clip from the Financial Times. So I guess what precipitated this was they announced that they were doing a secondary offering. I don't think, I don't have the numbers in front of me. I don't think it was just like a giant one either. But here's a quote. From the moment the press release came through

announcing the share sale, Viacom CBS stock began to drop. Shares closed 9% lower on Tuesday before falling a further 23% on Wednesday. Here's the quote from a banker. I don't think anyone saw it trading like this. The capital raise was quote, probably too big. Yeah, probably. In hindsight. Yeah. Maybe they shouldn't have levered up their positions 70% or whatever or seven times whatever it was, it was just, it doesn't make any sense when you have that much money. I'm sure there's more to this story, but I don't understand it. Here's another article thing from the Financial Times. They're looking at active managers, not being in the market. This is an old story. But I want to give you this. 43% of U.S. equity funds beat the S&P 1500 in 2020, which doesn't

sound great, Ben, but that's the highest reading since 2013. Wow. Wow is right. Not a stock Pickers Market. Forty-three percent beat the S&P 1500, which was the highest percent since 2013. Here's an interesting data point. Since we've seen a decoupling or maybe a regime change, I should say, is a more accurate phrase. In February, 70 percent of large-cap actively managed funds outperform their benchmark, which was the best performance since 2007. So here's the thing, I guess. If you have been underweight the fan mag names in any capacity for the last seven years, pretty much had a difficult time beating the market, which that's tough because those are the biggest names and the best performing names. I have a lot of empathy for fund managers over the last

five years. That has not been an easy time to say the least. But if this is a regime change that's here to stay and the tech stocks really do take a back seat, then maybe active managers finally will have some time in the sun, which you know what? I'd be here for that. So if this regime change sticks and you don't outperform this year, then you've got some. Then you've got some. Then you you got problems. You got problems. Yeah, I think. So, yeah, if you were one of these people that just in 2020 went all in on tech after not being in it forever, and now you missed the shift, then it's probably time to hang it up because you missed the boat on both of them. So there's another chart in this article showing the split between active and passive strategies. And this is in

the most ambitious crossover ever category. In 2010, active was $4 trillion. Passive was under two. And now they're neck and neck. Now they're about $8 trillion each. And, you would think at 2021, index funds are going to take the lead and probably never look back. Right. So this says it's mutual funds and ETFs, which makes sense. And I got to imagine that the ETF piece is just going to continue to grow exponentially as well, probably. Like, that's going to be the much bigger driving force here, which is also interesting because now you're getting actively managed ETFs too. But so maybe that helps a little bit, I guess. But what do you think? We've talked to a number of thematic ETF people. Where do those fall in this passive-active thing?

That's a good question. I bet you they're classified as passive. Probably if they're based. This definitely gets close to the Collins argument that everything is active and certainly some truth to that. But you're right. They're going to look back on this in decades and go, why did it take so long for passive to pass active? But anyway, that's going to be the conversation in the future. Those thematic, even though they've been on fire, are still a drop in the bucket. So they're not moving them in either way. All right, here's a good chart showing that Take your tinfoil head off, Ben, and come back to the reality. Earnings growth actually drive this to stock market.

So there's a chart showing the S&P 500 with the S&P 500 earnings per share. And usually when earnings are up, the market is up. When earnings fall, the market falls. Well, you had this thing on Twitter yesterday. Kudos to you. I did. You said the S&P 500 companies have paid up $2.4 trillion in dividends over the past five years. So, obviously, it's more fun to pay attention to GameStop and all this stuff going on to

this family office that's getting margin called the death right now. But the fundamental stuff is still the driver. This is why the asset price inflation always irks me because inflation, like in your spending, purchasing power is a bad thing. But the stock market and your house is going up in price, that's a good thing, totally separate. That's not asset price inflation. That's fundamentals. It's progress.

Usually, over the long term, prices do not. outpaced fundamentals. They usually go hand in hand. Over the last few years, yeah, we've seen multiples expand faster than we normally have. So a lot of the performance and tech stocks have been more due to multiple expansion than fundamentals improving, although I guess you can take that on a case-by-case basis. But listen, this chart, it's just nice to say. Progress. There's no conspiracy theory. Stocks are going up because the businesses, which these stocks actually represent, are growing. Okay, newsflash, people like getting money from the government. So this is from a Washington Post story.

Some people don't like other people getting money from the government. Well, the popularity of Congress is at its height's level in more than decade as stimulus checks at the bank accounts. This is from Washington Post. Experts say this new wave of congressional support is likely the result of voters enjoying getting direct cash payments from Washington. I mean, maybe I'm giving politicians too much credit here because we've obviously seen in the past few years. There's the politicians who just don't ever get it. But if you see this and you know this, how do you, ever turn this off? And how many elections going forward are going to be, I'm going to give

a $2,500 check? Oh, yeah? I'm going to give a $3,000 check. I'm going to one-up you and one-up it. It's like I just don't see. Yes, it is. And so Chamaath did this tweet storm this past week talking about how he's finally leaning into this stuff saying he thinks this fiscal support stuff is here to stay because of this. He had this chart. He said, something I learned today, 1979 was peak inflation. It was also in the gap between the rich and the poor was the smallest. It was preceded by a big wealth inequality between the rich and the poor like today. And the solution started in late 60s with LBJ's war and poverty. So he has this chart. Percentage of wealth held by the top 0.1%. Not the 1%. Not the 1%. I think marked out to this chart, not Chimoth, but it does tells nicely.

It's from 1913 to 2000. And it shows, again, this is 0.1%. These are the richest of the rich. It was at its lowest point in the late 70s, early 80s. Now, you could make the case that. Before we get to the present case, I'm sorry to interrupt. If you look, this chart starts in 1913, and in 1913, the percentage of her wealth held by top 0.1% was basically at its highest level ever. So you can make the argument that the Federal Reserve, which was created in 19, came in and destroyed income inequality. How do you like that? Not bad. The Fed is leveling the playing field. And I'm sure if you went back to like the 1800s, it's probably even higher than this for some of those Rockefellers and like it was probably even higher.

So anyway, so the lowest point in the 70s, and he's saying, like, what if inflation is the lever of the playing field here? And what if that, what if inflation is a good thing for wealth inequality? And I mean... I don't think I buy that at all. I buy it a little, not a lot, because the problem is that period in the 70s was like the worst period for financial asset prices. They did horribly. If you look, it says the 1979 was peak inflation. Tramoth said it was also when the gap between rich and poor was the smallest. But this downtrend was in place for decades and decades and decades, and it just happened to bottom in 1979. I think that's a coincidence, don't you? Or do you? Do you not? No, I do. I think that World War II was the economic anomaly.

Like, we saw the middle class grow following World War II, and I think you had the tailwind going through the 70s, and then it petered out in the early 80s. I do think that it's, it wasn't the 70s inflation that caused this. That was just part of it. But I do agree with you. The post-World War II economy, which created the middle class, you're saying that was the big anomaly. Yes, that was the thing that happened. It created this middle class. There was an affordable housing, affordable education, all these things. You could buy a house on a one-income family. Oftentimes, live in the suburbs. Sponsored by the government. Undered by the government. And that's his other point, I think, is that if we see this continuing spending by the government that goes to the

lower middle classes, maybe that actually helps instead of doing the trickle-down thing, it pulls people up a little bit. But I did want to the inflation thing. I remember that we would have even said this on this show. But The Economist Hour by Bidney Me and Applebaum is from New York Times. Such a good book. Had me right it. But they were talking about how angry people were in the 70s by inflation. So I just wanted to say, like, even if this reduced inequality, people would still be angry. And so here's a passage from this book. So he says, but Americans were losing patience with inflation. People tended to see higher wages as just rewards and higher prices as theft.

They dreamt of what their increased wages could have purchased if prices had just stayed the same. Terry McLellam, a bread salesman from Raleigh, North Carolina told a reporter in 19, 178 that he had abandoned his dream of buying a home. It sounds kind of familiar today, right? He didn't seem to realize that his income had outstripped inflation by 14% over the previous five years. So I think that's what happened. If we did get runaway inflation, it would be terrible. People would still be angry. So, yes. In 1979, you could argue that that was like peak anger between that was stackflation. So no growth and inflation. That's like the worst of both worlds. So even though the percentage of wealth was the lowest in 1979,

That was a dark period in our history. I don't think anybody would be happy if that came back. Yeah, no one looks back at the 70s. I mean, people look back at the 90s. Like, that was the golden years, but not the 70s. But to this, like regime shifts change. So I like this one from Gavin Baker. He said almost no public equity investors or management teams have seen a year of single high digit GDP growth. I certainly have not. Most companies are significantly in this modeled, beginning to see this with recent EPS reports. I think like just thinking through, like if this spending stuff does stick around and we have that in inflation, let's not even like put aside the 70. situation. Like, we've been in zero to two percent inflation for this whole century. What if we're just in two to four percent now? Zero to two percent. All right. Sorry. Okay, the Chapwood index says it's 10 to 12. What if you go from 10 to 12 to 12 to 14? So, but I'm saying, if we go to zero to two, instead of zero to two, it's two to four. That is just a different ballgame. And I think like Goldman even said, like we're going to have seven or eight percent growth this year and maybe even like five or six percent growth next year. It is true. Like, there's so many people that have

never seen that before, experienced it, it's going to cause some weird stuff happening in the markets. You think, like the underlying market. This is why value can have a long way to go. Carl Kintana tweeted, American Airlines is saying, as of March 26th, the seven-day moving average of its net bookings is about 90% of the level experience in 2019. Wow. They expect strength in bookings to continue through the end of Q1 and into Q2. So Chanos tweeted, and yet, American Airlines have a technical analyst on staff doing these moving averages? Several. They have a department.

Chano's tweeted, and yet the consensus 2022 EPS estimate for American Airlines today is no higher than it was last October. The 2021 estimate is lower. So somehow analysts are like the Fed, totally behind the curve here. If you see earnings, surprises, and compressed valuation start to dissipate, this could have a long way. And stock price is moving up. you got momentum, yeah. By the way, this could be the perfect storm. The coup de grace. American Airlines thing? There you go. You love that one. Okay. So if you're a macro tourist in the past few years, you've said, oh, the Fed says there's no inflation. Have you been to the grocery

store? Here's what's going to happen in the next six to nine months. Oh, the Fed says there's no inflation. Have you booked a trip lately? Hotels and airlines and because everything in that space is going to seem so expensive. I mean, I've heard stories already of people trying to book travel for Airbnb and prices are already going way up. So that that's going to be the macro tourist thing. I'm just preparing you for it now. It's going to to happen. That's going to be the big debate over the next 12 months is, is the price rises temporary or is it permanent? I tend to be in the camp that it's going to be temporary unless if you see a sustained increase in wages, then I'll start to get nervous. This is also why this is such a

different recession and why the expectations and how people view this will be so different coming out. I remember it was 2009. I had just got down with, I just got down to the CFA and I passed it. And this is still when things are just still coming off and people are worrying about double-digit recessions again where stock market already bought them, but people were still pretty worried. My wife and I booked a trip to Mexico. We must have paid like $500 a piece for a week there plus flights. And we got like free upgrade. Like it was the cheapest. I'm like, this is the cheapest trip we'll ever take in our lives because no one was traveling. Everyone was hurting financially. We booked the thing like 10 days before we left. Now coming out of this one, it's totally different.

And that's why just like the reactions to this one, I think are going to be so interesting because this is not going to be anything like that period coming out of the last crisis. I mean, it already isn't. Let me ask you a question. I haven't really fully thought this through, so I might get dunked on terribly. You know this chart that we've often discussed? So the chart that shows that millennials have less money at different ages than Gen Xers and certainly compared to baby boomers, like a fraction of the money.

Is this because proportionally were a smaller percentage of the population than boozeers? boomers were at this time, but I'm going to take the other side of what I just said, because aren't millennials like the biggest part of the population right now? So here is where the gray areas in this chart, personally. So this shows baby boomers in their 30s had way more money proportionally than millennials do now. When the baby boomers were coming up, this is getting back to the 70s and 80s stuff we're talking about. They didn't have their own boomers ahead of them. Like the big generation of two generations above them was not a huge part of the population that could control a lot of wealth. So the baby boomers forever,

were the biggest part of the population, plus they had the tailwind of the high interest rates in the early 80s and low valuations and prime earnings years and all that stuff. So it's kind of a thing where, yes, the millennials are behind, but also the baby boomers had a bigger percentage because there wasn't a huge generation above them that was sucking up assets like they are. Does that make sense? I think so. I'm also expecting millennials to break out in the next few years. Look at Gen X. Gen X was really low for a while, basically on the same trend as millennials. And as they hit their late 30s, early 40s, Gen X broke out. I think the same thing's going to happen to millennials. I agree. I think so too. But I think part of it is baby boomers were just

very, very lucky. The timing of them, of their generation coming up, I think so much of that was just luck. They got their perfect place, right place, right time. So let's do the real estate stuff. Wasn't there an article, Ben, about a shortage of houses? Oh, I sent you one this weekend that was in Business Insider. And it said a $400,000 house in California. got 122 offers in two days and said it sold for an undisclosed amount of money, but probably over $500,000 for a $400,000 house. Like, yeah, it's getting pretty crazy. All right.

Yesterday I was outside and somebody gets out of their car and says, can I ask you a question? And I said, of course. She said, are your name- And you said, buy Amazon. Do it. But keep a type stop. She said, are your neighbor selling their house? I said, I don't think so.

She said, because the house was on the market. I keep trying to get a hold of them, but I'm having a difficult time. I said, yeah, I think they just listed their house, but they didn't know intention of selling. They just wanted to see if they can get a ridiculous ask. She's like, okay, well, do you know anyone else who's selling their house? Because I'm a real estate agent. There's no inventory. I'm trying to find houses for clients.

So, yeah, there is a housing shortage. At least, I guess this is not just an addict data, although it's an addict data supporting the actual data. I've heard people getting calls some real estate. or individuals saying, is your house going to be for sale? Before it goes up, I'd like to get an offer in and trying to get ahead of it. So you combine that fact with the fact that rising lumber prices have added $24,000 to the cost of building the average single family home and about $9,000 per apartment. And people are saying like, oh, housing prices, I don't think anyone's saying housing prices have to come down. I'm not suggesting anybody chase housing prices. But if you're

waiting for a pullback, I don't know. I mean, this is a really tricky spot to be in for people. this is the most common question that we get. What do I do? I'm trying to buy a house. By the way, we haven't really spoken about housing prices in Canada, but apparently they're like just beyond, beyond, beyond bubble. We get some really good emails from people in Toronto and Vancouver who give us the anecdotes. And then saying like, so actually someone, we talked last week about how it's kind of crazy that there's more realtors than houses for sale. But it was like almost a one to one ratio, like a 1.2 to 1 ratio. They were saying in Toronto, it's like 9 to 1. It's some ridiculously high number. and they're like, welcome to our world where it's even worse and crazy. I guess maybe the hope is these higher costs and maybe rising mortgage rates, if they continue

to rise, would slow things down a little bit and maybe you'll have more supply come on. But I wouldn't want to be in the camp of trying to time this, though. Here's maybe a good piece of housing prices or rising data for you, Ben. Bill McBride showed new home sales by price. And basically, houses under $200,000,000, are, are essentially going away. Does this mean that the starter home is going away? Because I think you've been an advocate of starter homes potentially setting people back more than they realize. And maybe that's the biggest thing for people is buy a house you're willing to live in for

seven to 10 years. And I think that can help smooth that out a little where timing it if you're a year or two off is not going to make as big of a difference. But if you're trying to time this thing and get into a house like it's a stock, good luck to you because I would not want to be doing that, especially with the frictions and costs involved in the buying and selling of a house and closing costs and all the title insurance. Oh, speaking of, great. Someone DM'd me. I'm selling my property and the buyer said that, bro, bro.

I'm sorry, I got bro. Don't bro me if you don't know me, but I like, this is a kind of funny. Bro, I'm selling my property and the buyer said that title search revealed two outstanding mortgages, i.e. mine and another. I got freaked out, but apparently the previous owner's attorney never filed a lien release at the local government office. If I didn't have the title insurance, apparently it would have taken months to close. Basically, the title insurance covers situations when I,

lawyers mess up. Glad I had it. This just happened. So you and I spoke about, like, what is Teddy Insurance even? Well, this is what it is. But my point is, the window has to be closing on this industry. How does blockchain not fix this? I agree. The thing that interests me about the blockchain in physical assets, like if cars are going on blockchains and houses, like I understand how blockchains were- Proof of ownership. Isn't that what it's built for? Yeah, it is. But I mean, this kind of stuff, yeah, contract, I guess. But how does the blockchain contract get resolved any quicker than a lawyer messing up, though? Because I understand how blockchain can work for NFTs and the transaction of Bitcoin and Ethereum, but if you're talking about a physical asset and you have your house on the blockchain and it's tokenized.

It's so much more efficient. It doesn't have to be teams of lawyers involved looking through papers and documents and files. If it's on the blockchain, boom, it's just right there. Bro, bro. But what's the difference between a blockchain ledger contract? A contract's on a PDF, it can be on a computer. How is that really that much? That's what I'm trying to decipher how these contracts are probably could be from the 70s and 80s.

But a physical asset on a blockchain. You have to go to the town, go through the records. Come on. Are you really going to stand in the physical world? You're on the wrong side of history, son. Okay, no, I'm just saying a physical asset on the blockchain. It sounds interesting in theory, but you can't just reverse a trade and all of a sudden the house goes the other person automatically because it's online, but it doesn't work like that because it's a physical asset. You'd still have to get all these parties involved to ensure the blockchain. Like, I agree, like stuff like getting a not the dumbest thing ever. Like how has the blockchain not just done away with notary publics as a thing? Why does that still exist? But I just don't know

if you still have all these layers of people involved, are any of these people who have set up this system going to understand the blockchain and how it can actually decide, like, how many years is it going to take to teach the real estate industry what this even means? That's where I'm, like, how do the regulators keep up with this technology? That'd be my worry, is that the technology people understand it, but do the regulators and realtors and lawyers? Digital ledger. Okay. All right. So I'm going to own like, I'll buy like 5% of your house and I own like the washer and dryer or something in your laundry room. Sorry, that's not for sale. That's not for sale. That's not for sale. Okay. John Street Capital, which is a really good newsletter.

They're like Paki. They do the similar stuff for Pocky. It's very good. So here's some stats from this excess of everything piece. In the past 12 months, there have been over 10,000 companies that have raised $200 billion plus of VC funding. Per pitch book, there have also been over 650 venture funds raised during that time period. Seed rounds raised at a median of $2.5 million into 10.5 million post-money valuation in 2020. compared to 1.8 and 8.25 in 2017, 1.3 and 7 in 2015, if you're a startup and you can't get funded right now, that's got to be tough because anything and everything is getting funded right now. There's so much money sloshing around in that space. There's another one that,

remember, there was 10 days or so where we were worried about like all startups being vaporized last March and being like, how are they going to manage? And then that passed and then it was kind of, okay, off to the races. Reg A platforms that offer fractionalized access to alternative assets. So like Raleigh Road, for example, they had 192 offerings and a $49 million market cap last August. Today, there's 500 offerings and $150 million of assets. Wow. Okay, do the trading card one here. All right. So from Golden Auctions, prior to 2020, there were only 10 trading cards that ever sold for a million dollars. Earlier this month, Golden Auction had five cards sell for a million in a single night, a $5.2 million Mickey Mantle, a $4.6 million.

Luca card and a $3.9 million Mike Trout card. In August of 2020, Raleigh had 106 offerings with a total market cap of $12 million. Today, it's 228 offerings with a market cap of $28 million. And you know what's kind of interesting? Sounds still very small. In the grand scheme of things, if you look at other assets, I agree. It's still pretty tiny. So if trading cards can just get to gold's market cap, what's gold, $12 trillion? dollars. So that means that this Luca card could be worth $11 billion. I guess just back of the envelope math there. I mean, I whatever. I started, I collected cards in the 90s and stuff, but there just wasn't a market for it. So maybe that's part of it. Obviously, there's this speculative

boom piece of things, but the other part of it is just that it wasn't really a thing before that you could so easily price these things. Speaking of speculative booms, NBA Topshot is releasing two and a half million packs. So there goes the scarcity. Oh, they're just going to flood the market. Two-half million packs. It's a lot of packs. I guess why not? I told you the other day. I think I'm on about day 27 of trying to get my money out of the blockchain, whatever, on NBA Topshot, which, yeah, if NBA Topshot is your blockchain to real estate, then we're in for a world of hurt because I'm on day 27 of trying to get my money back. And instead of giving my money back, they just gave me $50 worth of NBA Topshot currency, whatever the hell that means.

Nice. Dapper flow. So, yeah, I have money in dapper, but my money is just gone forever into the ether. It's not gone forever. You'll get it back. All right, here's, this is a good one. SoFi is making it eligible to participate in IPOs. That's kind of cool. Obviously, they have to execute, but I like that idea. As is Robin Hood.

I think Robin Hood may have made the, they probably made the announcement on like the same day. Wait, hang on. We're talking about different things. I don't think SoFi is making people eligible for their IPO. I'm saying so-fi is going to allow people to participate in IPOs. Yeah, broadly speaking. They are? Yeah, this is from C&C.

Robin Hood is building a platform to all users to buy into IPOs. This is not just its IPO, but into actual IPOs. Oh, when did this get announced? This was last week. I sent you there. I missed that. Oh, very cool. You thought it was Robin Hood in their IPO, but it is actually IP.

So that's why I think both of these places are working on this simultaneously. So instead of going through Morgan Stanley or Merrill Lynch or whatever to get IPO shares, you're going to be able to buy IPOs at the IPO price on SoFi and Robinhood. I love it. So again, this is the democratized investing thing. Part of it is actually good for them, I say. Okay. They're making things happen.

Okay, Robin Hood. I think what did they say? Sofi Robin, I think one of them said, like if you have over $3,000 with them, you're going to be able to do it. So I don't know if they're going to allocate based on how much money you have or whatever, how that's going to work. And you wonder how quickly these things fill up. And yet nearly 50% of Americans now say the stock market is rigged against

them. All right. Survey time. What? I thought that was a pretty clean transition on my part. You don't have to make an announcement. All right. Axio. Well, this is Axios. Nearly 50% of Americans now say the stock market is rigged against individual investors. New survey from bank. You just stepped all over my segue. I thought I nailed it. Okay. What do you want for me? Just, oh, all right. I know what you're looking for. 13% disagree to the idea that the stock market is rigged against individual investors and 5% strongly disagreed. This will all you do the case, I guess. If you were part of the survey, which box would you check? The stock market is rigged against me, so I'm going to put all my money into NFTs.

That'll do it. I don't know. Which box would you check? I'm in the camp that the stock market has always been rigged in some ways. So which box would you check? Do you strongly agree that the market is rigged? I would still strongly disagree because I think the individual investor has the biggest advantage of all in that they can be patient.

And patience is the ultimate divider between the rigged stuff working against you and for you. How about this? The stock market is rigged, in some cases, but it's not rigged against you. Rich people have certain advantages that you don't, but just because they have advantages doesn't mean that you're at a disadvantage. I actually do think in some ways- In fact, if you're rich, you don't have the advantage of blowing up a $10 billion family office. They won't give you contract for a difference or whatever it's called. But I just think that like sometimes the pros are at a disadvantage because they are benchmarked and they have to answer to people and they have clients and they

have short-term benchmarks and stuff to hit that they have to worry about. They have window dressing. Individuals don't have to worry about that. So if you can have some patience and use a stock market as this long-term wealth builder, then I think you have an advantage. And that's where it's rigged in the favor of the investor. This was interesting. Those with higher levels of education were most likely to agree that the stock market is rigged. Oh, really? Wow. It says 50% of those with the college degree more. Also, Americans with a higher income were also I'm more likely to agree that the market was rigged. These must have been value investors that they surveyed like the poor value.

That's all I got here. All right. This is from the Wall Street Journal. High income tax avoidance is larger than we thought. So this is a paper. SMA said the top 1% of households failed to report about 21% of their income with six percentage point to that due to sophisticated strategies that random audits don't detect. This is why a wealth tax will never work because accountants and wealthy people are way better

at hiding stuff than the government isn't finding it. That's a really high number, though, right? You know what fixes this? Blockchain. Yep. You are now more bullish on blockchain than Bitcoin. You're back to that trope again? It sure seems like that. I read blockchain for the articles. Speaking of blockchain, Eric Jorgensen, is this a soft jay like jogging? I think it might be Eric Jorgensen. I'm going to go with Jorgensen. I have been watching the show on HBO Max about the hockey team in Sweden. Good? Yeah, Beartown. Not bad. all right so eric did a thread on ethereum 101 and i just wanted to read a little bit of it he said unlike bitcoin ethereum has a complete programming language inside it so programmers can write code and make

apps on ethereum the combination of perfect security with executable code has created smart contracts and lead to many new kinds of apps smart contracts are like having a robot lawyer live in a computer This robot lawyer can observe, validate, and execute agreements between total strangers, perfectly, cheaply, millions of times per day. With Ethereum, for the first time, you can trade with someone you don't know or trust, if you both agree to the code that determines your agreement. If this isn't an oh shit moment, think about how much time, energy, and money we spend preventing fraud, protecting ourselves, achieving trust, and recouping losses.

So, I don't know, Ben, the idea of a robo lawyer sounds pretty cool. This whole explainer, which is done very simply and made a lot of sense, is one of the reasons that initially in like the 2017 version of crypto, I was initially turned off because like the smart, common sense voices in this space get drowned out by the promoters and the people who just want you to buy Bitcoin because the dollar's going to collapse. We're going to hyperinflation in the people that just want to tokenize the world and Bitcoin's going to a million. And they don't really take their time to explain like what is actually happening here and why it makes sense. And maybe there are voices out there like that and there are some more coming to the forefront now. But. they get drowned out by the promoter class who just wants to say, like, if you don't buy Bitcoin, you're an idiot or you're going to be poor. And so it would be nice if there were more level-headed voices like this that could take time to explain it to people instead of just beating them over the head with price targets all the time and saying if you don't own it, you're an idiot. Anyway, I think that that's happening. But I think that's what makes me enjoy the crypto stuff this time around more than last time because there is more thought behind it. I feel like this time

than there was the last time around. Okay. This is from Go banking rates. And they wanted to know by state, how much money do you have to have, like, how much money you have to make to afford a new car? And they said the average salary needed to afford a car across all United States is like $82,000. Jeez. Wait, what? 82,000? Okay, they break it down by gas, repair costs, payments, registration fees, and then they give the total cost. I pull out the Michigan one, and it's like $82, $83,000 a year. And they use like a percentage of your total spending for this. And then they say that basically the assumptions are like the average MSRP of a new car is like $37,000. That's a lot. Jeez. This is what irks me about the car thing, right? I don't want

to spend chain people. I always say this, but like not everyone needs like the top of the line $40,000 car. You can get a new car for half of that or used car for half of it. I think that's the problem. I think people don't realize how expensive cars can be when you add it all up. If they're taking these assumptions and you say like, gosh, that's so high, maybe that means like you shouldn't be buying a car that expensive because it can eat up a lot of your money. Wow. I'm just, I'm pausing to process it. That's a big number. It is a big number. And by the way, here's something I've noticed. Back in the day, like the status car de jour was a BMW probably. Yeah. When you say Bemer, like back in the day. Now that that's common. It doesn't mean anything. Here's a new status symbol.

If you look at it, you'll see it everywhere now. Land rovers and Range Rovers. That's what I was going to say. In my community, it's Rangerover. Yeah. That's the one you see. where it's like, if you want to prove your status, you drive one of those. No offense to anyone who drives one of those, but that's it. That's the status symbol these days. It's funny. I was talking about this with Robin the other day because we passed a gigantic house and they had regular cars in the driveway.

And it's like, well, that's what, like, there's no blueprint. Everyone's different. But like a lot of times like real wealth, like you want the opposite of a status symbol because you don't need to show a car for people to know your rich. If you have a giant house, they already know. That's the millionaire next door thing. They drive Toyotos and Ford's. So in my town, you see a lot of times, like regular houses, but there's,

like an Aston Martin in front, or maybe not an Aston Martin, like a Maserati. And it's like, wait, what? What are you trying to do here? But, all right, listen, to each their own. That's overgeneralizing, but I think that is a good sign that someone does not know how to take care of their finances. I think that's a fair assumption, right? Not to be too judgmental, but yeah. Yeah, come on. Okay. All right. Last thing, the average Wall Street bonus rose by $10% in 2020 to $184,000. So if you're wondering why young associates are putting up with crazy weeks and working to their bones break. Well, this is why. Okay, so stop whining, Goldman Young analysts. $184,000 average. We had a guy come on on our Twitter spaces last week to talk about

said he is invest in banking. So again, we're still doing that every Wednesday at four. And he said the hardest part about this year is that you don't get like the camaraderie and stuff you get going to the office because you're working at home, which I would have thought it would have been easier to work from home for this stuff. But I guess maybe the assumption is if you're at your desk all day, then you have to be working all day. Especially as a young person, I can see wanting to be more in the office than not. We're getting buried in listener questions. We're going to do another episode dedicated to them quickly.

We're getting so many good ones. One of my main questions, how would you suggest getting noticed by a larger amount of people? This is someone who's writing a blog. I don't want to be that guy replying to every tweet telling everyone in Finn to it to check out my new blog. I'm sure if my writing is good enough eventually I will get noticed via the six degrees of Kevin Bacon concept. I'm currently posting on my LinkedIn, social media each week. But just curious, how would you suggest potentially improving my reach? I have an answer.

In the beginning, you don't want reach. because no offense, but unless you're like Michael Lewis, your writing probably sucks. So if you could spend a year or two honing your writing and getting better and before you throw it on to the world, that's probably a much better approach. And I understand that it's probably going to be, it's frustrating. It's difficult to write when nobody's reading it, but that's probably your best bet. Now, once you've crossed that period of time where you actually are proud of your writing and you want to share it, this is tricky because you really don't want to be that person who's

like, hey, I want to read this. But listen, the best way in the back door, and Jamie Catherwood did, this was super annoying about it, but very effective, was if you mentioned somebody, say, hey, I loved your post and I references it, maybe that's a good way to get him through the back door. But definitely, just to blast it out, that almost never works. I love Jamie Catherwood, by the way. And I would never go into the idea of writing with the idea that you're going to get an audience. If that's your goal, you're going into the wrong goal.

You should write because you love to write or you love the topic. I agree. My first six, nine, 12 months, I had friends and family reading myself. That's it. You can find a bigger audience when someone else already has a big audience and they can share it. And that helps. Like I reached out to like Josh, eventually, and he kind of helped. But I agree with you. Writing is like a muscle that you can improve on if you're not just this excellent writer from the beginning. And like you should take your time and do it on a regular basis. But figure out if you like writing in the first place that you're going to do it. And I think the other part is do it on a set schedule. Because if you can't show up and do it on a weekly basis, a biweekly basis, two times. whatever it is, if you can't do that and people don't understand that, like, they know your new stuff is going to come out at a certain time or a certain day or whatever on a regular basis, then they're going to drop off. There's a good quote.

I forget who said this. I only write when inspiration strikes. Luckily, for me, it strikes every morning at 8 o'clock. Basically, you just have to show up and do it. All right. Recommendations, what do you got on? We watched the movie Minari this weekend, which is an Oscar one. I'm checking off my Oscar list.

I think out of the ones I've seen, we've said, like, this is the worst Oscar year ever, probably. I think this one should probably win. Really? Okay. But is it a foreign film? Because Parasite won't do it. It's a subtitles. So, yeah, you're right. I wonder if they won't do that because of that.

But it's a South Korean family that moves to the United States, and the husband's dream is to start a farm. And they're like in the middle of nowhere. And it's just, it's a very serious movie, kind of heavy it sometimes. Definitely, I would call it a film more than a movie, you know, the difference. But it's got this great relationship between this old grandma and this little kid. So many really funny lines. I thought it was really good.

It is subtitles. But it's one of those things. I feel like 15 or 20 years ago, anyone who's making a serious film decided, you know, at the end, let's just leave it kind of open-ended. And we're not going to tie everything up in a nice bow. Sometimes I want that neat bow. Like, why can't they just give it to you? So that's kind of the ending. I'm a bow guy myself. By the way, I can't believe Nomadland might win the Oscar. Yeah. So if I'm picking between this one and Nomad Land, this one was way better than Nomad Land by far. And it just is good of acting.

In 50 years, if Nomad Land wins, it's going to be the most forgettable Oscar. Maybe Moonlight, but. It was just kind of a, eh, okay, I guess we watched that or something. Yeah, Moonlight won, right? Yeah, yeah, that was just okay, too. All right, I got sucked into funny people this weekend and watched it. No good, I like that. I like that movie.

I like funny people, too. Oh, well, you said you got sucked in like it was a bad thing. Oh, I'm sorry. I got sucked in and I like, okay, I got to keep watching this. I thought you meant you got roped in. Okay, yeah, no. So the last 45 minutes of the movie probably could have been completely cut out or at least 90% of it, but like the first hour and a half.

With Eric Bana. I think it's not his. best movie, but that might be like Sandler's best performance as himself, because he's the kind of guy who I don't know, 90% of his movie just plays himself. So this got me thinking, who plays themselves in the most movies?

Adam Sandler, Ben Stiller, or Seth Rogan, where they basically are just playing a version of themselves. Maybe even if throw Clooney in there. Who does it the most? I would have liked some preparation on this. I'm just throwing your curveball here. Who plays themselves the most? I came up with Sandler, Ben Stiller, and Rogan. Seth Rogan. That's

kind of where I filled on it, too. He basically, but the Thanksgiving dinner scene in that movie with Seth Rogen and Jonah Hill and Aubrey Plaza and Sandler and I mean that's just, that's a great scene. That movie was the first time I saw it I didn't love it and then it gets better to rewatch. Okay. One more thing since we're

on the whole, we're done with the Suez Canal thing now that the boat's moving today. But I think I might have mentioned this book for it. It's called The Box, how the shipping container made the world smaller and the economy bigger by Mark Levinson. It's an older book. It's probably like 500 pages, way too long. It could have been like a substack or a podcast. But it's really interesting how

like someone had the idea of doing these shipping containers and how it basically changed the world of trade forever. So a very interesting concept since we're on that idea these days. By the way, Ethereum's of 8% today. That rubble lawyer idea is catching on on the blockchain. Okay. So your Paris trade is long blockchain, long Ethereum. All right. I watched crashing three seasons, and I loved it. I thought it was so funny. Like Pete Holmes just plays a nerdy, religious comedian and a lot of dad jokes, but like really well-ridden. Lots of good cameos, right? Tons.

It made me miss McDougal Street and the seller and all of those comedy shows, and I cannot wait to get back. That's a strong recommend. I really enjoyed that show. I like that one, too. It's very solid. I spent the week watching Justice League. How long was it again?

Four hours. So it's got like six parts. I mean, I can't imagine sitting for four hours. I literally watch it. I probably four or five sittings. It was very gritty and well done. and I have to say it is exactly

the same plot as Avengers like literally from the characters getting together to the bad guy that they're fighting it is Avengers except it's DC

but it worked remind me but this was a movie that was released as like a two-hour movie and then they re-released it as this longer cut I might be getting this wrong

what I believe happened was Zach Snyder started the movie and then something happened in his personal life where he went off the movie and then they recut it and had somebody

coming after to finish it So apparently the Snyder cut is like a 180 degree difference than the one that actually came out. Okay, so it is a little different then, not just longer. It's like, it's a different movie. So if you were on the fence, I would encourage you. It's not going to be one sitting, but it was good. Like it was actually, it took a while, but it was good. They did well.

Okay. All right. Last thing. Miss Sloan, political thriller. Jessica Chastain. You ever see that one? No. Yes.

Amazon Prime? I think I watched it on Prime. Yeah, it's a good movie. I enjoyed it. I'm a political thriller guy. You had some courtroom drama, some twist, some turns. I do like Jessica Chastain. She's good. Who doesn't? She's terrific. So that was good. All in all, it was a very solid week of screen watching for me. Next one. Nick's won a few big games. We're back. Are you excited to get back to the Garden at some point? Actually, I am. Yes, I am. Can you re-up your season tickets? That's God. I'm never doing that again. I should never say never, but that was probably a one-end-dum.

There would be asset price inflation there. Yeah, that was a one-end-and-done. One more thing again on Twitter space is on Wednesdays at 4 Friday, we're going to be talking to our old friend Phil Perlman, hopefully on like the psychology behind crypto. We'll see if he's as big of a fan of blockchain as Michael is. May have mentioned this, Phil was the one who introduced us, correct? We all had dinner together in New York. Do you remember this? I couldn't remember if it was you or Phil that put that together. No, Phil put that together for Yahoo Finance. I think we had an online relationship previously, but this made it more formal. In person, he brought us together for a dinner. Okay. That's my recollection of it.

Yeah, I kind of remember. That was a long time ago, 2013. Probably. Maybe 2014. So that should be fun. That should be a good conversation. Check out on Friday. Animal Spiritspod at gmail.com.

We'll talk to you down.