Animal Spirits Podcast - The Emergency Rate Cut (EP.128)

Episode Date: March 4, 2020

On this week's show we discuss the wild moves in the stock market, the emergency rate cut by the Fed, the chances the coronavirus leads to a recession, the crazy move lower in interest rates, Robinhood's issues, the industries most impacted by the pandemic 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. Our friend Phil Perlman likes to say, the higher the VIX, the higher the clicks. And being in the content game as we are, we have to be on our game when markets are falling, right? It's not that fun to write about the markets when they're rising. I enjoy it more when they're falling. And that's honestly when a lot of people come to read our stuff is when markets are falling. So we leaned heavily on Y charts last week because we were shooting out that content very fast. were we not? Yeah, somebody was like, geez, you guys are on fire. And I responded, it's been over a

year since markets have given us the opportunity to write about this. I agree. I don't want to say it's more fun, but I feel like to the extent that we can help people, we do a better job in a bear market. That's when people start reading that don't usually read this stuff. Right. And we leaned heavily on Y charts last week because they have a ton of historical data that we could use present data. We use a lot. And we're going to be using it throughout this episode. But they made our lives a lot easier because we had that data at our fingertips and much easier to use and share with each other on Slack for the stuff that they didn't go out in client letters and all that stuff. So go to Y charts. Tell them Animal Spirits sent you. They'll give 20%

off of your initial subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Battenick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Batnik 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 Rithold's wealth management may maintain positions in the securities discussed in this podcast. So, all right.

Last week was full of superlatives. Ben, I'm just going to rattle some off and interrupt me if you want to riff on any of them. So that sound good? Hit me with it. Okay. So Y-Charts made a chart for us. The Willshire 5,000 fell $3.69 trillion in five days. Obviously, the dollar amount was by far the biggest fall ever, not even close.

Sentiment Trader was all over it last week. Hey, how many stories or tweets did you see this hasn't happened since or the first time this has ever happened or the biggest or the longest, like a lot of lot of stuff that hasn't happened before. Right. It was great. I mean, it's not great the market's falling, but very rich for content. So a sentiment trader does a lot of great stuff on this. He said, this is the fastest the S&P 500 has ever wiped out four months worth of gains after hitting an all-time high since 1928. Wow. This is another one from him that somebody else tweeted. Retail traders bought a record volume of put options to open last Friday. In other words, Bears went all in buying a record number of puts when Vix hit 50. Well done.

Bears. Now, we are recording this on Tuesday. We didn't do it on Monday because we wanted to sort of see where the market would shake out. Obviously, Mark was up a lot on Monday. I'm glad we waited because things are happening. Things are happening. Emergency Fed announcement. I rolled my eyes. Initial pop, we're giving it back. I feel like an emergency fed cut, that's never a great idea or it's never a good thing. I don't take this as a good thing. Although the sentiment there was one of mockery. It's like yelling fire in a theater that's not necessarily. crowded, like it's scaring people for the sake of scaring them?

I think they're trying to slow the fear down a little bit, because the fear is spreading. We talked about this. The fear spreads faster than the virus sometimes. I think they're trying to get ahead of it. This is almost comical, though. A little bit, but I think it shows how much they realize this is real. If we don't go into a recession after this, I don't know what is going to cause a recession. The base case scenario here has to almost be at least a minor recession.

Am I wrong to say that? I'm with you. So Jim Grant spoke to Barron's last week. Somebody sent us this. He did a video where he said, monetary heresy is the biggest threat to not only this country, but to the world. The suppression of interest rates is a clear and present danger to human life as we know it in commerce. So I think that this is. I feel like you can't say that unless you're wearing a bow tie. I think that this is hyperbole, at least in my opinion. Are you sure? Are you telling me the Fed and interest rates aren't the biggest threat to humanity? I'll take the other side of that one. However, I understand the Fed bashing. I really do. Especially after an emergency interest rate cut, people could say, yeah, true, we're only 30% off the highs or whatever it is.

However, they're trying to be a calming force. Here's the thing, though, this correction, I don't think any of the corrections have really made that much sense since 2011-ish. If we're just going on, what's going on in the markets and the economy and the fundamentals, none of them have really made sense. Even the one last year in the end of 2018, there was really no reason for it. It just happened and then it was over. Hindsight bias called it once its forecast back. But even at the time, we were saying, this doesn't smell right.

This one right now going down, even though we were down 3%, 3%, 4% last week and then up 5% yesterday, this feels real to me. This one feels like this actually makes sense. So we've had all these people who say, markets are broken and they don't work anymore and they're not pricing in X, Y, Z. I think the market actually did a pretty good job pricing this one in and saying, okay, this is crazy. This could have a really big impact on the global economy. They looked at the revenue for the Macau casino. Someone tweeted this the other day, that it was down 97% or something.

Somebody had a good observation. I think it was 87. Somebody were like, wait, who are the 13%? Huge degenerate gamblers, right? They're the same people that have been trying to put options trades in Robin Hood the last two days. So this one actually makes sense to me. And I wrote here in our notes, this is before the Fed came in, a lot of what's going to matter in the markets is like how much is the stimulus we receive

and when will it even matter. And there's a ton of emergency rate cuts during the financial crisis. They did one around the Bear Stearns and people thought, okay, they cut 50 basis points were saved. I don't know that the Fed can really do anything, but try to calm the fears a little bit with stuff like this. But if we're going to have a slowdown because of this, lower interest rates are not going to help anything. Maybe they help for a day or two in the markets, but I just don't see how the Fed can really – this has got to be like a fiscal thing where the government pumps a ton of money in and they say, all right, free testing for everyone. And if your school shuts down, we're going

to be there to help with almost like unemployment insurance. If you have to stay home from your job, we're going to help you out. It would have to be something like that, I think, to stop this from everything I can see. I don't see what lowering interest rates is going to do to help people. I think it's had to be psychologically motivated. It's not going to do anything to the economy at this point. What do they take the Fed Funds rate to from? Right. I just from everything. And again, I think the market reaction last week was legitimate and perfectly normal based on the potential slowdown this could cause. Again, we don't know exactly what it's going to be. Even the best case scenario here is some sort of slowdown, it would seem like. But on the other side of that,

this stuff happens. And I hate to be the context guy here, but I looked at it. I think you did the same thing. I looked at intro year peak to trough drawdowns going back to 1950. The average is 13.4. We reached 13, I think it was 12.7 on the S&P. Hold on Friday. I'm an intraday guy. Always have been. Fight me. All right. I'm anti-intra-day, but go ahead. Tell me why. I don't know. That's like people who trade levered three times ETFs like you. Those are the only people who use intraday numbers. How far back do you have intraday going to? I feel like the data isn't that far back. Stock charge has gone back to 1970. Okay. That's not bad. All right. Either way, yes, point taken. What? So what are you going to say that? A, this is a normal, this is normal in terms of

markets declining. And B, returns are higher after a drawdown, obviously. Yeah. So it's unfortunate to say this happens and every time the reason is different. But when you say something like that, the response from people that I got was, yeah, but how many times did this happen when valuations were high and we're in a pandemic. And of course, every time is completely different. Unfortunately, the reason doesn't matter. Stocks tend to fall by a lot. And it happens on occasion. It's like every 1.75 years, we get a 10% correction at least. Did you just go two decimal places? Sorry. I believe you mean one and three quarters years. Actually, using your lexicon. The real move, well, obviously the real move has been in stocks, but the bond market, holy moly. So rates have

absolutely plummeted. And it's funny because two weeks ago when I was talking about refinancing my mortgage at 2 and 7-8s, I was ecstatic. And last week, I was like, wait, wait, wait, wait, I'm not locked in, am I? You could go back to them technically and say, would you do that? Would you say, I could take my business elsewhere unless you guys give me a better rate. Would you do that? Nah, I don't feel like going through the process again. They may say you have to pay a little bit for it, but. Yeah. So rates have come down so much that Jeremy Schwartz shared a chart on Twitter percent of S&P 500 stocks with a dividend yield greater than the 10-year treasury. It's up to like two-thirds of all stocks. Now, obviously, the dividend

yield of a stock can get wiped out on 30 minutes. But this is an interesting chart nonetheless. The one that you shared with me, I think Josh actually alerted us to this. The 30-year treasury is below the dividend yield of the S&P 500. This happened briefly in 2009. That was obviously rates falling, but also the dividend yield shot up to like 4 percent then. The dividend yield has been pretty static for a long time now. It's only like 1.8%. So people look at this through two different ways. On the one hand, you have investors who are like, wait a minute, why would I own long bonds? Like obviously stocks are more attractive here. But people that are buying the 30 year treasury are not necessarily hold, I mean, they're not holding it for 30 years. Right. And at this point,

it's basically a momentum play in long bonds. But we talked here a few months ago. Here on this podcast? On this podcast. And I don't mean to call you up, but we're talking about could rates go lower? and you laughed at me and said, no way. And I said it's going to happen. What? Proof. Where's the proof? I'm going to go back and...

I'm going to go back. I know you did. I'm going to go back and find it. I know you did. Okay, go through the archives. I dare you. And I said, I think it's going to happen in the next recession. I think now it's almost guaranteed to happen in the next recession.

I mean, we're not even there yet and rates are at 1% on a 10 year almost. Well, you know what I said? These rates are going negative. What? Excuse you, sir. Rates are going negative? Interest rates on U.S. Treasuries are going to go negative in the next recession.

session. Time stamp. That's unlike you. I usually do not say this stuff. But what other, I mean, how much further do they have to go? They're already at record lows across the board. The 10-year treasury is at like 1.05%. If you remember a few weeks ago, I said that there was complacency in the market and that people weren't taking the virus seriously. Do you remember that? Yeah, that's possible. I might have said that. All right. So somebody tweeted the virus, more than. mortality rate by age. So I think that this made me feel at least a little bit better. Basically, people under 50, the mortality rate is less than half a percent. From 50 to 59, it's 1.3 percent, 60 to 69, 3.6, 70 to 79, 8 percent, 80 plus 15 percent.

It feels weird to be feeling okay by the fact that it's just old people dying. But I think the point is, this isn't like the 1918 case where people in their prime were dying. it sounds like it's a lot of elderly people who already had poor health conditions, but that doesn't mean it can't get worse. So Bill Gates wrote a piece about this, and he talked about how this is just modeling out the numbers. This is somewhere between 1957 and 1918, which I don't even know that much about the 1957 version, and he wrote his perspective on it.

And apparently he and his team have been working on, they've been worried about something like this for a long time. And he says, it's possible this is a once-in-a-century pandemic. So I don't take Bill Gates to be someone who puts out statements like that. He didn't say it is. He said it's possible. So again, I don't think this is like the, oh, yeah, the Fed cut rates and everything's going to be fine. The crazy one to me is like trying to go through and figure out, okay, what are the biggest

pieces that are going to get slammed? And when I looked at the stocks last week, tourism is the big one. And so I found the OECD has some data of, I was trying to figure out how big is tourism as a percentage of GDP for some of these countries. And I found it on OECD data. It's from like 2017, but it's so pretty close. United States, it's like 3%. France, it's over 7%.

Australia, it's 3. Spain, it's 11 or 12%. Switzerland, it's 3%. Where's Italy? Germany, it's 4. I couldn't find Italy on here, actually. Japan, it's only 2%. Mexico, it's like 9%.

So small numbers, but not insubstantial. And I looked at the numbers of the cruise ship carriers are all down 40%. Carnival, Royal Caribbean, Norwegian. I got an Instagram ad the other day for 70% off cruises at Royal Caribbean. What do you think about this pair's trade? They're going to need to take that to 100% for people to go. Okay. I buy a cruise 18 months out for like $300 and I short the stock. Is that an arbitrage play?

A relative value. I think what a lot of people are going to do here as investors are look for these situations where there's been huge carnage and try to get ahead of it and either pick the stocks or get out of those areas. And I think that's just going to be really hard to do because I think the expectations on this stuff are going to change on a daily basis. So you asked a question about people cancel their vacation. I am supposed to be going away March 19th. So we're two weeks out. Have it been away. My wife and I are going away without the babies for the first time since we had babies. And we're going. At least that's the plan as of today. And you're going somewhere nice.

We're going to NASA. Okay. Thoughts and prayers. We're going away in April to Florida. I don't think we have any plans on canceling just yet. Wash your hands. Bring some of the hand sanitizer with you. I don't know.

What else do people say to do? I don't know. I appreciate that. So I don't know. Some of my favorite stats last week came from Eric Balchunis and Tom SeraFegas. They just did some great work. So let's get into some of these stats. Some of these might be stale, but we're going to go through them anyway. VOO took in over $1 billion, while Vanguard as a whole took it over $3 billion during the worst two-day decline in the market since 08, with 57 of their ETFs have taken in cash in the past week. Wow. Here's another one. Vanguard ETFs smashed their inflow record with $25 billion in February, with $6.4 of it coming in the last week.

So people who were worried about index funds and ETFs crashing the market, they held up really well. They showed one week flows way out of State Street and I shares all into Vanguard. And then this was great. Turnover market share for the week of February 28th. And State Street had 43% of the turnover. I shares at 26%. Invesco 9%. Vanguard, just 7%. So Jason Zweig wrote a kid. pick-ass article basically showing that institutional investors are more likely to sell than individual investors when there's a large stock market drop. And the irony is rich here because it's always like the pundits and the professionals that come on and say mom and pop are panicking. And they were the ones who were buying this. It was the professional. Honestly, that's what it's

always going to be. The professionals are the ones who move the markets. So it's these algorithms or hedge funds or big time institutional traders. Those are the ones. that are moving the market, not mom and pop, which is now used as a derogatory term. Maybe it always has been. Here's a good one from Nate Gerassian. So this is, you would think the regular S&P 500 ETFs would be okay. But everyone always says, well, what about the places where you can see an illiquidity mismatch? So high-yield bonds. He looked at H-YG and JNK, which are the two biggest high-yield bonds. And those are the spiders and I-shears high-yled bond market. Hy-y-G lost nearly 30% of its assets, and JNK lost 15% last week from outflows. And

those markets were completely fine. And that's all professional money. Yes. So there wasn't a huge liquidity mismatch because the ETF underlying hedgers basically did their job. And so there was huge selling of these ETFs and everything was fine still. It wasn't this enormous thing where you saw these dislocations in the markets. And that's why I said, again, I think this selloff has actually been relatively orderly. And it seems to make sense of our, like we haven't had an ETF flash crash type of situation. And I think it's been kind of orderly. And if it continues to go down from here. I think it's going to, you and I talked last week, and we've mentioned this on past bare markets, you're going to see these face ripping rallies. And of course, that happened yesterday,

the 5%. And that makes sense too. Those are going to happen as well. You think since you're giving predictions, do you think we saw the bottom? That is beyond me. 40% chance. Do you just say that is beyond meat? No, that's beyond me. I would not say that. You know, the funny thing is that when Stocks start falling. People say stuff like, gun to my head. Like, that's really good investment analysis. Well, gun to my head. Of course, gun to my head. Probably not. I mean, this is going to take a long time to play out. T-vix to your face. What happens? Yeah. So they did a survey of the Vanguard investors and this is one we can get behind. But I guess who would have thought that Jason said mom and pop are actually steadying the decline perhaps with all their buying? All right. So among those individuals that were surveyed, which is around 16,000 individual investors, 60% of them forecast one year returns between 0 and 6%, which is, again, a rich irony that they have more realistic expectations, whereas professional investors almost always are 8 to 10%. Right. They're way below what you'd get from like the pension funds. Every pension fund

is at least 7% and up. Yeah. So I think I've said this before. Vanguard has probably the most well-behaved investors of any investment firm there is. Well, speaking of well-behaved investors, did Luke time the top of the market with that piece on Reddit users? That feels like a long time ago. The top of the market, the all-time high, was 10 days ago. Does that not feel like it was a year ago? Last week feels like a year ago.

Because the news flow just continues to happen. And I think it's probably because people pay more attention to when markets are going down. And this is true for us, too. People say ignore the noise when markets are going up. then when they fall, everyone pays attention to all the noise. And you want to get this like illusion of control. I love the noise. I do too, but I think a lot of people probably don't use it correctly. But you want to like have your hands on the steering wheel. And it's tough. So he did this story in Bloomberg about Reddit investors that were pushing around the market and buying call

options and picking these stocks and pushing them around. We spoke about this. And I think we sort of nailed it that actually their option flow can move little stocks. Potentially. Yeah, it looks like it does, which is surprising. I think they had people on each side of the argument saying, yes, it can or no, it can't. I said to you, don't you think the SEC would love to go after these people, these crazy Reddit punks that are pushing on stocks? And you said no. So I have a story from a friend in college. Wait, wait, wait, hold on.

I want to hear a story. But I just said they're not going to waste their time with somebody with a $3,000 account. That's all. They have limited resources. I think they would love to make an example out of these kids, assuming their kids. So my friend in college had like no money. We were sophomores at the time. And he, in the summer, started going to penny stock conferences at hotels.

It was like a Marriott. So this is 2001, probably. And he got subpoenaed by the FBI because he was on Yahoo Finance message boards, pumping up some of these penny stocks to then sell them for a profit. And he got brought in front of the FBI for a case. He was obviously part of a bigger thing because I think whoever gave him these ideas was the big ringleader and he was just brought in. But he got put on the stand and his lawyer told him that he advised him to plead the fifth. And so he got asked 117 questions and he had to plead

the fifth 117 times and basically has still has it on his track. He's in the finance. He works in the finance world, but still has this on his long term track record. What is on it? What does it exactly say? I don't think he can work in like the financial services industry. And he was like a sophomore in college. And we were at the time going like, why would they care what this kid did in a Yahoo finance message board? And he probably has like $1,500 on his stock or something. So Robin Hood was down yesterday.

And it's down again today, apparently. I think Goldman should buy them on the dip here. Don't you think? They could get them at a lower price. But this, for a few hours, I think I tried to log into Vanguard on Friday and it was down for 20 minutes maybe. I have a Robin Hood account. And I made a comment yesterday on Twitter saying, listen, if your brokerage firm being down for a few hours is going to meaningfully change your financial life, then maybe you're taking too much risk.

It's such a dad tweet. Yeah, maybe it was too much. And my point was like, listen, not just to be little young investors, but this happens. This is like the same thing in the flash crash of 1962 where they were trying to put in orders three days later or something. Unfortunately, this happens when people are trying to panic buy and panic sell. But now that this has bled over into day two for Robin Hood, a whole day and maybe a half, this is not a good look. They're going to lose a lot of customers from this. I actually am a customer and I have money there.

I've tried to get in the last few days and luckily I didn't really need to to move anything around. But when things are based so much on trust, they built up this trust with a younger crowd, I think, and that they were anti-establishment. Guess what? If you're anti-establishment and you can't get your technology right for whatever reason, that's not a good sign. I don't know how they make this right because they said, let us know if it's impacted you on an individual basis and we'll make it right. How are they going to do that? Well, I was going to go buy options on Tesla yesterday and it was up 12 percent and I missed out on $10,000 or whatever it is. I don't know how they make that right without the counterfactual being there.

Sounds to me like they're going to have a lot of anger customers and I don't know how you gain that trust back. So Morgan tweeted this. Maybe they'll get free unlimited leverage to everyone. I don't know if he was talking about Robin Hood, but I can't remember. So Howard Marks put this in a memo. I tell my father's story of the gambler who lost regularly. One day he heard about a race with only one horse in it. So he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away. Invariably, things can get worse than people expect. Maybe worst case means the worst we've seen in the past, but that doesn't mean things can't be worse in the future.

I guess, but don't you think this has probably always been something that happens during panic buying and selling? Like, in the past, you just couldn't get on the phone with your broker to tell them to put an order in for AT&T shares. And now we just have the ease of access so people get used to it. So when these things do happen, then people get really angry. But again, if I'm Goldman, I step in here and I make a nice little offer and say, listen, if you let us buy you, we'll take all these problems off your hand. We'll hand your technology and here's your payoff.

Because I don't know how you get that trust back after a couple days from some of your hardcore users, especially now that trades are free everywhere and they can go somewhere else. You know, it didn't age well? Forget Dow 30K. It's already hit 40K on license plates. That was February 18th. So I guess just before the market peaked. But this article was in the Wall Street Journal.

I'm a reader, but this one bugged me because they made this like a story that people are getting Dow 40,000 license plates. What happened was somebody got a Dow 500 license plate. And every time he hit that mark, like when it hit that 500, then he got a Dow thousand license plate. And then he got a Dow 1,000. And every time it doubled, and every time it hit that target, he would get another one. So this Dow 40,000 was actually bought when the Dow passed 20,000, which I think it was like, I don't know, 2017 or something. So this was like such a story, non-story.

Does this guy drive a Tesla? This sounds like someone who would do it who drives a Tesla. Once again, Team Dalia on his quest against the Wall Street Journal. Okay, you're not good of this one. I don't know. It's a personalized license plate story. Why don't you relax a little bit? No, it wasn't.

This was a market. This was an absolute deal. Okay. You're right. It says nothing says stock market bowl like a vanity. Oh, it's on a BMW. Take it back. When the index reaches milestones, Optimus posts new predictions on bumpers. I don't know. The story was two, no, three years old. Okay. You're right. And honestly, they were trying to call a top and they finally did. Finally. The covers have been trying to call a top for years and they finally did it. Okay. Paul Singer from Elliott Management, which is a huge hedge fund, wants to replace Jack Dorsey, who's a CEO. of Twitter. It almost sounds comical like a episode of Silicon Valley because Jack Dorsey wants to move to Africa and he's a CEO of two companies and that's why they want to push him out. Never a good sign

when activist investors say they want to add more people to the board and push you out and your stock goes up 8% in a day. But doesn't this seem like a layup where... To oust him? That an activist would come in and try to do something because this stock has gone nowhere forever, right? Yeah. As a way to monetize this. But do you think that someone else's could come in and ever really change it. Don't you think Twitter is what it is and you're probably not going to change it for the better? Twitter is driven by its users, not by its CEO. Yes. That sounds like something that a Twitter user would say, but yes. Thank you for coming to my TED talk. But I mean, unless they hire, how can't they not just copy the code from the Instagram

advertisement and put it on Twitter? Doesn't that seem like all they would have to do to change their entire business model around? Why are Twitter ads so much worse than Instagrams? I don't understand this, because all the technology firms just copy each other. Why would they not just copy it? I don't know. All right. So this was another, I mean, there's so much content these days. I think it's almost just going to be so easy to find a top anyways.

But this was February 24th from institutional investor. And they did a private equity venture capital survey. And one respondent wrote, I've never been more bullish on this industry. I continue to be amazed at how damn easy it is to make money. 95% of the investment professionals, advisors, and vendors reported self-confidence in the industry from a new survey from Semaphore, an advisory firm hired by limited partners to take over the troubled private equity venture capital hedge fund space.

When was the survey from? This is in the last month or so. So 95% of investment professionals who work at these firms have confidence in themselves. Only about half have confidence in their immediate boss CEO or managing partner, which I think a lot of people can probably relate to. I'm the greatest, but not my boss or the person who, but just they have never been more bullish on this industry. and I continue to be amazed at how damn easy it is to make money. That's how people respond when they're asked about it as the world getting better. Yes.

The world is getting worse, but things within their immediate vicinity are getting better. Yes, that's why that one from a few weeks ago from Gallup said 90% of people said their personal lives are better, but the world is falling apart around them. All right. Here's another reason why we hate surveys. Youth behavior trends. So this is ninth graders, 14 to 15 year old from 1990 to 2017. And they asked them, how much do you watch television, had sexual intercourse, used. marijuana, played video games, tried smoking or drank alcohol. And everything but using video games

has gone down since the 90s and video games has gone up. So here's why I don't believe this. In the past, here's maybe a crock pot theory. In the past, there was no social media to hold you to Do you say crock pot? Yes. Isn't it a crack pot? Is it? A crock pot is what you use to, that crock pot is how I cook my meat. Yeah, well, I'll take that with a grain of sand, I guess. All right. That was one on me. In the past, you didn't have social media to hold you accountable for the things you said. So you could say, like, yeah, I've got a girlfriend.

I met her at camp. She lives in Canada. And no one could call you on that because there's no social media look at it. And yeah, I went out drinking with my buddies over the weekend. We had a great party and no one could call you on it. Now everything you do is on social media 24 hours a day. So don't you think in the past, if people did this stuff, they were just lying about it, and now maybe they're telling the truth or vice versa?

I don't think that this is something where kids are all the sudden becoming more well, behaved just because they're staying inside and playing on the internet. One more. This, obviously, our brand is strong at this point for being anti-survey because a million people sent us this. And CNN put out a post that said 38% of Americans wouldn't buy Corona beer under any circumstances because of the coronavirus, according to a recent survey. And this one got actually pretty good. What the survey actually says is 38% of beer drinkers said they wouldn't buy Corona for any reason at all. Four percent of people who usually drink Corona say they would stop. And I don't know what's worse here. The fact that they got this survey results wrong or the fact that

4% of people who took this survey actually think stopping drinking corona makes sense because there's a virus called the coronavirus. Tough to choose a loser here. Yes, it's all of us. Okay, I looked at, we talked about this last week. I looked at the spreads between mortgage rates. And so I was trying to figure out what is. Spres between mortgage rates and what specifically? So mortgage rates in the 30 year treasury. So I tried to figure out what is the relationship. We try to figure out, is there a floor under mortgage rates? And maybe I was probably wrong about this. So mortgage rates track treasury bonds pretty well, but the average spread between the 30-year mortgage rate and 30-year treasury bond is 1.7% since 1990. But it ranges from 0.9% to 3.1%.

Did you make a chart? Yeah, it's in here. The biggest spread was actually in 2008, probably because mortgage bonds just blew out and that messed up. So there is a decent range on these. It could be a 2% range over time between the high for one and the low for other. So there is a relationship and there's probably not a floor under mortgage rates. But anyway, that was the finding, about 1.7% average spread. I like this. Somebody said the feds released daily what the rates are and everyone who lends has the same rates. If you see a sign in a bank that says we have the lowest rates, this is not true. The only thing banks and lenders can control is the amount of money then take off closing costs. This is called buying the down rate. The higher rate you take,

the less money you pay at closing. The lower rate, the more you pay. Individual banks do not control what the rates are. I have no idea what the spread can be and how low they can go, but wanted to let you all know the banks and lenders do not control how low their rates are. Did you have to pay one-eighth of a point to get your rate at two and seven-eighths? I had to pay something. Right. It's confusing. I was going through all the documents with Bill, just making sure that everything is kosher. And it appears that there is, but man, there's a lot to go through. Yes, and there's a lot to sign.

The process is kind of a pain. I wish if they figure out a way to put it on the blockchain to make it easier. All right, we've got a bunch of listener questions. I have a lump sum to invest in the downturn. What do you think? Should I put it all in an index fund or value invest in specific stocks that are quote unquote cheap? I normally go 85% index, 15% in value stocks, but I'm tended to put more into stocks now.

Does this make sense? Sure. I mean, caveat, caveat, read our disclaimer. This is not financial advice. The reason why I say sure is because value stocks, however you define value, it doesn't matter, have gotten absolutely decimated. Energy stocks, oh my God, retail stocks, anything that has been performing bad recently, all the value stocks just got hurt even more last week. So if that's what you normally do, and you want to over-rebalance into value, by all means. That's the thing.

You could probably find more broken-down stocks that are individual than the market. So a lot of those stocks that you've been tracking have probably down more. The problem is, let's say you put money into some of those and they continue to get hammered and go down more. Then eventually you're going to want to average in again and averaging again and averaging again and averaging again. So what? Have you heard of Robin Hood? Infinite leverage? Okay.

That's fine. I would just be weary of going too far away from your typical percentage and plan because you probably get tempted to keep buying and buying. And guess what? Some stocks don't come back. True. So I would just set some parameters on it so you don't continue to buy and buy. What is it?

Paul Tudor Jones said, losers average losers. Actually. It makes sense to average down if you really believe in this company. But sometimes you just never know. So J.P. Morgan has a great piece. The agony and ecstasy. I guess of investing, where they have a stat, 70% of stocks that experience a catastrophic decline never come back. And when they define catastrophic decline, I believe it's 40%. So 70% of stocks that

fall 40% never come back. So to Ben's point, be careful. I heard you mentioned last week that you got off the wait list for Robin Hood Cash Management. That's me. I've got about 20,000 spots to go. I wonder if those spots are going away rapidly at this point. It is It looks like now they have $1.2 million in the wait list, which is nuts. I'd be interested to hear your experience and benefits are really going beyond a slightly higher interest rate than Amex or markets or Marcus. I'm wondering if there are other benefits that might make it worthwhile to move cash around. Listen, if you already have your money in an online savings account, yield chasing is not

going to make you much more money, especially with rates. I think it is 1.7 or 1.8% at the online savings rates now. And guess what? Those are going down now that the Fed just cut rates 50 basis points. Thanks a lot, Jerome. So you can definitely, yeah, count on those being cut as well. So it'll probably be closer to one and a quarter now to use Michael's fractions. We were told Fannie and Freddie use the fractions.

It's standard of the mortgage industry. Get a clue, Ben. It was fun having some yield on our savings for about 18 months and now it's going away again. Yeah, that's nice. Once you move away from a 0% yielding savings account at a bank to 1% or 2% or whatever it is in an online one, don't move it around a lot. That's a waste of your time and effort. it's not really worth it for an extra $10 a year or whatever you get. All right. Would you recommend younger investors, say 22 to 29 be invested 100% in stocks,

or would you recommend the relatively more conservative portfolio to capitalize upon drawbacks like this? This is the one that it depends. I started really investing heavily in 2007. That's when I really started having a 401k to put money in and opened my IRAs and all this stuff from my wife the same way. And I put it 100% in stocks. and I think we just got lucky because markets continue to go down and go down.

And every week we'd put money in and we'd see our balance fall. But I knew I'm just at the start of my career. I can handle this. Some people just can't handle that. And I think it honestly, does 10% of your money in bonds really matter that much when stocks are getting crushed? No, because they're still going to fall a lot. So I think you have to have a decent amount in bonds for it to really matter. But you just have to find your own pain point and figure out what,

going to work for you. In a perfect world, should young people have the majority of their retirement assets and stocks because they have time to recover from bare markets and they have human capital? Yes. But a lot of that life cycle of your investing depends on your personality and how much you can withstand. Well, how about this? I would say that one way to differentiate this advice is let's say that you have a 401k that you're contributing to every two weeks and you're not looking at your balance because why would you? In that sense, I think 100% stocks makes good sense because obviously they have higher expected returns than bonds to at this point. You're buying every two weeks.

So even if they go a lot lower, you should be smiling as that happens. But let's say that you got an inheritance or you saved up some money and you've got, pick a number, $100,000, $50,000, whatever it is, in a brokerage account. People treat that money differently because it's more real. They could take it out penalty free. They could spend it tomorrow. So people have different psychological reactions to taxable accounts versus non-taxable. So if you're nervous, I totally can get behind the fact that maybe you shouldn't be 100%

stocks in your taxable account. Yes, I think you feel almost more secure when it's in a retirement account and you just know you can't touch it or you shouldn't touch it. All right, here's a simple one. What if you invested a lump sum in the NASDAQ on March 10, 2000 at the peak of the dot-com bubble? Ben, did you write a post about this? I wrote something similar. I wrote how in late 99, early 2000 was probably the worst entry point in the history of the stock

market for the U.S. investors. and I think it's probably going to be the worst 30-year return ever at the end of this decade. But I looked at it, so Y charts has a feature where you can see what the growth of $10,000 is. And in the NASDAQ composite, and this is without dividends, but they don't pay much in dividends anyway, $10,000 would grow now to roughly $18,000. And so you're underwater for probably until, call it, 2015, actually. So the break-even on that one for the lump sum of the NASDAQ was tough. Well, who puts $10,000 into the NASDAQ and $2,000 like an idiot?

Right. They should have invested in the Amazon IPO three years earlier. Duh. I don't know what they were thinking. Okay. If you could borrow at 0%, would that change if you prefer a 15 or 30-year mortgage? So Jake asked this to us, and this is a really good way to frame it. And there is definitely no right answer here because on the one hand, to me, what was

so attractive about the 15 year is just the idea that I'm going to have my mortgage paid off in 15 years, that gives me a huge shot in the arm. I feel so good about that. On the other hand, if the money is literally free, why wouldn't you spread it out over as many years as possible? So personally, I think I would still go with 15, but I'm not positive. So to you, it's not as much about having it paid off. It's the interest expense. That's your biggest concern. Well, Jake is saying if it's zero percent. I know. I'm saying for you right now, the biggest reason you're going from a 30 to a 15 is because

you're worried about the interest expense. Because it's a humongous, correct. Right. You wouldn't have to worry about that interest expense if it was zero. Correct. Yeah. Well, what would you say? Would you take the 30 years or be done in 15?

We can probably figure this out next week when mortgage rates are at 0% because the Fed is just going to keep cutting. So maybe this will be a real thing in the next recession. Now that. All right. Before we get into recommendations, we just wanted to mention we talked to this new startup called Get Shuffle app and we've never had transcripts of the podcast before because we couldn't find a good when we liked and we just frankly didn't want to pay for it because we're and

maybe we're just too lazy to look into it. But this startup came to us and they have a cool idea where they have all of our podcast episodes loaded and you go through and they have the transcripts and you can highlight a part of what we said and I think it's a 60 second clip and when you highlight it, it immediately has turned into a little video clip that you can share on Instagram or Twitter. And we'll include a link in the show notes, but it's a pretty cool idea. The video is transcribed as well. And the video is transcribed as well. It's very easy. And we just didn't want to do any of the work on our own for this. And we've had a lot of people ask us over the years for transcripts of the podcast. So now this will be available

through Get Shuffling. We'll put a link in. Also wanted to mention there's an audible version from my book now. People ask about that too for don't fall for it. And they finally lowered the price for me. People at. Air quotes. Many people are asking. Many people are saying it's the greatest book ever. They finally lowered the price too. When they set the price, and this happened to you too, I think. We never really asked how much they're going to charge for this book because we figured

for a book it doesn't really matter. But they charged like $28, which kind of made me mad. But at the end of the day, I didn't really think about it that much. And a lot of people got really upset at me for that, even though it was out of my hands. And they lowered the price this week to like 16 or 17 bucks. So if the price of my book was holding you back before, it's lower now. by 40%. It's in a drawdown.

It's under the 200-day moving average. Approaching the Fibonacci something. So anyway, wanted to mention that. All right, what are your recommendations? Jud Appetal and Conan was so great. You know, you turned me on to that. I think that's my favorite podcast right now. He's great.

He's funny. He gets serious. It's, yeah, I like it. Good Night Moon is growing on me. And not because... Oh, that's a big turnaround. Not because I like the book, but I like that when I read it to Kobe,

but he knows that it's good night. Okay. Big on duck and goose in our house lately. Don't know that one. Okay. It's a series, but there's a million book series. Honestly, don't you think the two of us could write a children's book? I think so.

You rhyme words with bed or night, and they make no sense, and you draw some animals. Do you know the book, No, David? No. All right. Okay. I am sad to say that I recommend pet insurance. my sweet, sweet Bianca needs surgery. She can't walk and it's heartbreaking.

So we do have pet insurance, but we don't have the top plan. Hips or knees or something? It's a ligament. I don't think it's an ACL, but she can't walk. So I'm like picking her up in it. And she's a boxer. She's a big girl. It's pretty much impossible to leave the vet without like a $2,000 bill.

Is it not? So this is, I don't know, probably like $6,000. Anyway, so I didn't have the top of the line. plan. I had like the middle. So they'll cover some of it, not all of it. If you have a big dog particularly, I do recommend pet insurance. So I'm glad I had some, but not the top of line. Okay. Lastly, there's a show on Netflix called Love is Blind. I'm not a huge reality TV guy. My wife watches every Bravo show, all of them, huge Bachelor fan. My wife was big time into Love is blind this past week. Did you see it? Watch it with her? It was one of those things where I was on my

computer as she was watching. And I found myself looking up a lot and asking her questions and watching. So I watched for like a half hour I watched. So love is blind is basically the bachelor, but it's blind dates. So people speak to each other through a door that you can't see them. And they fall in love in like three days, these people. And your knee-jerk reaction is to say, oh, my God, these people are so crazy. But they're not crazy. They're people. And this is so predictable that this is going to happen.

So it's like the best social experiment I've ever seen. I've only seen one and a half episodes. I don't even know that I'm going to continue to watch it. But it is very compelling. I just wrote a blog post for you. Why love is blind is like only. Stocks. I fell on what was Tesla in three days. Right?

Oh, lastly, I wanted to mention, oh, I want to mention two things. We're doing the founder for the rewatchables next week. Stick around for that. I'm reading The Hot Hand, The Mystery and the Science of Streaks by Ben Cohen. He's going to come do a video with Josh and I. And this is one of those rare books that has gotten better as the book went on. Does he believe in it or no? Give me a yay or nay.

It's a little bit more nuanced than that, Ben. No spoilers. I feel like people who don't believe. Even the hot hand have never played sports before. That's my take. I am a hot hander. The hot hand definitely exists and you cannot convince me otherwise. Data cannot change my mind.

I'm a hot hander. But he talks about the mystery and the science of streaks in other areas of life. So like, did William Shakespeare have the hot hand? I don't know. That's interesting. Yeah. That's not a bad idea. Did Michael and Ben have the hot hand as the stock market was falling last week on their blogs?

Maybe. Hell yeah. All right. All right. Two docs. I watched the Taylor Swift doc on Netflix. I got to say I kind of enjoyed it. My five-year-old really likes Taylor Swift and Katie Perry.

And I got to say, I have a better appreciation for pop music now that I hear the same songs over and over from them. Taylor Swift is not bad. I kind of like her music. Who said she was bad? I mean, a lot of people hate on her, don't you think? I guess. I mean, she's one of those.

I think that just happens when you get that famous. But her doc was actually pretty good. It was interesting the fact that she's probably one of the most accomplished artists in the world right now, but she talked about the fact that, If she ever tried to have kids, it would be impossible to do because she already has her life planned out 18 months in advance in terms of putting out CDs or albums and going on tour. It would just be impossible. It's interesting to see that hard charging lifestyle when she's already accomplished so much. On the other hand, Craig Kilbourne was on the Rosillo podcast last week. And he was former SportsCenter anchor, one of my favorites from the late 90s. He was only there for like three years. Then he moved on to do the Daily Show, which was the Daily Show before John Stewart. So before it came a political. show. And I actually used to love that show. He did the five questions. And then he moved on and he took over the late show after David Letterman and did that for a number of years. And then he basically just went away. And I think after he did old school, his minor appearance than that, he hasn't really done

anything since, except start an Instagram account. What does he do? They were trying to get to it. And he basically said, listen, my only goal in life was to host a late night show. And I did that and I didn't want to do it anymore. And I made enough money. And I decided to just walk off into the sunset. So it was interesting to see that dynamic between Taylor Swift has accomplished so much and is still so hard charging and working hard. And Kilbourne accomplished so much at a young age two and just walked off into the sunset. Like, which one do you think deserves more respect? The person who keeps going after they've made a ton of money in head success or the person

who knows, all right, I'm just going to walk away. I've done everything I need to do. Well, obviously the latter. You think so? I think that's the personality thing. Like you can't really choose that. It's in your DNA, right? Yeah, definitely.

The person that made it and keeps going is. so type A psychotic that they will never be satisfied. I don't want to say it's sad, but it almost is a little sad. I almost felt sad for her. Man, this person has accomplished so much and so much of her life is still tied into this. And yeah, but I think that person who is still hardworking and hard charging is the person who is probably more revered in society today, wouldn't you say? Yeah. Kilburn is everyone's like, what happened to him? So anyway, that was an interesting dichotomy there. Anyway, all right. Like we said, founder next week, Stocks higher or lower next week from here.

Oh, don't hold me to it. How about unch? Stocks will fluctuate. How about unch? I don't know. I just think this is not going away. That's all I have to say. That doesn't mean stocks are going to get crushed.

I'm not letting you off the hook. What does that mean? It's not going on. Wow. Big claim. You don't think the coronavirus will be away next week? I'm just saying the overreaction to it is going to continue for a long time. And it could go dormant for a while, then come back.

I think that that doesn't mean stocks are going to get crushed from here. I just think it means we're in for an interesting period. That's all I'm saying. All right, fine. Whatever. Animal Spiritspot at gmail.com. We'll talk to you next week.