Animal Spirits Podcast - The Beanie Baby Bubble (EP.192)

Episode Date: February 24, 2021

On today's show we discuss the collectibles boom, similarities and differences to the Beanie Baby boom of the late-1990s, NBA Top Shot, ISAs for pro athletes 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 DPL Financial Partners. DPL Financial Partners is the first and leading turnkey insurance management platform for registered investment advisors, providing a marketplace of low cost, commission-free annuity and insurance solutions from some of the nation's top carriers. As a member of DPL, advisors can more holistically serve their clients with pricing and fiduciary implementation of insurance and annuities, ultimately delivering greater benefits to the financial plan and improving retirement outcomes. So we'll link to DPL on the show notes.

If you're interested, Ben and I did an episode with David Lau a few weeks back to dive deeper into how they work with advisors. So check that out. We'll link to that in the show notes. 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 Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. To start off today's show, because we're going through this strange collectibles boom, I want to talk about one of my favorite bubbles of all time, and it's the Beanie Baby's bubble. And so there was this great book by a guy named Zach Bissonette called The Great Beanie Baby bubble. And I just want to go through some of the stats. It's crazy. So this one was probably the one that blew my mind the most. Hold on. Do you remember the Beanie Baby bubble? At the time, no, I wasn't

paying attention to stuff. I remember them being popular. I didn't know it was such a crazy bubble and that it was people speculating on them. Right. Me either. I don't remember that either. And was the bubble on eBay? Where was this taking place? So eBay was just getting started then. At the time in 1999, Beanie Baby's accounted for 10% of all sales on eBay. Elon Musk again at the center. You pay $2 for them or $5. They immediately went to $30 in the early 90s and then by like thousands of dollars later. So I want to talk about how this Beanie Baby Bubble reminds me of some stuff going on today and why it's different. So basically what happened is this guy named Ty Warner who started it.

He had this idea that came from some trade shows that to make these things more valuable, you retired them. You put scarcity on them. So they figured out, okay, we retire these products, say they're only going to be a small number and people will want them more. And so it started out as this thing. It was kids wanted them. and then they created scarcity, so they said, oh, wait, there's a market for this. This idea of scarcity, which is being used in things like cryptocurrency now, actually, I guess dates back to like the 60s. This guy, Joseph Siegel, who started QVC, he started putting out

these commemorative silver coins. And he'd only do a limited number. And so it would drive up the demand. From Zach's book, there was this great piece about how there were these decorative Christmas plates that he sold. And the Wall Street Journal had an article in 1971. There was a nasty bear market in 1971 from like the nifty 50 stocks about how, like, grandma's, who bought up these plates outperformed stock pickers because they're trading these Christmas plates and because there were so few of them. And so scarcity is the idea. And they turned it into collectible. It started out with kids. And then all of a sudden, I guess the term soccer mom, according to this book, came into the lexicon in 1995. And they thought that it was like

soccer moms. And there was actually a research report written about this that soccer moms had this ethos of encouraging consumerism to like balance out their work life. Started trading them with their daughters and their sons, bored soccer moms, got this thing going. And the company was based in Chicago, and that's where it started as these moms in Chicago got it going. And it just took on a life of its own because of the scarcity and people wanting them and then restricting them. At one point, they had $100 million worth of Beanie Baby inventory, this company, sitting in a warehouse that could have been sold, but they decided to hold it back and retire them because they were pushing the scarcity angle. And it pushed it up and it pushed it up. And they said, once they had it started

of having auctions and eBay came into this auction. They said that all these professors have writing for decades about this tendency of people to overpay at auctions and that effect is most found in novices because they see an auction and it almost creates a new price for it. Now you're heading a little too close to home. Yes. And here's the other thing though. They said the year after outside experts, this is like 98 predicted Beanie Baby Fat had peaked. The next year their sales doubled this tie place. So not only were their sales like going crazy, but then people were selling them for more in the aftermarket. And the, the place who was making the Beanie Babies, this toy company, was pushing them up. They were

liking this, obviously. They were pushing for it. And so the prices started defying reality. What sort of prices are we talking about here? Thousands of dollars for a $5 beanie baby. People were becoming millionaires. They were talking about people paying for weddings, vacations, all from selling Beanie Babies. And these people, the craziest one to me was, this is before self-published books really hit the market. Like, there wasn't a self-published book back then. But there was one called the Beanie Baby Handbook, sold more than a million copies in its first year. And it was a mainstay in the New York Times bestseller, and it was a self-published book.

This is all word of mouth? Internet helped. Yeah, it was word of mouth. People hearing others get rich. And then, of course, it happened during the dot-com mania. So that mania-like thinking was already in play. So you've got this confluence of events coming together at once. And it's just these little stuffed animals that they made scarcity like that was created out of thin air. And then all a sudden it ended. Ended in 1999, which is actually before the dot-com bubble. But it was just there was so much demand once the casual collectors couldn't get this quick price appreciation because it just stopped. There was no more people to come in. The momentum dried up. And then it

fell. And then of course, whatever, 99.9% of them dropped below the prices that they were selling for. And it went away. But the whole idea behind it, the scarcity, the magical thinking, the fomo. They talked about how, like, you would have a checklist for these things. And the people who became collectors, they're talking about how it started out as like kids who would wait at toys or us to get these and be all excited. And then the next thing, you know, two months later, it's all these 45-year-old single men who live in their mom's basements waiting in line for these things. And it sucked the joy out of it, but it became just this thing where you just traded these around. And there's a lot of that going on in the collectibles boom today. It's

going crazy. So someone sent us this email. This is from a listener named Grady. He talked about how garbage pill kids have been on fire lately. Some 1985 garbage pill kids, you could get it for $300 back in the day at the beginning of 2020. Now it goes for $4,000. What's a garbage pale kid? You don't remember Garbage Pail Kids? It was a show... It was a show from my youth in the 80s. Michael Jordan Rookie Cards are selling for $740,000. This stuff is going crazy. You have these NFT things that you and I have been talking about a little bit and you've been dabbling in. It's interesting to see the parallels. And I also think that it doesn't necessarily mean that this is that crazy.

So Mark Andreson was talking about this on his A60Z podcast. And he said, listen, these things seem crazy right now and they probably are. But people are crazy, basically. He said, like, you pay $200 for a pair of Jordans that probably cost $5 worth of material, a few dollars worth of labor, maybe. People make decisions based on emotion all the time. So you can, like, roll your eyes in the back of your head and call this stuff ridiculous. But this is just kind of humans being humans. And we shouldn't be surprised when this stuff happens. There's something called Cryptopunks.

Now, hear me out. There's only 10,000 of them. Does that's not familiar? Of course, isn't it? There's only 10,000 uniquely generated characters. They look like cartoon characters from DOS. I mean, these are not high-tech. It's a pixelated image.

Yeah, they look like they were made in the 1970s. There's like 700 cryptopunks with cigarettes. Those are incredibly valuable. Anyway, there's 10,000 of them. They're making the scarcity argument. It sure seems like there's an abundance of scarcity these days. But the lowest one currently for sale is, I think, around $40,000. And by the way, these are not fractional shares.

People are buying the whole thing. The highest one is $2 million. Part of this is there's way too much internet funny money. going around right now, right? There's people with lots and lots of money from this crypto boom and from trading and whatever it is, just floating around there and they're spending it on this stuff because, I don't know, it makes them feel good or they're trying to trade up. There's a few different reasons, but it is wild how similar it is in some ways to the Beanie Baby. And the other way is that it's this new technology thing that people are excited about. And so maybe who knows

what it leads to, but there could be something like that where this is this whole new category where people are creating and trading digital art or whatever it is, as much as you maybe don't want to believe that's a thing. Obviously, for some people, it is. I feel like Packy McCormick is on like the same schedule as us. I feel like every week he's writing. I know it's not just for me, but it feels like everything that I'm interested in he's writing about. He did it again. In an article this morning, it's Monday morning. I don't know what he called this. Let's see. He called this Power to the person. There's three themes that he talks about a lot. Quoting Packy, a main not boring theme that genies don't go quietly back

into bottles. That's a good one. Chris Dixon's famous line that, quote, the next big thing will start out looking like a toy. We're certainly seeing that with these crypto punks. Number three is Ben Thompson's idea, who also wrote about NFTs. Did you read that piece yet, Ben? I didn't take a look at it yet, no. Ben Thompson's idea that the media business are the first to adapt to new paradigms because of their relative simplicity and others follow later. So in this post, Paki was getting at the fact that we are on an inexorable march towards individual. mattering more than institutions. Those are his words, not mine. He said, within two decades,

we will have multiple trillion-plus dollar publicly traded entities with just one full-time employee, the founder, which seems hard to believe, but maybe that's where we're held to you. So that's like what are the Jenners or Kardashians probably? I guess so. Substack just announced that there are over 500,000 paid subscriptions, and the top 10 writers collectively make over $15 million. When we do this show a little behind the scenes of how we do it, we have a Google Doc that we put stories in every week that we want to talk about and we include charts and some quotes and such. As of, I don't know, eight or nine months ago, we didn't have a section.

We had the economy and real estate and markets and personal finance and then some random. And then we added, of course, COVID last year. And then one of them we added was speculators, probably six months ago. And that one has been probably our most full. in that time, right? Every single week. This is all speculation. And I guess my point here is, I don't know if any of these things

are going to be anything, but I don't think we should be surprised that this happens, just because people do stuff based on their feelings all the time. And I think now more so than ever, especially when people are bored and there's nothing else to do, if it gives them a sense of some sort of joy,

I guess it makes sense in that sense, even though it should make sense that someone can just make something like that, and then it just goes crazy. Let's just talk about what these things are. These are called non-fungible tokens, NFTs for short. You're going to be hearing a lot about them. They do have some utility.

So this is primer from CoinDesk. They said, for artists being able to sell artwork in digital form directly to a global audience of buyers, without using an auction house or gallery, allows them to keep a significantly greater portion of the profits that they make from sales. Royalties can also be programmed into digital artwork so that the creator receives a percentage of sale profits each time their artwork is sold to a new owner. So I'm reading that. I'm like, oh, wow, that's really, really cool. Okay, that makes sense to me. And then the next paragraph, this made me laugh. William Shatner, did you read this? William Shatner, best known as Captain

Kirk from Star Trek, ventured into digital collectibles in 2020 and issued 90,000 digital cards on the wax blockchain, showcasing various images of himself. Each card was initially sold for $1 and provide Shatner with passive royalty income every time one is resold. Okay, so I don't think Bill Shatner needs a passive income, but for artists, I think this is a pretty cool thing. So the hottest non-fungible token these days are what's called NBA Top Shots. And I think we spoke about this in past episodes. And I got to be honest, I'm involved and it's a lot of fun. And it's completely ridiculous, but there's also something there.

I just think it's hilarious that you didn't become a day trader through this whole thing. You became a guy who's selling gifts of NBA players. Here's the question, though. You talk about art. So this is from the Beanie Baby's book. So someone said in the late 90s, prices were going bananas, and this person said, if this hobby continues to grow, as we believe it will, 10 years from now, even today's shocking high prices may seem low.

After all, people were shocked when Picasso's painting surpassed a million dollar mark, recently one sold for $25 million. So you always have this art in some of these things that have made it to compare yourself to, or gold, I guess, for some people. But then you have Beanie Babies, which you've seen the picture of the couples in the divorce court in 1999, separating their Beanie babies. pile from each other because they couldn't figure out which one they wanted to take. Who knows where this goes? It's weird because on the one hand, it feels like a massive bubble.

I bought a Steph Curry Giff. They're called moments. I bought a Steph Curry moment on Saturday for 500 bucks and I sold it on Sunday, less than 12 hours later for 800 bucks. They're going so quickly. And on the one hand, some of the prices feel completely detached from anything resembling any sort of reality. So it feels like a bubble, but it also feels like these things were made up. It's not even day one. I mean, so CJ McCollum tweeted like what's going on. I watched a video of Josh Hart opening packs. And it is so much fun. You get a pack. There was 5,000 packs that came out on Saturday. I actually got one. There was like 50,000 people waiting. I was number 1100. I was so psyched. And when I went to purchase it, the site kicked me out. I was so angry. But that's neither the here nor there. The point is there is a ton of interest here. And I was telling how old are you? 35. 35. Just checking. I need you're not 12. Dude, I'm just saying this is something I would have done when I was 12. I'm just saying there's adrenaline, tons of adrenaline, there's no rational thing. But to your point early about the auction, you see other people's prices and what they're listed for.

So when I'm inside of this website, I am completely detached for reality. Like I said, I bought a Stefan Curry gif a moment. I bought it for $500. That doesn't make any sense at all. I want to smack myself in the face. But right now, this is all a greater fool theory. I'm not confident that this is like the next thing. that prices will be higher in three years, but I'm pretty confident that prices are going to be

higher in the next three days. Now, where does this end? When does the music stop? Well, it probably ends with me like holding the bag on a $50,000 Zion Williamson gift that I bet it's worthless. The counter to Packy's point about this being all individuals and branding is the NBA started this and the venture capitalists are behind it and the NBA players are the ones who invested in it. So this is, you can't tell me corporations are just going to let people walk and create all their value on their own. There's a revenue share. I don't know how it works. I mean, I don't think the details are disclosed. But getting back to your point, what's all happening here? In my opinion, this is all one big trade. So in Pack's piece, he said there are more than

100,000 people hold over a million dollars worth of Bitcoin. More than 9,500 people hold more than $10 million. And so this thing is built on top of the Ethereum blockchain. You could pay for it with Ethereum. You could pay for it with Bitcoin. So these are like chips at the table, right? It doesn't feel like real money. I would never set $500 down in cash. This is house money that people are playing with to buy these cyberpunk things or whatever. It feels like one big trade, and I've been talking about that a lot, like, where's the money coming from? So there's so much money. There's so much money sloshing around right now. If Bitcoin and Ethereum fall by 90%, this thing blows up. Bitcoin and Ethereum are to this as the tenure is to growth stocks.

You and I have been dabbling in like the angelous thing lately. And there was a deal we're looking at last week that sold out in 64 minutes. Do you start to feel guilty yet that like there's still so many people hurting from this? And then the financial market stuff is going like, not like me and you are these big crypto millionaires or something, but the financial assets. we own are up. Our housing prices are up. Do you start to feel guilty about this that like almost like this stuff is too easy and it's still such a small amount of people benefiting? Like I don't want to be one of those people that gets on my soapbox. I'm having trouble like, we talk about like automating savings a lot and how important that is. So I've started more automating charitable contributions lately because like I almost feel guilty that this stuff is going so well and

it almost feels like too easy. I'm glad you brought this up because I made several donations over the weekend to Texas. What's going on there is unfathomable. I'll link to this in the show where you could make donations if you want to. And I always felt it was sort of in bad taste or bad form to be public about your charitable contributions. I always felt that way too. On the one hand, you definitely can see some gross stuff happening that are like being self-promotional about it. On the other hand, I think that if you talk about what you're doing on the charitable side and it motivates other people to do the same, then to me that's a win, even if some people think you look like a douche. I don't care. So where are you automating charitable

contributions. I've always done the thing where like around holidays I'll give money to certain places and I've had a few places where I've given, but I learned this from Tyrone Ross. There's a place where you can pay people's water bills in Detroit. Like someone can't afford to pay their water bill every month. You pay their water bill. So every month I put money in and it pays for someone's water bill. There's local homeless shelters here and there's a kid's food basket that gives food to kids who can't afford meals. And the funny thing is, is a lot of these places when I give my first contribution, they sound like a really nice note to you saying like how much it means to them. And so that's like, I feel like we're in such a weird place and that there's still so many

people struggling. So yeah, I agree. I've never been one and wants to like put that on a billboard that like because it's kind of like a look at me thing sometimes. But I think it can help. So yeah, we talk a lot of automated savings, but you can automate this charitable stuff where on a monthly basis, you give money to these places. And so I've done that to three or four different places and up my payments lately. That's great. All right. So getting back to the speculation stuff. For me, like this is money that I have no way of value in this stuff. Honestly, it's hard to make heads or tails of any of this. Like this crypto punk stuff, It might sound like the dumbest thing in the world to you, but that doesn't matter. There's a

market there. Does that mean that the market's going to blow up? I don't know. I feel like a complete new. I don't know. That's like what the ICO market was in 2017. Like nothing came of that, but I think it was proof of concept that you could do something like this. And maybe that's the point is like eventually someone, hopefully, that's the hope, right, that it does start out as a toy and eventually you get something useful out of it. I'm sure there's a lot of people who are rolling their eyes saying, okay, this is what crypto's for, these art things. Like, okay, that's kind of cute. but where's the real substantive stuff that we're going to use? Where's the beef?

But eventually I think what it does is it builds and builds and builds it. Eventually, you get something out of one of these. It just grows into something. Anyway, I'm having a lot of fun on TopShed. Every time I get a ping that one of my moments are sold, it's like an adrenaline rush on steroids. And it's also like more fun in the fantasy sports. It's bringing me back into the NBA.

It's fun because you're making money, though. Of course. Of course. 100%. Because you're going to be the bag holder eventually. Well, not me. Someone's going to blow their ACL out or something. And I hope someone hacks one of your gifts one of these times and steals it.

Man, sour grapes much? All right. So there's this new thing called Calci, or is that how I pronounce it? I'm going to go with Calci. This is a new platform where you can bet on binary outcomes, either yes or no questions. Now, there's rules that you can't wager on war or politics or anything like that. There's no leverage. This one approval from the CFTC, you can bet on, I guess, anything else.

So what are we betting on here? So like you and I could have a bet on the podcast about who's going to be right or wrong about interest rates or something? I don't know. Will Michael hurt himself? self-lifting weights. 100%. Probably. Okay.

So, Sequoil led the series A. All of this stuff, it does feel like a mania and a bubble, but it also feels like we're still super, super early here. There'll be winners. They'll be losers. But as Packy said, the genie is not going back in the bottle. So the next recession, 80% of this stuff goes away, but the 20% that remains is going to remain for a while.

Dude, I don't know. What happened in the last recession? A lot of these startups came out stronger than before. That was the going in assumption. It was like, okay, Silicon Valley, your time is up. Yeah, but that recession lasted four weeks. I'm talking about a real recession. But yeah, I agree. There are no real recessions anymore. Okay. It's possible. Anyway, we haven't even spoken about like the physical sports card mania that's happening. We'll get to that at a later time. All right, obviously there is still a massive amount of speculation in retail trading.

John Street Capital tweeted the dollar value of retail trading is up 85% new over year, while the number of trades are up 300%. Suggesting, I like this, suggesting that new traders are trading in smaller size than retail traders who started a few years ago. This gets to a stat from Robin Hood that was in SEC docs or the hearing or whatever. So they're up to $65 billion in assets, which is just mind-boggling. The median age is 31. The median account size is $240.40. I guess do you think the median's pulled down, though, the fact that there's probably a lot of accounts that are opened up that were never funded? Is that possible? So it says the average is. 5,000. Okay. I don't know. I guess that's possible. That just means they have a ton of clients,

right? Yes. They're huge. How is this for a plot twist, by the way? We found out that Michael Burry sold all of his game stock in Q4, really before this began, I think. And Gabe Plotkin said that he covered before Bob had shut down trading. Yeah, but that doesn't matter. If you're a billionaire gaslighting this, well, that's because Michael Burry's worried that we're going to be in Weimar, Germany, and hyperinflation is on the way. We had a lot of people sending that to us. And You know, my response is he might be right. No, he's not right. He's not right. Hold on. Let me just finish my thought.

Okay. He might be right. No, he's not. He might not be right. Let me finish. But, yes, bad should happens, but life is too short for bear porn. I can't spend a minute thinking about worst case. The United States is never going to have hyperinflation. Time stamp. Let's bet on this on your Kalshi thing. It's not going to happen. Well, I'm on the same side as you. I'll take that bed all day long.

I'll sell naked calls on that. Here's the thing that Robin Hood's $65 billion in assets. too big to fail already. Correct? Probably. I don't know. That's huge. What's going on at sports gambling? Okay. So this is for my local Wood TV 8. Michigan started gambling in late January. The first 10 days it was allowed in Michigan, there was 11 casinos that allowed it. 43 million in online gambling revenue. There was $115 million passed their hands in the first 10 days, meaning some were paid out in winnings. Every state in the country is going to have this. Utah or something going to hold out, but this is coming everywhere.

Let's do it. Come on, New York. They're going to see the tax revenue from this stuff. It's huge. Here's a question for you. I'm a newb on this. So Sarah Poncheck from Bloomberg tweeted this out. You think you thought penny stock trading volume was wild when it surpassed one trillion in December. In February, OTC volume is on pace for near two trillion. Where are those people trading over the counter? Does every broker let you do that? I think so. Okay. Is that a dumb question? I don't know. Not a penny stock guy. Neither am I. Okay, maybe if someone who is can tell us, had tried. to look a few penny stocks up on Robin Hood at one point, someone sent me some. They were not there. I'm just wondering where all this is taking place. Okay. That's a good question. All right. Maybe some can tell us. So, Bitcoin passed a trillion dollars in market cap. And I was thinking, I was looking at a long-term chart. So in 2015, the price of Bitcoin was at whatever, 200 bucks. It's at 53,000 today. At $200, I thought it was more ridiculous. Like, I thought it was more ridiculous at 200 than I do at 53,000. At $53,000, at $53,000. At $53,000, I'm like, yeah, it makes sense. At 200, I thought it was like the craziest thing in the world.

The weird thing about it is the higher the price goes, the more it makes sense in terms of sticking around. Actually, I just want to read one quick thing from Bill Bernsey's new book, but let's just stick with Bitcoin for one second. So there's an article in Wall Street Journal this weekend saying that nearly 80% of Bitcoin supply is illiquid. Only about 4.2 million Bitcoins are in circulation. That small supply is currently far outstrip by demand. I mean, that goes without saying. We've been talking about that, but it's nice to see this quantified. That's why, like, the market cap thing almost is irrelevant in terms of, like, how big it is, because if Elon Musk can tweet something and it either rises by 20% or falls by 20%, then... You know, it's still early.

It's still very early in terms of being very stable and liquid. I think it'd be pushed around like that. This was really interesting. So we've been talking about institutional adoption, but since September, only about $11 billion of professional money has entered the Bitcoin market. That isn't enough to drive an $800 billion change in total value and instead suggests that the attention given to insurance. institutional investors has drawn in more retail interest. Don't you think some institutions are going to be gun-shy by the fact that it has gone up so much and they don't want to be bagholders?

I mean, you have to balance out the like FOMO on one hand with, boy, what if we top-tick this thing and get in now? Institutions have to have that competing mindset and maybe they just hedge their bets by dollar cost averaging or something, but that's something that maybe some of them will have pause since it has gone up so much. Yeah, everything in between. All right. William Bernstein, Ben, your boy.

He has a new book out called The Delusion, The Dillusion, of crowds why people go mad in groups. And you got a sneak peek at this? Yeah. I got an early draft a look. It's pretty good. All right. So this is just in the prelude. I haven't really got it into the meat of the book yet. But I just want to share this with you because this is just so timely. By the way, good for him that he's probably spent years writing this and it happens to drop at like the perfect time possible. All right, here we go. Financial manias can be thought of as a tragedy like Hamlet or Macbeth with sharply defined characters, a familiar narrative arc and well-rehearsed lines.

Four dramatist persona control the narrative, the talented yet unscrupulous promoters of schemes, the gullible public who buys into them, the press that breathlessly fans the excitement, and last, the politicians who simultaneously thrust their hands into the till and avert their eyes from flaming pyre of corruption. The promoters follow a classical Shakespearean tragic path and are consequently the most fascinating of the actors. Most begin as brilliant, hard-working visionaries. who intuit before others the riches that a new technology will bestow upon society.

In the process of bringing their visions to fruition, they grow witch and powerful, and in a capitalist society that judges men by their wealth become their nation's lions. When the speculation runs its course and bursts, they wind up disgrace and bankrupt and usually, but not always, narrowly escape the jailer. The public proves easy pickings for the blandishments of the heroic charismatic promoters. Competent investing requires a rare combination of mathematical ability, technological expertise, and most critically, a working knowledge of the economic history. Alas, people greatly prefer stories to data and facts.

When faced with such a daunting task, humans default into narrative mode, and perhaps the most pleasing story of all is one that involves the effortless wealth to be had from buying into a new technology. The press falls prey to the promoters in the same way as the public. Few things corrode journalistic excellence as the ease of writing about the revolutionary ventures of brilliant businessmen who, with alarming frequency, graze mechazine covers, first as heroes, then as accused felons. Finally, the financial manias sweep into their ambit politicians whose reputations and

popularity are enhanced by the economic prosperity that temporarily results from speculative excess and who not infrequently get caught raiding the cookie jar. Ben, I feel like he could have written this yesterday. Now, he probably wrote it a year or two ago, but doesn't that perfectly encapsulate the four actors that we're seeing today. Don't you think he, just step back, he is our like Frederick Lewis Allen or Fred Schwed. Oh, great call. Great call. He writes stuff that I go, God, I wish I would wrote that. The way that he writes and he spells us out, he's such a good and effective communicator. I think he's like our greatest financial writer, at least of my era that I've ever read.

It's great. Yeah, that's a good call. And again, good luck trying to guess when and where this goes, when it ends. What happens next? That I would never bet my life on for your yes or no betting thing. I have no clue what happens next with this. So I was thinking like as far as there's so many people involved. And for me personally, how do I justify speculating in something that could be a zero? It's because I started with a relatively small dollar amount. I'm eating my fruits and vegetables. I'm contributing to all my retirement accounts on I need to. For me, this is in the bucket of speculation. In other words, like really and truly, I'm fortunate enough that if this money that I'm putting in here goes to zero, I wouldn't feel good about it, but it would not affect my life

whatsoever. This is like you and I go into the blackjack table. I look at that as entertainment in my part of my entertainment budget. If it goes to zero, at least I had some fun doing it. Now, on the other hand, there's people who are not as fortunate as us, cannot max out their 401k and are saying, later for that shit, I'm going to pinch my pennies so that in 30 years I might have some money. Like, no, I'm going to try and take whatever money I have now and I'm going to try and get rich quick. And can you blame them? Can't you understand that mentality? How about this? Beanie babies, but on the blockchain. Yeah.

Right? I mean, crypto punks, I feel like I'm looking at this, and probably everybody who is not like super into this, I'm looking at this and I'm shaking my head. Like, what am I missing? All right. Here's another way to explain this. This is from Goldman Sachs. I didn't realize this.

Real corporate bond yields, meaning after inflation, are now negative. In the U.S., IG real yields continue to grind further in a negative territory. So after accounting for inflation, corporate bonds are now less than 0% on a real basis. another one from Bloomberg. Yields on the top rated junk bonds fell below 3% for the first time ever. Say that again. So the people are listening. So this is top rated junk bonds, still junk, high yield, below 3% for the first time ever.

Take the default rate on that and then take inflation away. We're talking probably 0% real yield for that, plus a ton of volatility. You ever see the wedding singer? Yes. Julia Gulia's husband, Glenn Gulia. For whatever reason, Julia Gulia, always... got me every time. I love that movie. Glenn Gullio was a junk bond guy. Oh, that's right. He's a Michael Milken trader. Yeah, when real yields were sharply positive, probably double digits.

Absolutely double digits, right? Anyway, here we are. Two thousand twenty one, you've got beating babies on the blockchain and real negative interest rates. Now, we talk about this all the time, how intertwined are real rates to all of this? Because on the one hand, I really and truly don't think most people are weighing the 10-year versus a crypto punk. Yeah, I was going to invest in bonds, but now that the negative, I'm going to buy an NBA GIF. Now, I guess where there is some merit here is like, what are real negative rates doing to Bitcoin and Ethereum? But I don't know if that's the same story, is it? Again, simply put, I think that these top shot, the crypto stuff, that is a crypto story. Is Bitcoin a hedge against inflation? Or do enough people think it's a

hedge against inflation, and therefore, in people's mind, it is. And that's all that matters is the narrative in the story. Even if it really isn't, isn't a hedge against it, people think it is. Some people, enough people do. What about gold? Do people no longer think gold is that an inflation hedge? If we're thinking that inflation is going to pick up? I guess not at this point. All right. So anyway, small stocks are going nuts. Helene Maisal tweeted this chart, the 50 day minus the 200 day. So I guess the spread between them has never been higher. I don't know what percent this is, but my God, small cap stocks are going. nuts. According to the Wall Street Journal, having their best relative outperformance since the early

2000s when this happened before, this wasn't supposed to happen, right? This was just supposed to be all the big tech stocks were leading the way. They were carrying the market higher, and now everything smaller is doing the opposite. It flipped. Here's another opposite one. This made me chuckle. So this from West Gray, we're big fans over at Alpha Architect. He tweeted, for all the shit talking about book to market, over the past 10 years, the long-only metric has actually done better than the other value measures that account for intangibles more robustly. You knew this was coming eventually, right? It had to happen. I thought that was kind of funny. All right, quick one here. Go ahead. For our now show Japan people. All right, this is from Mike Bird at the Wall Street Journal.

A 10,000 Japanese yen investment in the MSCI Japan Stock Index each month since December 1989, when it peaked, would now be worth 7.7 million yen against around 4.4 million for the same money held in a bank account offering 1% yield. So I guess you've round-tripped and made money in Japan over 30 years now? No more now show Japan. Man, I'm finally back to even. It's been a while. And Japan government bonds has returned nearly 200% since that time. I don't think that really bolsters your case that you beat a 1% savings account yield, but not a dead end anymore. Everything's relative. Yes.

So last week we spoke, did we speak about tail risk last week? Yeah, we spoke about MEP strategy. And some people have concluded, I don't want to put words in anybody's mouth, that because tail risk is a drag on performance, because call options are overpriced and it doesn't make sense to have them in a portfolio. I don't think that's what we were saying. I don't necessarily believe that. but I do think that this is not for like the average Joe, that this is very much an active

strategy. If you can rebalance, because that's what it's for, even if tail risk has a negative expected return, if you can be nimble enough to rebalance out of it when it spikes, then it could lower drawdowns and it could add to overall performance because volatility drawdowns are attacks on performance. We know that to be true. If you lose 10% and make 10%, you're not even. So if it could dampen drawdowns and you could actually be better off.

So there is a thread that we will link to from Ben Eiffert, who is an expert in this sort of thing, which ultimately shows the TLDR is that a 6040 with a tail hedge actually outperform 6040 static portfolio. So there you go. If you use some sort of rules-based rebalancing on it. It's not for everyone. I guess what I'm saying is if you just look at the fact that something has a negative expected return, that doesn't mean that it can't help an overall portfolio. That's the TLDR. Especially if you have two 50 percent corrections in the last 20 years, you would hope that it would help that. But yeah, okay.

You know what? This is kind of BS. We've been doing this podcast for 40 whole minutes. I haven't sold a single moment on Top Shot. Is this something broken? Maybe this is the top. What's your tail hedging strategy for NBA Top Shot Gifts? GameStop.

Long GameStop. All right. So Coinbase is, this is from Axios, valued at just over $100 billion in a recent private market sale ahead of its upcoming public listing. It's going to go IPO. This could be the highest valuation for any other tech companies since Facebook going public. They had $141 million of net income on $691 million in revenue for the first nine months of 2020. So we're talking about Coinbase trading at 100 times sales. Now, I understand why Coinbase is trading so high because crypto is going nuts.

They had the first mover advantage. I think someone said if you type in Bitcoin or crypto into Apple App Store, they had the first mover advantage. Having said that, I think on a relative basis against other companies, I'm shorting them in my paper account after their IPO pops a huge amount. What are you longing against it? What's your paper long? Am I biased if I'm going along blockfly against them? Again, they're trading it 100 times sales. They have the highest fees of anybody. Don't you think now that Wall Street is descending on crypto, those fees have to come in? Private investors are going to make out like bandits from this. Good for them. They, again, first mover. What's worth more in five years? They're basically the same valuation, Goldman Sachs or Coinbase.

Ooh. That's a tough one. If you were talking about Square or Stripe or someone, I would take them over Coinbase all day. Well, those ships have sailed. Square is already $123 billion. Okay. Coinbase was valued at 100 in private markets. It's going to be way more than that when at IPO. You don't think it's going to have a pop? Yeah. Okay, if we're talking about Square versus Coinbase, I'd take square. Yeah. Easily. Don't you think those fees that Coinbase charges are going to come way down? They're going to have to when Wall Street descends on this thing, or less they just milk it because they have that first mover advantage for as long as they can. So Dapper is the company that owns MBA Top Shot. And Packy wrote that they're raising money at a two and a half

billion dollar valuation. There you go. The man always wins. Someone sent us the bull case for third party food delivery. This is a medium post. And it was written by someone who works at a restaurant. It was called Why I Love Third Party Food Delivery. The main point takeaway was basically suck it up. So they said since a pandemic, this place called Wolf Down is doing over 50% of their sales on Uber Eats. So it's basically saying, yes, you have to pay this high price. This 30%, but it's kind of worth it. They said delivering on your own is much harder than it sounds. So either you suck it up and do it with these people and get a whole new audience or list of clients or you stay and do it on your own.

So it's basically suck it up, stop complaining. That's a bull case. Open the up to new people and it's helped them during the pandemic. So that's the bull case. It opens up to new clients, new customers. Situation like this, it's basically helped their business stay alive. So the economy, huh? All right.

This is Goldman Sachs. I don't think anyone would believe you said this last year. In the U.S., we expect above consensus full year growth of seven, percent in 2021, 50 percent of the population be vaccinated by May. Unemployment rates fall to 4.1 percent. Core PCE inflation to rise to 1.85 percent by year in 2021. Prediction game, whatever. They may be wrong. That sounds about perfect for me. In terms of like the sweet spot of things going well, unemployment falling, people vaccinated, things are going to go gangbusters this year, right? I mean, that has to be your baseline expectation at this point.

How many people will read this and think top market is pricing all the good news? That's like the easy knee-jerk reaction. Yes, this is a sell-the-news moment, but I've never looked into this. How many times has the economy improved and valuations have fallen in the stock market? What is the historical scenario for that? So here's another one, Golden Sachs, I did not realize this. Earnings per share for the S&P 500 by Q4 2020 exceeded the pre-pandemic high by 2%. Once again, the stock market was smarter than everyone. It looked over the valley, earnings came back, The stock market did need to fall 70% and we're back on trend, basically, right? The top shot is not the economy.

I guess not. Speaking of sports, big news in the world of baseball and business. So I'm not a baseball fan, so I've heard of Fernando Tatis, but that's about it. I don't really know much about him at all. But apparently, Michael Schwimmer. What do you think the percentage of people under the age 30 watch baseball out of the whole demographic? Five percent? Three.

It's got to be pretty low, right? So Michael Schwimmer was on Ted Sidi's podcast. I remember where I was in New Orleans listening to that. I remember what I was doing there. I listened to that one too. And it sounded like a cool idea at the time. That was in 2017. So this company does ISAs for athletes. And this is actually their first one to hit. So they spread their bets. They give money to young prospects. Most of them go to zero. Most of them never make it. But this one hit and it hit big. So I have someone in my wife's family who bounced around the majors and the minors. And the whole idea behind it is, if you're in the minors, you don't make a lot of money at all. And so the point is, if you have

the chance to stick around and stick it out in the minors and become a better player, you can get into the majors late. And so this big league advance place, basically so it says, if a player never reaches the majors from the miners, they don't have to reimburse the money and Big Leas advance loses its stake. When a player turns in MLB Star like Tatiste, Big League advance received a huge payout. In effect, he's funding a bunch of minor leaguers who will never make it. So it's like an insurance, it makes sense. So he's going to have to pay them $30 million. And for a lot of minor league players, don't make enough money to stick around. So they're saying, we're going to pay for you to try to stick around a little longer and see if you can actually make it. It's a cool idea.

Yeah, I love it. All right, we got a lot of emails about this. People saying that their helocks were frozen in 2008. I took an L on this one. Yes. I said it would be fine. I still stick with my, I don't know, for 15 years, I kept way too much in cash. And I'm just more comfortable with the idea of taking a little more risk and potentially selling some taxable investments or finding another avenue if I really hit a big emergency. Things people say at the top, for 300, Alex. What are you going to do, sell your Steph Curry Giff? That's your Yeah, people said that like in 2008, but here's the thing. That's kind of having an understanding of your home equity, I guess, like how much you have an equity for them to be able to pull it,

because there's a certain threshold that they can do it. But it makes sense to me that in 2008 these banks would be pulling home equity line to credit, considering they thought they're all going to go out of business. If things get really bad for us, I'm thinking about tokenizing the podcast. I don't know how we're going to do that, but it's coming. tokenized nob whale. There we go, non-fungible. All right. I saw this chart the other day. This is pretty neat. It's a chart of social media platforms. When was each platform generating its peak buzz on Google? Now, I guess this course, this tracks, right? So, for example, Facebook's peak search on Google was all the way back in December 2012. Twitter was June 2013. Snap was September 2015. MySpace, 2007. But this is interesting. Instagram is still crushing it. Their peak was back in April 2020. Still a lot of people Googling Instagram. Reddit is today, not surprisingly, and TikTok is just something else entirely. TikTok goes off the charts.

That's also today. Thoughts? So people must be Googling, looking for Instagram photos. Is that the deal probably? And they don't have a good search function? I don't know. Maybe that's it. You could be right.

Anyhow, I just thought there's a new chart. Moving on. All right. From the Wall Street Journal, this is from a guy from John Hopkins. So I assume he's got to be an expert. Oh, this is actually from Marty McCarrie, who wrote the book, The price we pay that I read about, and I mentioned a few weeks ago, I didn't realize this was even him. He says, so infections have fallen off a cliff.

They're down like 75% in the past month or so. At the current trajectory, I expect COVID will be mostly gone by April, allowing Americans to resume normal life. So he's thinking there's probably been four or five times as many people that had it versus the ones that I think it's like whatever, 30 million people have had it, whatever the number is. It's higher than it looks. And so we're basically closer to herd immunity than we think because basically no one predicted the cases to fall off a cliff like it did. Right. All right, good. Very good. Honestly, I think Memorial Day weekend, I think that's it. I think we're off into the races, and normal life is closely approaching. I hope so. All right. Listener questions. By the way, we did a whole episode on listener questions last week. We got some really good feedback on that. We're going to do these every, probably every quarter.

Yeah. Let me take this one. Sure. My father passed away in June. Sorry to hear that. Get a lot of questions like this. And I always say that, like, it's hard for me to have these thoughts about it. But like, this is stuff people deal with, right? The inheritance stuff. I received. roughly $250,000 from a life insurance policy. I have the option of paying off the mortgage on the home I inherited, but would also like to move to a new home in five to 10 years. Would you recommend I pay the mortgage off to save monthly payments for the future, sit on the cash? I know your stances typically don't put money you're saving for the home in the market. Just curious for thoughts on animal spirits about windfalls. So it's basically you could pay it off now and then save the monthly payments going forward, or you could sit on the money and make the payments. So I guess

either way, you're kind of in a similar position. It's just how liquid you want your cash to be. Well, not really, because if you prepay it right now, then you're saving all that interest that you would be paying, right? True. Right. Yeah, it depends what you do to the cash, I guess. I think five to ten years is enough of a runway to invest that money. I'm not saying like day trade or be 100% arc.

How about invest some of it? I think you could invest it in a balanced sort of portfolio. And as the time gets closer to when you're really thinking about pulling the trigger, maybe be more conservative, take it out. but I think five to 10 years. Now, listen, certainly you're taking risk. I mean, there's no there is no guarantee of positive returns. Guess what the perfect solution is here? 10 year target date 2030, target date 2025, something like that. I mean, honestly, it's probably not going to give you much, but it could do something. Or you could pay half of it off and lower your payments

and I don't know. All right. Here's one more. One thing from this last episode jumped out at me. I saved nothing for retirement in the 20s, almost literally, I think, and only started saving when I was about 30. They're basically talking about the paper that we dismissed. I think there's more to that paper than you granted in the show. Saving any amount in your 20s while living in a city and making 50K probably doesn't make any sense. I agree with that. My main concern is that while it's important for lots of people to build habits, you don't want to feel like you have to live an overly austere life in your 20s for a little payoff. I completely agree with that. I think it's important to clarify that the paper's assumptions includes significant wage growth, so you have

to determine if that's realistic for you. I agree. And this person emailed us again because I completely agree. Like, the point that they were making is if you didn't save in your 20s, don't be discouraged. It's not like you can't catch up. And I completely agree with that. If you're not making a lot of money in your 20s, don't kill yourself to save for your retirement. I completely agree. True. My point is that I think you can get in the habit if you don't do it and put it off and put it off. I'm going to make more money in the future. I'm going to start saving. That's great. But a lot of people just put it off, put it off. Then they get in their 50s and they go, oh, crap. Now what? Right. Okay. Recommendations. What do you got? I told you to get rid of it. I told you not to watch after two or three episodes for Wanda

Vision on Disney Plus. I stuck with it, and I think I watched all the first six episodes. You'll watch the first two episodes, you know, go, what is this? I watched three episodes last night, and I'm incredibly confused. I'm a Marvel fan. The only reason why I did it was because I'm confident that they are going to execute. I'm confident that there's a vision, pun intended. It gets a little better. I give them credit for being, I'm not a Marvel person. So why are you watching? I don't know, just nothing else to do. I can only watch your NBA gifts for so long.

Sorry, that's my last joke. It's ambitious and it's creative and it's, original. I'll give them that, but it's still kind of weird. But I guess if you're a Marvel person, you'd probably love it. So it's just okay. We watched Nomad Land. Never heard of it. It just came out on Friday. So it's another one of those. It was on Hulu and in theaters at the same time. Francis McDormant. It was the kind of movie that was... Oh, she's great. She's an amazing actress. It's kind of a movie that critics like more than the audience, I would say. That's going to be one on Rotten Tomatoes or the critics are going to be way high. It feels like it's very real, but in the end, the movie just kind of never goes anywhere. And the ending is kind of like,

anti-climactic. She's amazing, and she'll probably win some awards, I would imagine. It's about her. She, like, lives in her van or a camper and these people that just decided to live off the grid and just travel around. You're a big off-the-grid movie watcher. Am I? Captain Fantastic. Comes to mind? Yeah. So I would say it's okay. If you're a person who likes films, you'll probably like it. If you like movies, you probably won't. I think that's all I got. I watched, I care a lot. Number one movie on Netflix right now. Probably one of the better Netflix movies that I've seen. A lot of them are overwhelming and feel sort of, like, weird. This is a little bit too long, but it was fast-paced. It's from, I forget what her name is. She was the star in Gone Girl. It sort of felt

like a gone girl a little bit, maybe because I would watch the same actress. It was good. Oh, that Rosamond Pike? Yeah, like that. Fun, fast-paced. It was a good movie. It was a good movie. It's a Netflix original. Okay, I didn't see it. It's a Netflix original. One of the better ones. I watched the graduate, 1967, I think. You ever see that? It's kind of a bizarre movie, isn't it? It was totally. It's really weird. It was totally whacked. So Dustin Hoffman is supposed to be playing a college graduate. He was 30 years old at the time. A little old, but I thought it was great. Like definitely hard recommend if you haven't seen that one. I love the ending in that movie. It was awesome. I mean, it was totally nuts. Well, they both sort of look out the window.

It's a strange, strange movie, but. So I saw a list of the best streaming movies and I was like, wow, this is a great list. I thought it was Netflix and it was Peacock. So I'm like, oh, man, peacock. I don't have peacock. Turns out I do have peacock. I signed up. And all you have to do, at least for this movie, you have to watch like three minutes of commercials in the beginning. And that's it. Then you're home clear. Right. For the free version. Or you can pay nine bucks a month or whatever. It was free. And again, I watched three minutes of commercials and then the rest of the movie was free. So I watched this movie called Trans-Siberian. Ben Kingsley. Who else was in? I'm already drawn a blank. Woody Harrelson. Kate Mara. Oh, Woody Harrelson.

Yeah, it's got a great cast in it. Emily Mortimer, I think is her name. She's awesome. It was very good. I never heard of it. I watched it when it came out and you reminded me of it. So I re-watched it, too. It's a great movie. 2008 was like my dark years. Was that your bare market for movies? No, that was my bear market for life. Okay.

I was not at a good place in 2008. But anyway, great movie. Great and strong. Very good. I highly recommend it. I mean, I'm guessing there was a lot of people who that 2008 was the worst year ever for them, right? I had to be up there for a lot of people. Yeah, not a great year.

All right. Thank you to DPL for sponsoring today's show. Animal Spiritspot. Oh, we're back on Friday. Back with Dave Maza talking about. about moon shots, moon shots. So that'll be a fun one. We haven't really covered that space yet. I wonder if a top shot is going to be in there. Probably a little bit early. I still can't believe you do this.

Oh, man. You talked about it enough where you made me go down the rabbit hole and like search the website and look for it. I give it 12 hours, this time next week. I'm a 60, 40 portfolio on this stuff. 60% of me thinks this is so ridiculous. 40% of me is like, I can't understand it though. But here's the thing. It doesn't matter what we think. It matters what markets think. I know. I know. And as long as you get out before everybody else wants to get out, you're good. Just sell before everybody else decides to. That's my strategy. Thanks for listening.