Animal Spirits Podcast - The Crypto Gateway Drug (EP.222)

Episode Date: September 15, 2021

On today's show we discuss the problem with historical analogs in finance, the biggest stocks in the stock market, why financial manias persist, why stablecoins earn such high rates of interest, the education gap between men and women, why U.S. home prices aren't as crazy as you think and much 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. One of my favorite charts at Y Charts is kind of a nerdy one, but it's called U.S. Savings Deposits at Commercial Banks, and it shows the amount of money going back to the late 1950s that's held in a savings account at a bank. The number now, and there's this huge, huge spike since the pandemic started in early 2020, it's close to $10 trillion. Now, I looked up the average rate on a commercial bank. savings account. What do you think it is, Michael? Any guesses? The average rate being paid out on a

savings account at a brick and mortar bank. 10 basis points. Six basis points. So we're talking nearly $10 trillion on the sideline earning an average of six basis points. And we're going to use this chart later in the show today because we're going to talk about things like stable coins with crypto, correct? So I just wanted to get this one out there. But this is one of the cool charts. I have a bunch pack. Okay. Well, this should be a log chart. Okay. That's not the point. The point is just, it's a lot of money. The point is not even about the growth. It's just about the total, fair enough. Absolute value. It's a lot of coins. One of the things that I like about Y charts is that there are all sorts of charts like this that you didn't know you needed until

you found them and you did a little searching and poking around. So I was just looking for stuff in savings account and I came across this one. So if you want to check out charts like this and more, go to Ycharts.com. Tell them Animal Spirits send you to you to get 20% off your initial subscription when you sign up. 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 Ritt Holt's wealth management. This podcast is for

informational purposes only and should not be relied upon for investment decisions. Clients of Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Last week on the show, I said something like a lot of money has been lost using historical analogs. And Drew Dixon, friend of the show, tweeted a chart. Sorry that I'm getting distracted. How do you turn off messages on your computer? You can't do it. It's absurd. I agree. Literally. You hit mute notifications and they still come through. It's unbelievable. Blockchain fixes this. All right. Right. So Drew tweeted a chart of growth versus value from 98 to the peak in 2001 compared with

January 2019 to December 2020, 21. And Ben, last week we also spoke about, remember, so this is growth versus value. So I guess it's a growth divided by value chart. We spoke a few weeks back about how growth was getting dinged because rates were rising inflation fears. So this chart, it looked like it was following the same path that January 2019 was the right analog for the late 90s and then boom once the chart was discovered

or maybe not but it just they went completely separate ways past was not prologue well yes this is like every 1929 chart looks like this where you think oh this looks a lot like the rise in 20s this is also kind of like the Nicholas Cage remember they have the correlation causation thing

and it's the number of films Nicholas Cage has appeared in versus the number of people who die and swing pool deaths every year. That's good one. It's one of those correlation causation things

where you see the lines on top of one another and your brain immediately goes oh yeah, exactly. It's going to play out exactly like it did in the past. But here's the thing. When you're showing a line,

lines can only go three directions up down or sideways. So finding lines that match up, it's like it's not that difficult. Yes, exactly. It is pretty easy. Didn't you do it before where you picked some random chart

for GE and you match it to the market in 1950 or something? I used like Altria in the 70s versus the S&P, I think. And I have to say, I don't believe in coincidences. Okay. So here's another way I think this stuff tricks you. So Bespoke had this cool list where they did the S&P 500 largest stocks now versus September 2011. And it's interesting to see. So now we think Apple, Microsoft, Google, Amazon, Facebook, Tesla probably even. Those are the top six. And they have a collective market cap of, I don't know, close to $10 trillion. I'd say if you ask most investors now, they would say those top four or five are pretty safe to be on there all the time. Here's the top 10 from

2011 in September. Apple, Exxon, Microsoft, IBM, Chevron, Walmart, Johnson & Johnson, Proctor and Gamble, Google had just made it, and Berkshire Hathaway, then rounded up by like AT&T, General Electric. So back then, there was still a lot of old names, and a lot of those names are still on there, but they show the list. They highlight the ones that are still the same. this is the top 20 or so I think I cut it off at. It's 50% turnover rate. That's quite a bit. If history is an analog here, and it doesn't always have to be, it would tell you that a lot of these ones for today, some of them are going to drop off or you're going to see new ones come in that aren't there before. It's different this time. If you had to pick one or two of these huge

companies that either are going to drop way down the list or are potentially not going to be in the top 10 or 20 anymore, what would it be? Apple. Seriously? Seriously. Oh, I thought you might of the top five. No, no, no. I mean, Tesla goes without saying, right? That's probably the most volatile one. I still think Facebook potentially. I think if they didn't buy Instagram back in 2014 or whatever, they probably wouldn't even be on the list as it is. But I mean, who knows. But this is another one of those things where we're looking at history because all of the time there's turnover at the top 10. Listen, I've read in those posts. I'm more open-minded now to the fact that like maybe, I don't want to say the next Amazon is Amazon. That's absurd. But that these,

the Apple, Amazon, Microsoft, Facebook, that they might be locked in, at least for longer than we think. Look at the runway. They're still growing so fast. Amazon can't grow. Online retail sales are 14% of overall retail. There's not more runway there? Google and Facebook control the advertising industry. It's a pretty big industry. So here's the counter. 1980, seven of the top 10 were energy names. And most of them don't even exist anymore. You wouldn't even have heard of. It was all these different standard oil and Atlantic Ridgefield and all these big. That's the historical analog someone would say, see, this is why tech stocks won't stay at the top. The historical analog, you could say it's nonsense because how much was Texaco part of our daily life?

These companies dominate our daily life. No, I agree. In every facet of our existence. I'm saying it makes more sense that energy stocks would all drop off because oil prices had risen to the 70s and commodity prices had risen. Let's be specific. I didn't even think we would get into this side, but I guess we're getting into it. Let's be specific. Apple, Microsoft, Google, Amazon, Facebook.

What are the likelihood that these five stocks are in the top 10, 10 years from now? I'd say pretty high. If I had to, like, put a number and I'd say like 75%. That all of them will be. That these five, Apple, Amazon, Microsoft, Google, Facebook. You're basically taking these stocks over the field. That's like back in the day for the golf tournaments, you'd either take Tiger Woods or the field.

And most of the time, you felt better taking Tiger Woods. That's not what I'm saying. Just because I'm saying that these five stocks will remain in the top 10 does not mean that I think that these five stocks are a better investment than the field. But I'm saying that another one won't come up and catch it, even if these ones don't have a serious crash, that another stock will come up and catch one of these big names. That's a good point. We never see the next four horsemen by definition. Fair. I think that's what makes it so difficult, though, is that you could play either side of this. Yeah, but the people that are meming, it's different this time with

the uppercase, lowercase. Like I said, if you've been rolling your eyes at tech since Instagram was bought for a billion dollars, stop. Just stop. Yes. I agree. Maybe one of the next big ones, probably not, but maybe we'll come. Oh, by the way, Nick just slacked me. He goes, bagel boss called you, asked for John. So my first thought is like, I don't even know what my first thought was. Why does John from Bagel boss want to speak to me?

It's a very simple explanation. I left my wallet there. And you didn't know that you did it? No. So how do they track you down to Rittholtz? Did you have a business card in there? I guess they Googled me, not to brag, and they found, I don't know. No, no business card.

All right. So anyway, Spax is where I was going next. But you made it all the way home without realizing your wallet had been lost. I lose everything. It should be said that. So I found a nice little flip wallet that you can just, it's just for credit card. I don't have any cash. And you and I were, I think, in Los Angeles together, staying in the same hotel room. We go get in a cab.

We take a cab to wherever we're going. We get out. I go, oh, crap. I think I left my wallet in the cab. It's gone. You look through your stuff and you realize that you have two wallets. Yours and mine, because you bought the same exact wallet as I did. Oh, here, Ben.

I took your wallet, too. Listen, I just want to make sure... It's all or nothing with you. I just want to make sure you didn't lose your wallet. I appreciate that. I'm a good friend like that. Real quick. Someone put this on Twitter the other day.

What would be a worse feeling? Losing your phone or losing your wallet today? Phone. I think it would be. You'd feel lost about it, right? Totally lost. Without my phone? Yeah.

Dude, I'm not lost about my wallet. Clearly. I didn't even know that I don't have it. It's in Bigel boss. and I'm managing just fine. Wallet is a pretty big inconvenience, though, in terms of getting a new license, getting new credit cards, turning all year.

That's annoying. I do wonder, at what point would I have noticed in my wallet was missing? That's a good question. Could have been days. No, no, no. On Thursday, when I go into the office, I would have realized I don't have it.

Okay. Spacks, remember those things? Yes. By the way, everyone called this, right? This was something that everyone called and said this is too crazy. A lot of people could. Seventy-five percent of SPACs that have a

announced deals, but haven't completed them, are trading below par, basically, below their listing price. I haven't seen anything. Maybe it says in this Wall Street Journal story, how much cash on the sideline for SPACs is or that it's just never going to turn into anything now that this stuff is all falling apart? I don't think it's as much as you think, because the peak market cap of SPACs was $350 billion. So you're saying most of them that are out there have done a deal or try to do a deal? I think so.

So let's say that there's, I'm completely making this up. Let's say that there's 200 that raised, I don't know, a couple million. Anyway, I don't think it's a ton of money. And I guess the clock is ticking. I'm sure a lot of this will go back to shareholders. Let's do a line graph, an analog one of SPAC market cap versus the amount of times Chmop tweets. Because when SPACs were going up, he tweeted a lot.

Now that SPACs are crashing, I haven't seen a tweet from him in like three months. I'm just saying. They're not looking so hot. So we'll see. I think SPACs are here to stay. I don't think they're going away. They're not going to be as huge as everyone thought they could. I think the idea that this is like free money to get him before the IPO pop, I think that idea

has popped. Do you think this was an artifact of the pandemic where it was just the perfect timing for this stuff? Yeah, we were speaking about this on the compound infancy with Tom Liden, who by the way, Tom Liden is just an angel. This guy, look what he got me. That was pretty cool. He came on the show and bearing gifts.

A Kobe Bryant Ricket card? Yeah, that's pretty cool. Unbelievable. PSA 10. Unbelievable. Man, all right. We're going to do it again. We have to talk about crypto. Coinbase specifically, they were in the news. You can fast-follow 10 minutes if you hate talking about crypto. But sorry, this is front-page Wall Street

Journal type news. So we are going to discuss it. I'm doing a talk this week for a financial advisory firm. And they sent me a list of 20 questions. And a lot of the people who are going to be at this talk are listeners to the show. And the very first question is, do you guys have to talk about crypto so much? Yes. Sorry. Listen, we're markets people. We go where the market takes us. So here's what happened this morning. You gave me a call. or you slacked me or something and said, holy crap, did you see this? Walmart.

Walmart is going to allow Lightcoin to be used for transactions. What was my initial response? Fake. Pat me on the back here. I said, no way that is a real story. Lightcoin, no one has talked about it since 2017. And I don't know why it still even exists.

Like, what does it do? I don't know. It's Bitcoin. I don't know. And it went back and forth and turns, and there was a fake press release made. And Lightcoin was up like 25% or something? This is why crypto is exciting, on the one hand, and terrifying, on the other hand, because

obviously someone put this fake press release out and knew what they were doing. And there was huge financial publications that were writing articles about this, saying, oh, Walmart is going to team up with light coin. This isn't good for the prospects for a Bitcoin ETF, correct? It hasn't that one of their big, the SEC's big hang-up's been, like, you can manipulate these markets? This type of story doesn't help. No, it doesn't. The whole crypto universe, when that story came out, went up, and then immediately crashed when it turned out to be fake. It does not help. But one of the reasons why we talk about this so frequently is, first all, so new technology is exciting, but the amount of money being made and loss, which we'll

get to in a second. I think FinTech Frank tweeted this. Sam Bankman Freed of FTX is now worth more than Charlie Munger, Leon Cooperman, and Howard Marks combined. Insane. And there's a few people like Sam and others that have gotten spectacularly wealthy, not as wealthy as he is. But there are people losing so much money, being incredibly irresponsible, chasing everything, getting wrecked, getting rugged in NFTs. I'm sure there's tons of scams that we're not even hearing about. Of course not. Tons. Tons, tons, tons. That was one of the things I learned from my research in my book about financial scams is that the majority of the scams, like, you wouldn't even be able to estimate the size of financial scams every year because most of them that happen, especially

with very wealthy or intelligent people, they don't report them because they don't report them because they're too embarrassed to even mention it. So they just try to sweep it under the rug and hope it goes away. You told me to listen to Bernstein, William Bernstein with Cardiff Garcia. And one of the things that Bernstein was saying, there's a few things that are very interesting. He's fabulous. You should definitely listen to that podcast. He said like true manias, true bubbles are very rare. People throw out the word bubble all the time. They're very rare. And I actually don't remember if he said that Bitcoin is a bubble. I can't remember. But one of the hallmarks about it was that frequently you have people leaving their job to pursue vast riches. And maybe this is the,

is it the gelman amnesia effect where you see everything? Is that, am I describing that right? Is that what it is? Sounds familiar. I saw two tweets yesterday of one person quitting their job to do NFTs and another person who wants to quit their job. And it was on a thread of like a trading course trying to like quit their job to learn how to trade crypto. So I listened to Bernstein and I went back through his book, which I had a copy of called The Delusions of Crowds, which is a newish book in the last year. This quote, he said, was perfect. His book is about financial and religious manias, because there's a lot of similarities. The introduction, he says, why does this continue to happen? And why will it continue to happen? He said, manifestly, man is the ape that

imitates, tells stories, seek status, morally condemns for the good old days, all of which guarantee a human future studded with religious and financial mass manias. And I thought it's just so ironic that these bored apes, he's talking about that man is the ape that imitates. And you have these board apes. They sold a hundred of them for like $24 million at some auction house last week, these board ape NFTs, just perfect, right? Yeah, that's perfect. Ben, listen, you got a little card wallet? I got a little card wallet. You wore Hawaiian shirts? I got a Hawaiian shirt. So almost certainly there are bubbles all over the place in crypto that doesn't necessarily mean that everything in crypto is a bubble, but you don't have to look very hard to find things that are clearly in a bubble.

My point in my piece is, I think because we have this tribal instinct and because you now have social media and the internet and just this vast knowledge of the past, here's my analogy that I said. So in the past, in the 70s and 80s, you had three TV stations. So the audience for the TV shows and the sports that would be on those three stations was enormous. Like, we'll never come close to hitting those numbers again for what even a crappy show could do on a Friday night or whatever. Now we have streaming stations and we have hundreds of stations on cable. And I think spreading stuff out like that is how to think about mania. So in the past, when you had just this concentration, you could have these mass manias that would infect everyone.

Now I think it's going to be more mini manias that it's like cable TV where you have all these stations and you're never going to have a huge show anymore, but you could have all these mini manias all over the place because everything is so spread out and there's more tribes to find with things like social media and the internet. Speaking of just a thought, TV and only being three stations, you know what turned out to be bullshit? There's too many podcasts. What does it even mean? That's like saying there's too many TV channels. How many TV channels are there now? A thousand, three thousand.

What's the difference? You don't have to watch all of them. You don't have to listen to every podcast. How could you say there's too many? Don't listen. That's the thing. And it allows people to find their niche if they have one. There's too many stocks.

There's too many stocks. Well, don't buy them all. Jackass. No, do buy them all. That's index investing. Come on. Tushay. All right.

So anyway, enough throat clearing. Let's get to the news. What happened last week that made the front page of the Wall Street Journal was the, the CEO of Coinbase, Brian Armstrong, did something interesting. So to set the scene for people who aren't super familiar with what's going on, Coinbase, as you probably know, is one of if not the biggest company in all of crypto, which ironically, it turns out to be a middleman. They're a broker, a custodian, and they are regulated. And so they are trying to put out

an interest-bearing stable coin very similar to BlockFi and Gemini and many other companies. but the SEC gave them a well's notice, which means not that they're starting an investigation, but that they probably wrapped one up and they're about to be handed a lawsuit. They basically told them, if you go through with rolling out this product, we will sue you. Yeah. So whether or not they're going to get sued regardless, we will see. But I don't even know what the word is here, but he called the SEC sketchy, which is interesting choice of words when you're under the microscope. The first response comes from a Twitter thread.

Brian Armstrong wrote this really long Twitter thread about it, and I just love the fact that that is where the response goes. I know they wrote a blog post about it too. I don't know. I guess the response to it was, seemed to make sense. The crypto people immediately defended Coinbase. The finance people said, whoa, Coinbase obviously doesn't understand what a security is and why this Supreme Court law from the 1930s or whatever really holds up with the regulation and what is the security. The fact that they are so big probably didn't help them. By the way, we We did talk about this a little bit in our spaces last week on Wednesday, which we're trying to do again at 4 p.m. every Wednesday.

Here's the deal. I think I'm typically not a tinfoil hat person, but in this case, I think there's some more than a little truth here. So League Drogan tweeted that what's really going on is Gensler, who is the head of the SEC, is desperate to prevent a mainstream financial application from integrating a yield product. He knows that that's a killer app that onboards everyone to crypto. So essentially, stable coins are like a game. eight-way drug into the crypto universe. Why? Because with stable coins, you can get paid 8%, 10%, 12%, even sometimes more. So what is a stable coin and how does it work? So right now, USDC is the biggest stable coin in the world. There's $27 billion in circulation and these

stable coins are lent out to be used to do various things to make money, same way that banks operate with a savings account. So what do they do? Certainly, I'm not an expert at this, but they do a few things. They do arbitrage between the futures curve and the spot price of Bitcoin and other markets. They do cross-exchange arbitrage. So there's all sorts of different exchanges. The prices fluctuate. There's pennies to be picked up. So they borrowed stable coins and get leverage from that. What else do they do? Staking and yield farming. So there was a Wall Street Journal article. I thought that was great that really highlights this and talked about the sort of of lending world of crypto. I want to talk about how people who have these huge gains in

crypto don't want to sell it and pay their capital gains taxes, so they borrow against it. But it's talking about this. So this one guy said he borrows 50% of the value as portfolio. He's paying 10% interest on it. The reason yields in crypto are so much higher is because there really is no banking system for crypto yet. Like the regular banks won't do this. It's funny. So this guy said he paid 10% to borrow his Bitcoin, so you don't have to sell it. he intends to buy a new car with it. He said, it's not like it's a Lambo. It's just a normal Tesla. I love what Tesla and Crypto Land is like a Hyundai or something or a Nissan. Here's another one. This one is kind of nuts to me. This is on the other side of the high rate.

So why would somebody borrow against their crypto? Because they don't want to sell it. They don't want to pay taxes. The same reason you take a portfolio. Exactly. You don't want to tip any or because you're a hodeler and you want to hold on and don't want to be seen as selling it when it rips higher. So the thing is so a lot of these places, and we've talked to Zach Prince of BlockFi about this is you're not going to borrow more than you have or whatever. If you borrow 50% of your Bitcoin, the counterpoint would be like, well, what happens if it crashes 50%? Then you're liquidated. Well, or you have more Bitcoin that you use as collateral for those loans. But yes, the reason that these stable coin rates are so much higher is because lending in crypto is just the infrastructure

is not there. It's such a new market still. They're still building like the financial infrastructure. Lees point about they know that like you could have mass adoption with stable coins. I'm going both ways on this too, because I've written a piece in the past where I said stable coins could be like money markets, which really kept the mutual fund world to float in the 80s. And there was this huge boom in money markets that didn't exist until the 70s. And that helped places like Vanguard get on the map. So I do think that stable coins, if they're paying these three, four, five percent, and you have another low interest in the world, that could be the stepping stone for a lot of people to get into crypto. On the other hand, there's $10 trillion in savings accounts at U.S.

banks. We also have this inertia. The average rate people are earning on that is six basis points. So I think it does make sense, but I think it would take a long, long time to really get full acceptance of something like that because people have this inertia with their accounts. Why would that much money sit in a bank savings account? Inertia, you're right. But between inertia and full acceptance is $11 trillion. So let's say that one-tenth of one-tenth of one-tenth of one-tenth of one-tenth of one-tenth of one-tenth of one-tenth of one percent comes off of those sidelines and into stable coins.

I agree. I actually think I said before we get on, what if stable coins, become like the biggest cryptocurrency. Is that possible? If we get a broader acceptance for normal people, I think that's possible. So we just got an email this morning. This person took money out of the house. We have a pretty good portion of that at Blackfire earning 8%. We took the 30-year loan at 2.9%. This just doesn't seem right, but we're getting free money, question mark. I understand we can't expect 8% always, but as long as we are on the plus out of the difference, why shouldn't we? What am I missing? Well, there's unknown risks with stable coins.

It hasn't been stress tested. I don't think it's been stress tests. And maybe it has and we don't know about it. I don't know. For the record, I don't think a Bitcoin crash is the risk. Because there's been plenty of Bitcoin crashes. Right. The risk is there's too much over leverage and not enough collateral.

A run on the bank. Like, let's say some crypto gets hacked somehow and you see a run in the bank of people leave it. Like, that's the kind of hack that I just, there has been no stress test. I think the middleman of the person. So let's say that BlockFi is lending their money to a company, who is the middleman, who is then lending it to crypto. hedge funds, like they probably have a read-through to who their customers are and how much leverage

they're using. But let's say they just all go bad. So anyway, the point is it's hard to quantify the risk in stable coins, but you have to assume, listen very closely. And Zach Prince said this. If you're getting 8%, that's certainly not for your emergency reserve. That is not an emergency reserve because the risk is it goes to zero. Now, how do you quantify that risk? I don't know. Do I think it's like a likely risk? No, but that is the risk. Even if you, could say that there's a 2.5% chance of this thing going to zero. So listen to this one. So this is from the Wall Street Journal.

This guy, Chris Kay, took out a loan for $14,000 in Tether Stablecoin from a decentralized finance platform, an AVE, used the proceeds to buy Ethereum. He then used the ether to trade in and out of non-fundable tokens or NFTs, which are blockchain-based. So this is the part of, and so he said he almost faced a margin call at one point when crypto fell, but now he's used that $14,000 loan to have investments worth over $60,000. So he went from borrowing money in a stable coin to then buying Ethereum to then buying NFTs and trading in out of those.

This is like the cascading thing of crypto that I think I still can't wrap my head around how this all works when you're using Ethereum to buy NFTs. And I just don't get how that all, it seems like you're building on top of one another on all these things. I don't know that the SEC is worried about money markets being a gateway drug to crypto. But Ben, to your point, good luck with the average person to figure out how this whole world works. It's tricky. Anyway, yes, that's the point. I thought last week, I think we

will look back on that as a very important moment where Brian Armstrong basically docks the SEC and galvanize his base. And even Mark Cuban got involved, said good for letting it out into the sunlight. Like, let people see, you're trying to be compliant. And he did this whole thing. How is this a security? He knows exactly why it's a security. He's not an idiot. Yes. It's worth reading. Real quick. Last week, we talked about the fact that there really are no blockchain companies yet. This is from Bloomberg. In the first quarter, 129 startups focusing on blockchain raised $2.6 billion. That's more in all of 2020, which was $2.3 billion. So I guess if not now, then when for some potential use cases for this stuff besides just

speculation. Maybe this is a bad comparison. But Packy wrote this morning about the internet how long it took to really go from what it was to what it is today. Think about how crappy Netflix was in 2012. when you were shorting it? When I was shorting it. No, that's 2011. Their library was so bad. You could have scrolled for hours and not found a thing to watch. There was no way of knowing what it would become today. So all I'm saying is that with $2.6 billion in funding in this quarter, where do you think that's going? That's what I'm saying. If this doesn't lead to something, I don't know what will then. With all the money pouring in and all the brain power and stuff, I don't know,

then maybe it's never going to happen if something doesn't come out of this round of funding. There was a big article over the weekend. There's a headline from the Washington Journal. A generation of American men give up by college. I just feel lost. I very much have mixed thoughts on this. But Ben, I'm interested to hear what you think first. So this says that women make up 49% of college age population in the U.S.

And that's right now. The close of the 2021 academic year, women made up 59.5% of college students at all-time high, men, 40.5. So I think the average in the past has been women make up 49%. now it's 59%. It's a lot. I never would have guessed that. How about this for figuring out what some implications of this are? Household formation gets put out way further into the future for a lot of people. If people are getting educated longer, especially women, having kids, buying a house, that sort of thing. And then higher future wages for women. We close the pay gap because all the stats show that if you go to college, your average wages are much higher than other

sort of education. So this means potentially higher wages for females in the future. and waiting longer for household formation. The article says over the course of their working lives, American college graduates earn more than a million dollars beyond those with only a high school diploma. Yet skyrocketing education costs have made college more risky today than for past generations. I think there's sort of like a, oh man,

I'm about to use an analog to the stock market. You know what? I'm not going to do that. I'm going to go somewhere else because I don't want to do that. Come on. I don't want to do it with it. Got to do it now. We're looking backwards and saying, yes, historically going to college

was critical, absolutely critical. Look at the difference in lifetime earnings. I don't know that that is going to hold in the future. I think that it probably will to a certain degree, but I think that got might be closing. Here's a thing. No, because in the past, you could have gone and worked at General Motors and earned a decent living wage and got great retirement benefits and great health care benefits. Fair. For a high school graduate, that's off the table now. You don't have that. That's true. That's true. I still think this is going to be bigger than ever now. That's true. And there's definitely going to be, I don't want to say a generation because that might overstate it. There's going to be a lot of people like it left behind that never find their way.

That's 100% going to happen. Because there's more people going to college now, there's going to be more stories of people who took on an insane amount of debt and had nothing to show for it, just because there's bigger numbers. So FinTech Frank tweeted at NYU graduates with the master's degree in publishing borrowed a median $116,000 and had an annual median income of $42,000, two years after the program, join the workforce, meet people, ask Q&A's advanced degrees are a scam. Love fintech, frank, scam might be a little bit strong, but the borrowing costs at a lot of these data points that we're using for lifetime earnings, the borrowing costs weren't as punitive as they are today. So I don't know, my only point is I don't know that this is such

a terrible thing. The article makes it look like there's a crisis. You see this guy, he's in a dark room. Wait, are they saying that the reason that fewer men are in college is because costs have risen so higher? Why are so few men going to college now? I don't know why they're saying this is happening, only that it is happening and it is dangerous. They're not painting this in the best light. So I don't know if that Zag is too strong, but I don't know that this is a catastrophe. Why does this have to be dangerous? If it was 60% men and 40% woman, I don't think the story would read the same. I don't think people would say this is dangerous. I think this is a great thing. Here's the danger. I don't know that this is in the subtext, but listen,

and I'm trying to be careful here. But a lot of the bad actors in society, violent members of society, are disenfranchised men. Yeah, you're saying that more of those men could be left behind and be angry and lash out and be susceptible to fringe movements and that sort of stuff. So I think that's the danger. That's fair. Has there ever been a story of a woman who leads some crazy thing online? It's never the woman that goes crazy.

It's always the guy. A single group of men is more than, I don't think that's general. that tends to be the case. All right, Ben, defend yourself. What you're basically saying is with this real estate piece is Tesla's expensive, but did you see Cisco in 2000? Okay. So I teased this a little last week and I said I'm running some numbers on other developed markets and the Dallas Fed has all this data going back to like 1975. So I looked at Australia, the UK, Canada, France, and then I compared it to the United States. And these other markets, their housing markets have just blown away the U.S. And if you look at, so like nominal price

gain, so Australia since 1975 is like 3,000 versus a 700% gain on the U.S. Then I looked at these on a real basis too, because you have to adjust for inflation because that could make for differences. And it's even worse. So there's an even greater, so all these, Australia, Canada, France, the U.K., all have handily outpaced the U.S. Here's something I bet not a lot of people would assume. Since 1975, disposable income in the U.S., On a real basis, after inflation, has outpaced housing prices. Income is up more since 1975 than housing prices. I feel like there's some shenanigans in the data.

Did anybody give you a good counterpoint? But if you look at disposable income in Australia, the United Kingdom, France, Canada, housing prices have ballooned in our just crushing disposable income. So U.S. homes have become more affordable versus disposable income relative to the rest of the world. In a big way. Was anybody able to give a narrative around this? Well, saying that in the U.S., a lot of that income is going to the higher end, blah, blah, blah. A few people said, well, because they have a bigger social safety net in places like Australia

where retirement has to be funded in places in Europe where they have a bigger social safety net and they have free health care, it makes sense that people would spend more in their house because they have a bigger social safety net to fall back on. I don't know that I really believe that. But my whole point was, if you think the U.S. is expensive in the housing market, look elsewhere on the world. These other developed markets, their housing prices are way, way higher than the U.S. relative to income and relative to the past.

And relative to the rest of the world, nobody cares if they can't afford a house here. That'd be the counterpoint is, well, how am I supposed to afford a down payment? But still, I'm just saying if you think it's crazy in the U.S., it doesn't look so crazy when you compare to the rest of the world. So what you're telling people, for all the people that were planning to move to Australia, don't. It's going to be hard. Yes. It's a little more expensive.

All right. This one surprise me. It's from the Wall Street Journal. Just 2.7% of home sales were flips, sales within a year of a prior sale during the first quarter. That's the lowest proportion of sales since at least 2000 when they started counting flips. The number of flipped houses and condos were the fewest in a quarter since 2003. So this is another thing.

If you were saying the real estate market is in a bubble and people must be trying to flip and trade and this is not happening. Do you remember, did you ever watch those flip shows back in the day in like 2005, 2006, 2007? I think it was called Flip This House. It was on like TLC. These people would just go in and they'd buy a crappy house. They'd put a coat of paint on and fix some things up and then sell it for way more. that kind of stuff is not happening. Like, people are buying these houses today to live in them.

They interviewed a few people saying the problem is people who want to flip houses can't find any these days because inventory is so low. So I think this is another feather in the cap of. You think things are so crazy here, but people are buying houses for a reason. They're buying them to live in them. Do you mind if I throw another feather in your cap? Do it. The national delinquency rate plummeted.

I mean, obviously it's shot way up. Boom, crash right back down. We'll take it. We're just loading this cap. Tons of feathers. But on the other hand, rent is going nuts. Not in a good way. Ali Wolf said, talk to a friend renting in Dallas.

He moved out in his exact same unit rented for 20% more than he was paying. This matches all the data we see, but still crazy to hear. IRL, which means in real life for the boomers that are listening. Bill McBride. Hey, can we talk about acronyms? I'm sick of all the acronym. Me too. I'm sick of them.

Like, some of them I see it and every time I have to look it up, like, I don't know. There's too many acronyms. Nine times out of ten, I don't know what it means. And like here and there, if I see an acronym like several times, I'll look it up. Wait, what the hell does this mean? But most of the time, I don't even bother learning. You're not an LOL guy, are you? You might be.

I might have seen an LOL from you. I'll do an LOL just because that's like, it's courtesy, common courtesy. That's where you draw the line. I don't do emojis, but I'll do an LOL. By the way, I forgot to check in. Are you all better? You look great. I'm like 93%.

I honestly, on Saturday, I had a relapse where I felt like crap again. I got a cough again. I was sneezing and sniffling. And I had a headache. And it felt like I had COVID again for a day. And I've heard people say that you can have like these relapses. And now today I feel a little better. Well, you look no worse for where. Thank you. Okay. So Bill McBride has a new substack out for his calculated risk blog. And it's all about the housing market. And he talked about the rent stuff too. It's interesting. He talked about like what are these reasons that rent is exploding. And he said one of them is you could have had younger adults who have lived of their parents or moved into their parents in the pandemic and not moving out. You could have had

a lot more divorces splitting households. Another theory I heard, when things aren't going well with your finances, this is like a looking at trying to put a positive spin on the rent thing, rent's rising. When things aren't going well and your finances aren't so sound, you move to New York and you room with five of your friends so you can afford it. Now, let's say your finances are better. You're making more money. You've made a bunch of money in crypto or the stock market or whatever. You decide you don't need roommates anymore. So you decide to go rent a place. Did you just say crypto is making rents increase? in the United States.

It's possible, right? All the nerds are moving out of their basement because they made so much money in crypto. Crypto is causing inflation. It's coming from inside the blockchain. Yeah, see, crypto was meant to hedge their own inflation that they caused. This is like the thinking guy, Giff. I don't really want to spend too much time here, but is Social Security running out not the ultimate clickbait? Yes.

Nothing gets people going more than Social Security running out. You put this piece in here and it talked about, so this is from the New York Times and they said there's a new piece out that shows social security running out. Security is going to be depleted a year earlier than expected. So I think by like 2033, 2034, there's not going to be as much money coming in from Social Security payroll taxes to cover the money going out. And I wrote a piece on this for Fortune. And I just want to share what I found. So that is true. They have these few different paths that they look at depending on when people take it. And one of the reasons that it's a year earlier now is because so many people,

like a million more people retired than would have been expected because of the pandemic. But in that year, 2034 or 233, the amount of money coming in is still going to cover 76% of it. So it's not like it's going to be zero. But then they took that number and they said, how do things look out going out to the year 2095? And by 2095, it'll still be 74% covered by payroll taxes. Oh, wow. Not only is it nonsense. It's nonsense on stilts.

Yes. So the government either cuts your Social Security by 25%, which there's no way in hell they're going to do. or they say, hey, we'll fill in the gap and we'll just take that money from somewhere else or we'll borrow more money. So social security is not going away. If you're a young person and you're going to live through 2095, you're going to receive social security. You're going to be fine. Oh, I got a story. Speaking of young people, terrible transition there. I apologize to the audience, but I got a story. I took the boys to orientation on Friday. What do you mean orientation? For school. I'm an empty nester. I'm home alone today. Just got me and Bianca. Nobody else.

Me and the dog. So I took the boys to orientation. This is on full. Friday. I've got Logan, the two-year-old in my arm. I've got a bag, like one bag on my elbow. You know what I mean? And I've got, I'm holding two pieces of Tupperware with like their school supplies in it. I don't know, whatever. So Kobe is just like walking underneath me, I guess. So I'm trying to find where everybody is. I see about, I call 20 to 30 people standing in a field. So I start walking over there. Kobe decides to just stop walking. Or he's like, I don't know if he stopped or if he's, he's walking directly underneath me. And I couldn't. I didn't see him because I'm holding this. I've got the this. And I kicked the back of his

heel and tumbled. Gamed him a flat tire. You tumbled or he tumbled? I did. The Tupperware went flying. It's like a slow motion car crash. I fell down. I got a scrape on my knee. I fell all the way down. And I didn't drop the baby. But he's crying, obviously. And I was fine. So I just like start laughing, ha, ha, ha, making sure, like, because I'm sure everybody's look at me. I didn't even look up. but I was laughing. I'm okay. I'm okay. I honestly barely looked out, but I'm just sure I just feel all the eyeballs on me. So what, one of the teachers, come on falling in public is just a horribly humiliating experience. A horrible first impression on the first day of school. One of the teachers was nice enough to come over, grab the Tupperware, I'll take us to where it

needs to be. Logan's crying. I grabbed Kobe. I didn't even look at everybody. I just turned around and left. See you later. Get out of here, guys. Nice. We got a hell of an email from Melissa. This will be listener question for the week. Okay. By the way, this is a perfect animal spirits listener right here. Just totally gets us, topics, the delivery, right? It's perfect. Okay, guys, I have a very unique personal finance question.

I'm a longtime pro swing trader of penny stocks. Never amounted to much for 15 years. I'm already confused. A longtime pro swing trader for 15 years and you're still grinding away, kudos to you. I stopped after like a year. That's impressive. Then COVID happened and I was able to bring individual accounts in my name and my wife's name from 25K to 350.

No issue there. Okay. The question is related to a Roth IRA held in my wife's name, which increased from 40K to drum roll, $2.1 million. Holy moly. She's an attorney who makes six figures a year. We live comfortably. I'm not going to say where, house, nice car, all that stuff.

but I want to, quote, level up our lifestyle because we are, quote, rich on paper, but don't know how or what to do. Time out before we get to the second half. This is the positive of less men going to college. They can become professional penny stock swing traders and have their wife be an attorney who makes all the money. Okay. Continue. Is there any way to leverage that $2.1 million in the Roth for our lifestyle or is the only option to withdraw funds from the account and pay massive taxes and penalties that wouldn't even make it worth it? sure we've got 350K to live off of that's in our individual accounts, but I feel like we're rich

and I want to be able to purchase investment properties. We're 33 and 35 and we have a very healthy retirement account that we can't use until we're 65. Maybe we die before we've ever got to see it. It's 30 years away for us to use. That's crazy. What would you do in this situation? $350,000 in an individual account, nothing in the bank. 35% equity in a million home. Wife makes X. We live paycheck to paycheck on our income. Some additional color. I got like five from business school that all listen to your pod, and we discussed my situation. They all wanted me to pitch the question to the show. It's unique life-changing. The boys also love to crack up that I have almost no money to my name, but I built up like $2.3 million of my money in my wife's

name. And if we ever split up, I'd be screwed. That's hilarious. Actually, how does that work? If they get divorced, does he get half the law? I think if they get divorced, he gets half. So do I. Yes. Okay. All right. Here's the deal. Listen. Don't get divorced because then for sure you have to pay the penalties when she tries to pay you out. This is hilarious. Congratulations on trading. Whatever. $40K or whatever. It's a $40K or whatever. Two million is very impressive. So kudos to you. But you're talking about leveling. This guy should start a stock picking service. Yeah, right. Look what I did. All right. So you take your stable coins. No, just kidding. There's no way to like skirt the penalties or the taxes or anything.

That's what it is. But you told us one nugget, that's important, you live paycheck to paycheck and you want to level up. You want to buy a second or a third home. Pump the brakes right there. I understand if you want to take some money out to maybe give yourself a cushion, or maybe to go on a few vacations or even buy a car. But you can't level up your lifestyle if you're living paycheck to paycheck. $2 million is a lot of money. It's a lot of money for anyone, especially for a 35-year-old. But I don't know that that's like live large for the rest of your life money.

In fact, I know it's not. Here's my advice. So obviously what you could do is take out what you've put in with a raw fire. You can do that penalty-free, any contributions. But obviously, you didn't contribute that much compared to the total value going from $40 to $2.1 million. Right. So you can take your $40 out. You can do that. The other thing is, as long as you don't try to wreck this $2.1 million and bring it back down to $500,000 or a million or whatever, and you don't wreck that. If you assume that this is still going to grow and you're not going to go crazy with it and make it all disappear, you can stop saving. Stop putting money into your retirement account and use that extra savings to get biased. You're not living paycheck to paycheck. Because if you already have $2.1 million, you could put some simple returns on that and grow it over the next two to three decades. You're going to be just fine now having that much money at $30.

So you could slow it on your savings and use that savings for living now. Can we also say, back it out, imagine this, please don't email us in a year saying that it got cut in half. I know the temptation to take it from two to ten is probably very strong, but listen to me, be realistic. Recognize what you did was probably 80% luck. Don't become delusional. Cudos to you.

Seriously, I'm not trying to poo this. But do not get cut in half. I know you're not going to listen. But I would put like a hard stop. If you're trading the two goes to one-six or wherever you draw the line, just be like, all right, I'm done. I'm done. My strategy was on fire. It worked. I'm not going to let this thing bleed. Great email, though. Thank you. Yeah, so it was perfect. Okay. I know we talk about this a lot, the buy not pay later stuff, but it's massive. We cannot talk about it.

We got a good email saying, my only criticism of the buy now pay later trend is that merchants put the fee into the total price as a marketing expense. So this results in higher overall prices and upselling of higher ticket items. I have no doubt that this helps the merchants, but I fear that it could simply lead to price inflation and the purchasing of higher margin, high quality products. Do either of you have concerns? And I forgot to mention this earlier. It's baked in, basically.

The financing costs are baked into the price of the good. I forgot to mention this earlier. 3M CFO says inflation is unprecedented. Rising costs rather than product availability is the biggest issue. Listen. Okay. I was in the transitory camp, meaning that not that the inflation wasn't real, but that it wasn't going to continue.

We weren't going to see sustained price increases. But, Ben, you know me. I'm open-minded. I thought the calves, the hawks. I'm open-minded to the fact that inflation, we might be getting more of it. There might be more to come. Okay. I still think it's, all the supply chain stuff is messing up the world. And we just need to work through all this bottlenecks. I hope so. So, all right, I just want to say one thing.

We're not going to get us to this on the show because we're already running late, but there was a great thread from Alex Rample, who is, I think, a partner at A16Z. There's a five minute, it's just five minutes, a brief history of credit cards on YouTube that I learned a lot, Ben, did you? Yes, that was interesting. There's five parties in every credit card transaction. So that's why there's such a huge opportunity. PayPal, just paid $2.7 billion for a company. company. Scalapay, Tiger Global is the lead as they are with everything. They just raised $155 million. I still say the biggest problem with buy and I'll pay later is you don't get the rewards points. You don't get their credit card rewards points.

Clara is the most valuable startup in Europe. They're with $46 billion. A firm went public. They're worth $25 billion square paid $30 billion or $29 billion for afterpay. But to the point of it being dangerous potentially for consumers, Scalapay, who again is that European company that just got funding, say that they have income. increased conversions by 11% and they give consumers the confidence to spend more, typically 48% more per shopper. Again, giving consumers a confidence to spend more, cool, but also... That seems like long-term bad.

The way to break up big purchases is to like do it on a monthly basis, but if you're in an accounting for that in your budget, eventually it's going to catch up with you. So another company, Ben, we spoke about earlier, companies are susceptible to getting knocked out of the top 10. I would put Visa right up there. Okay, that's fair. Visa and MasterCard. Yeah, MasterCard's not that.

I don't know. Visa's top 10. Visa just bought that NFT for 150 grand. I think they're going to be okay. That's true. You can live off of that for like the next three decades. Visa's 500 billion master cards 350. All right, Ben.

What did you watch this week? Tell me. Okay, I got a good one. So a listener recommended this called The Courier with Benedict Cumberbatch. It's on Amazon Prime. I think it came out last year. It's a true story, true events, whatever you want to say. And it's a Cold War one from the 60s about a guy who was just a regular salesman and became a spy.

for MI6, and it was during the whole heightened nuclear attack potential when Russia moved their nukes to Cuba. It's a really crazy story that I'd never heard before. It's really good. Definitely worth watching. And Bennett at Cumberbatches, I think he's an amazing actor. He is so good in this. What a great name. Very British. Yes. Yeah. Okay. Out of the Furnace was an older one that I rewatch. I think it's on Showtime now. It's written by the same guy who wrote Mayor of Easttown. It was like his first movie. And it's got Christian Bale, Woody Harrelson, Casey Affleck. It's got an amazing cast. Never heard of it.

And we talked a couple months ago about some of the scariest movie characters of all time. Woody Harrelson plays a bad guy in this movie and like the scary West Virginia guy. 2013, where was I? I know. I've seen it before and I rewatched it. It's a very gritty movie like you'd think from Air of East Town. But Woody Harrelson scares the crap out of me this movie. Christian Bale, they didn't know each other.

They walked by each other and knocks shoulders and Christian Biel goes, you got a problem with me? Woody goes, I have a problem with everyone. All right. I'm in. I'm watching. It's a little dark. but it's very good. Finally, I forgot I watched one more. I probably just spaced out and forgotten my COVID binge. Can't hardly wait from the 90s? Classic. You ever see that one? You

like that one? I was going to say, I'm surprised you. Here's my one problem with it. Dude, can't hardly wait. Yes. That actor was never in anything else, was he? Yes. The actor who played the main character was totally miscast and he kind of almost ruined the movie for me. But the thing that reminds me of that from the night, so that's from 1998, 99, maybe. Things back then for like kid movies about high school. They always had, you know, they still have it today, I guess. We had a good. But it was so much more innocent. So like that euphoria show today in HBO is like the complete opposite. It's like kids just doing drugs and these crazy things are doing today that makes you like not want to think about your kids as teenagers. Back in the 90s, like the party stuff, even for movies was so much

more innocent the way that they portrayed it. You're right. Anyway, that's a class, but in a great soundtrack too. You are right. I wanted to go to the movie theaters. There was two movies I want to say, Shang Chi, which I haven't gotten a chance to see. I might. go to the theaters as we can see it. The other one was malignant, which is also based on a true story, Ben. It's about, no, I'm just kidding. It's not based on a true story. It's a James Juan horror movie. And I watched it on HBO Max. H.P.O. Max. Pretty bad. Pretty bad. I feel you've had some pretty bad horror movies lately. I don't mind. When you're watching horror, you sign up for bad. Bad horror is a genre that I'm okay with. It got crazy with like 20 minutes

left to go in the movie. The first like hour and a half was a tough watch. So definitely not to recommend. The first hour and a half. But I did watch it just so you know. And all right, listen, I guess I'm part of the problem because I would have gone to the theater to see this, but it's HBO Max. So. It's just easier. Have they announced whether they're going to stop doing this yet or not? Dude, the Matrix, which by the way, I'm cautiously bearish on the Matrix. It's been too long. Okay. So for some reason, the original one, I just, I had friends who were like huge Matrix. I enjoyed it, but it wasn't like, it didn't like blow me away. I thought it was bigger. Hand up, same.

Well, I thought it was bigger as a pop culture special effects thing. Like, it totally impacted movies for the next five to seven years because of that. But the first one I thought was amazing. But the second two, I just thought were totally forgettable. I don't even remember how the third one ended. I don't remember either. I'm not like a Matrix hater, but like I just, it's not my favorite movie ever. Was it a great movie?

Yeah, it was a great movie. Best movie ever? It's on HBO. I feel like it's kind of like you, if I rewatched it this past weekend because it's been so long. I feel like kind of like you with Top Gun. If a young person watched The Matrix for the first time, right now. They'd say, big deal?

They'd say, wait, huh? Because you had to be there at the time to see how big and how life-changing it was for the movie industry, because now you're watching it go, that's pretty good. All right. But in conclusion, Ben, it's coming to HBO Max the same day it's coming to theaters, which is a travesty. And my boy, Denisville Nouve. It's not a travesty.

It's great for me. I'm going to watch it on my couch. You're part of the problem. Denisville Nouve, who is directing Dune, amongst other things like... You're saying his name. It's not dead as Villanueva. Here's a quote from him. By the way, if someone can do a mashup of all the times you've said his name and see how it changes from week to week.

First of all, this is a direct quote from him. First of all, the enemy of the cinema is the pandemic. That's the thing. We understand that the cinema industry is under tremendous pressure right now. That I get. The way it happened, I'm still not happy. Frankly, to watch Dune on television, the best way I can compare it is to drive a speedboat in your bathtub. For me, it's ridiculous.

It's a movie that has been made as a tribute to the big screen experience. So, Ben, you are driving a speedboat in a bathtub, and I hope you're happy with yourself. That's fine, because I don't know how to drive a boat very well. So if I'm in a bathtub, I can't hurt myself. I'm sorry. I can't wait to watch Dune on my big screen TV at home. I'm doing my part. I'm going to go to the theater this week to watch Shang Chi.

That's all I can say. I'm supporting the art. It's just like you by yourself in the theater, right? I am going to be the only one. And I'm more than happy with that. When you're like 80 years old, there's going to be a story about you in the local newspaper of like, man still refuses to watch movies on his TV and he's the only one who's been going to this movie theater for the last 10 years. It's just not the same, Ben. Movie theaters are extinct, but this man still wants to go.

All right. I don't care. It doesn't matter to me. All right. It's 85% of the experience. To me, that's good enough. It's not 85%. It's just not.

Yeah. All right. Be that as it may. Our email address is still, you can do that from your couch. Animal Spiritspod at gmail.com. Thank you for listening. We will see you next week.