Animal Spirits Podcast - The Fed is Being Punished (EP.261)

Episode Date: June 15, 2022

On this week's show we discuss the current market sentiment, the official bear market in U.S. stocks, why the Fed is making a mistake, the insane move higher in interest rates, the crypto winter and more.   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's show is brought to you by NASDAQ. We've spoken about this server that they've done with Merlin AI, and we're actually going to talk about this in a second about Stanley Drucken Miller, one of the greatest money managers of all time, is basically like, listen, I don't know. I got nothing. This is pretty hard. I've never really seen anything quite like this. I'm more in humility mode. Let's just wait and see. So one of the questions that they asked, and this was advisor.

and they said which best describes your investment style. Four hundred fifteen. So basically it looks like around two thirds. Well, let's check my math. I don't want to miss quote the data. Two thirds said asset allocation with buy and hold. Two thirds said acid allocation with a buy and hold philosophy. The other third said dynamic, tactical trading, and opportunistic.

You think that's a pretty good way that if you had to break the market itself down like regular investors. Do you think that's pretty close to that? Do you think there aren't that many buy and hold investors? Oh, oh, I was going to say the opposite. I was going to say the market is maybe dominant by and buy and hold investors. But I think it's more. I don't know. I think one third of like momentum based dynamic. I mean, listen, you're not going to call a lot of these day traders like dynamic, tactical, whatever, because they're just flying by the seat of their pants. But that seems pretty for advisors that are being tactical and trading and This is not that any environment is easy, but this is particularly brutal.

I guess because if you labor yourself as such, you better be killing it right now. If you say, listen, a buy and hold approach was terrible for us for 10 or 12 years because that's not our style. If you say, like, we need volatility and we need markets to move fast. We need all this stuff to happen. You better be crushing it right now if you didn't handle things during that buy and hold phase. Yes, good point. So we'll look to this in the show. No, this survey is from NASDAQ in conjunction with Merlin AI.

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's Wealth Management. This podcast is for informational purposes only and should not be relied upon. for investment decisions. Clients of Rittholds wealth management may maintain positions in the securities discussed in this podcast. All right, Ben, let's officially start the show with a

sentiment check. Well, we're officially now. I've been waiting for it because I care about these levels yesterday. What levels? There are no fundamentalists in a bare market. No, no, no. I'm not talking about technical levels. I'm saying we officially reached bare market level. It wasn't just like 19% in change on Monday, the stock market finally closed in a bear market. By my calculations, if we're saying 20% is the bare market, this is the 13th official bear market since World War II. 13th. 20% or worse.

I mean, there was a handful of 19 in change. I'm not counting those because I'm not an intraday guy. No, no, no, no. Hang on. This is where the distinction matters. This is where it matters. We know that those 19% declines were bare markets. We know that.

Yeah. So don't tell me those warm. bare markets, but here's why it matters. There's a ton of people that get really annoyed. Oh, it's arbitrary. Oh, it doesn't matter. No, no, no, it does matter. Here's why. Yesterday, as I was writing a post about the official start to the bear market, my wife called me and told me that she made a joke that she's going to a department store to make returns because of the bear market. And I said, oh, you heard about it. She said, it's everywhere. It's on eyewitness news. It's on Facebook. And so that matters to the extent that the bare market flashing on the screen impacts consumer

and investor psychology. My wife said the same thing. My wife also talked about the Fed raising rate 75 basis points today. It was on the today show. I mean, it's inflation and bare market and rates are going higher and not good, as someone I know once said. Not good. Well, really not good.

From Friday to Monday, the two-year treasury moved 50 basis points. which is a move that has only happened, the only other times in the data set that I was looking at, that that's happened was during the great financial crisis and during the extreme inflation of the early 1980s. So maybe like the crypto stuff, which we're going into later, is like totally a side show compared to what actually matters, not just to markets, but to Main Street, is interest rates. Hey, positive spin. Sabers are finally not being punished. No, I'm kidding. Savers are not being punished anymore, just everyone else is. So here's another couple anecdotes I heard. So from, let's call it 2008 to 2012-ish, at least, there was a lot of, in this economy, like people

really saying, like, I'm going to do that in this economy. And then from 2013 on, it was kind of people on finance Twitter would say it as a joke. Like, oh, I'm being ironic in this economy, even though things were getting better. I heard a few unironic in this economies this weekend from, we had like a neighborhood block party. We had hanging out with some friends at the pool. I heard some people referencing in this economy. Oh, really? Like you've been an example. talking about buying something or selling a house in this economy or that sort of thing. Like, selling a house in this economy? You kidding me?

Like, this stuff happened so, so fast. We're going to get into like mortgage rates and stuff later. But I agree with you on the bond market thing. The bond market stuff is, so this is as of this morning from Bloomberg, two years trading at 3.4%. And you said it's up like 50 basis points in like a snap of a finger. The 10 year is basically the same. The 30 year is lower than the two year. And the five years is a little higher than the two year.

but the two years higher basically than the 10 year or the 30 year. So why could this happen? I think of simple explanation. It's like, listen, 30 years is so far away. I'm pretty confident that everything will be fine that the USA will pay me my interest for my money back when the time comes. But two years, five years, I don't know, man. I don't know.

Things are pretty nice. So that's maybe an oversimplified explanation of why investors are demanding a higher interest rate for two years than they are for 30 years. The bond market so far doesn't believe that inflation is going to stay here for the long term, but it does think for the intermediate term it's going to be here. Here's the other thing, though. The bond market is supposed to be the smart money. I think we've learned through all of this. The bond market has been really dumb this whole time because we kept seeing inflation rise and rise and rise and interest rates were not rising at all. And I guess you could blame the Fed for keeping the

thumb on the bond market. But the bond market is a lot, a lot of investors. And it wasn't just the Fed buying bond. That's a great point. So the bond market has been as behind the curve as the Fed has. Okay, look at this. These are the interest rates at the first day of 2022. This is not that long ago. The two year was at 70 basis points. Again, it's now at 3.4%. Five years at 1.3%. It's now at 3.5%. 10 year was at 1.6.

It's now at 3.4. 30-year mortgage rate was at 3%. January 1st, 2022. 30-year mortgage is 3%. Now I saw readings this week of 6.1%. This happens so fast. And I honestly think that this is getting away from itself, like getting away from the Fed.

Here's the other crazy stat. Why don't we have portable mortgages? Sorry, finish your thought. Long-term bonds. right now in this drawdown are underperforming the NASDAQ 100. Really? Long bonds from their peak are down 34%. The NASDAQ is down 31%.

Don't you dare look at Y charts. You leave me. You believe me. No, zero coupons. No, I'm looking at zero coupons. Here's my thing. We've talked about this before that at the time in the late 70s, early 80s, when Volker raised rates to 20%, he was a villain.

And in hindsight, he's looked at as a hero because inflation went on for way too long back then. I think Powell is going to be a villain in real time. And if he throws us into a nasty recession, he's going to be a villain in hindsight, too, because they underreacted at first, and now I think they're overreacting. And I think the Fed is going to look like... You think they're overreacting? Well, don't you think they went from underreacting to, like, no. Things are getting away from them right now. The bond market going up that much in that short of a time period and them playing catch up with inflation data, like, it seems to

me based on the stories that the Fed kind of freaked out after Friday's inflation data. Shouldn't they know all this stuff? I don't know. It seems to me like, right now, yes, I think the Fed is overreacting. I think that they're letting mortgage rates go from three to over six in seven months. The stuff is going to break. What do you mean letting? How did they let that? You don't think that the moves and interest rates right now in the bond market are all because of the Fed saying they're going to raise rates and then we're going to do a surprise 75 basis point potentially or people are talking like this is all the Fed. You don't think so? You don't think all the market's moves are because of the Fed and inflation. Hang on a second. I think the Fed went from one side of underreacting.

How are they doing too much? I think the market is tightening ahead of them saying that they didn't do enough. No, well, because the reason two-year yields are rising so much, the two-year yield just basically priced in an extra 50 basis points for the Fed. That's what's happening is that the market is doing it for them. But if the Fed said, wait, let's pump the brakes a little here. We got a war going on in Ukraine. Us raising rates 100 basis points is not going to stop that war. I think they're overreacting. That's where I'm putting this. I think we're seeing an overreaction from the Fed and they're freaking out about what's going on. You mean the 75 basis point hike, they're assuming that we get that to Marr, that will be the overreaction. You think they should have stayed the course of

50? I think yes. I feel like they're trying to play catch-up. I think they went from underreacting to overreacting. You can't have rates rise as much as they have this fast without something breaking. I think something's going to break. And I think if it happens is because of the Fed. Well, that's a big statement. What do you mean something's going to break? What do you mean? Okay. Well, I was going to get into this later, but let's do it now. So go to the real estate section. No, no, no, hold on. Before we get to there, I just want to finish one point on the sentiment stuff, and then we'll move to real estate. Well, we'll get to it later, but get to what later? I don't think you can have interest rates go from 3% to 6% in mortgages or 1% to

4% on treasuries and not have something break. Well, the housing market is going to freeze up. I don't think that's a stretch. I think it's happened so fast. I don't think people have wrapped their minds around how quickly rates have risen, especially coming from the low level where we're at. Obviously, the same thing happened in the pandemic where they went down too much. and now we're seeing that snapback action, I don't think people have wrapped their heads around what this means in terms of rates being higher. If you were considering selling your house, this definitely changes the equation. If you're in a mortgage rate onto 4%, and you're thinking about selling your house and getting a new mortgage rate at 6%, you're not doing

that unless you have to. That's the thing. There's probably going to be a buyer's strike and a seller's strike. And then it's going to be like trading penny stocks for houses. Like there's going to be no bids. Nothing. Yeah. It's going to be a thinly traded market. And obviously the housing market wasn't healthy before, but now it's going to be even weirder, I think. I don't know what that means. By the zero coupon bonds, zero Z OZ is the ticker. Down what, 50 percent? 47 percent. These things came out in November 09 and this is by far, by far the longest drawdown. Look at this chart from JC. This is very interesting. He's plotting sentiment versus positioning, and he's showing the University of Michigan consumer sentiment. And he's also showing the American Association of

individual investors. He's showing their allocation to equities. and people are like, you're telling me that things are worse now than they were during the great financial crisis because according to consumer sentiment, investor sentiment, they are. And I think this makes sense. And I think it makes sense that we're way below what sentiment was in 2020. Here's why. In 2009, 0708, 2009, if you were not flipping houses, there was a world in which you were relatively insulated from the financial conditions that were going on.

Credit to false swaps blowing up. Like the average person didn't really, that wasn't in their face. It wasn't something they were doing with on a daily basis. In 2020, maybe this is a little bit of hindsight, but the Fed and the Treasury stepped in immediately and said, okay, don't worry. Like, we're going to put the economy on ice. We're going to get us through to the other side. I'm not saying it wasn't scary.

It was. This time, everybody in the entire country, every adult in the country knows exactly how bad things are right now. everybody sees it every single day. Every time that you go and take out your credit card to buy something, you feel how crazy things are. It's understandable. That's why inflation is so bad.

Your wife, my wife, who are not financial people, everybody, everybody, everybody knows that things are breaking. This is interesting, though, because what JC is showing is like in 2008, positioning was way down for stocks, as was sentiment. Now positioning is still up, but sentiment is down. This is like the stat from a couple weeks ago. where people ask, how are you personally doing versus how do you think the economy and other people are doing? And people think other people are doing terrible right now. But people think themselves

it's never been higher in the last five years. Like, how am I doing personally? I'm doing great. But everyone else in the economy is doing crappy. That's what this chart reminds me of. The other thing that this chart is showing is that for the past decade, one of the themes was there is no alternative. And with interest rates at 1%, the 10 year was at 1 and a quarter, one and a half, whatever it was, you're not going to take risk in the bond market. It just didn't make sense. But now, there is an alternative to stocks. And I know bonds are getting killed, but 3% is much more attractive than one.

And so maybe you will start to see equity allocations come down in favor of bonds, which is clearly not happening yet. Well, you can get 3% on a 12-month T bill now. It's crazy. Here's something else that's kind of crazy. I ran this today. Over the past year, the S&P is down 10%. over one year period.

The Barclays Ag, so think about your Vanguard total bond market index, is down 12%. Over the last year, stocks are outperforming bonds, which doesn't seem crazy until you think the stock market is down more than 20% this year. Here's another thing. So this is over the past year. Inflation is up 8.6%. Gold is down 4, S&P down 10, bonds down 12, Bitcoin down 40. Here's your hedges.

US dollars up 15%. Who called that one? No one? Housing is up 20%. Commodities are up over 50%. Energy stocks are up over 60%. I tweeted that out last week and I updated some of the numbers. Eric Bell-chunis said, you got me curious. Just did a quick search. And this is last week. So it's probably worse now. Only 6% of 2,700 ETFs have done better than inflation over the last year. He said it's basically all energy and commodity ETFs with a few

exceptions such as cash cow ETFs utilities and a couple of alt. Pretty bleak. There's nowhere to hide right now. I wanted to talk about this. I forgot to mention. So I wrote a post basically saying that, is it possible that we have a situation where we can reach max pessimism and the market continues to drift lower? What I mean, but that is, it seems like for whatever reason, this Monday was the day that people were like, okay. It seemed like Monday was the day. Friday was the inflation print and then people had all weekend to think about it. Well, Monday. Stocks were down. The S&P was down more than 1% on Wednesday, Thursday, Friday, and Monday. There's only been eight years since 1950 where that happened. But my point is we can

have this type of weird dynamic where stocks can go lower, but people's fear can subside as they adjust to the new normal of, yep, this is what it is. Wake up, my stocks are red. Do you know what I mean? People get used to it. Yeah. That's exactly what happened in 2008 because that lasted 18 months and the height of the fear was the fall of 2008, September, October, especially when AIG and Lehman Brothers. So the height of the fear does not have to coincide with the bottom in stocks is what I'm trying to say. All right. Can I just give one glasses half full from DFA here? Look at this. I think there's too much fear. Here's the thing. I'm not like a person who is bullish or bearish at most times because I realize that the stock market can always do something like this and it can

always do the other thing that it did in 2020. I try to be... Even killed. Yeah, I try to have a Zen approach to the stock market. And I think that's served me well. But the stock market is a place where I become way more bullish as they fall further. So look at this from DFA. They look at the one, three, and five year cumulative returns after a 10, 20, and 30 percent decline. Can I just say one thing on that? I obviously agree with you, but we're trying to entertain and give people a good time, educate and have a little bit of fun. So we've got to dial it up a little bit. That's fair. Here's a good one. This is from Stanley Drucker Miller. This is my 45th consecutive year as a chief investment officer. In 45 years, I've never seen a constellation or frankly studied one

where there's no historical analog. Right now, I probably have more humility in terms of my views going forward than I've ever had. I have a bearish bias. I know it. One of my job is to manage myself and know that the bias exists, but it does exist in me and listeners should be aware of it. Maybe all this pessimism that's viewing isn't going to happen. He really might be the best market prognosticator. His money management record speaks for itself. I think he had two down quarters in like 30 years or something. But the fact that he is so aware of his biases, because listen, you could say that he's been more wrong than right for basically the last decade. He's had a bearish bias, like this whole way up. But he's Stanley Druckermiller. Like, I'm sure that he wasn't short the

entire way up. Yes, exactly. Sometimes it's watch what they do and not what they say kind of thing. But the whole thing about being humble and this not really having an analog. I mean, look, today, you could say that early 1980 bear market. So I think from 80 to 82, stocks felt 27 percent. And that's when Volker really cranked up the dial. But inflation had already been running hot for well over a decade at that point. Rates were way higher than they are today. Every bear market is unique in its own way. This is one of the most unique bear markets in history, that we're coming out of the pandemic. We have all this other stuff going on. Then you add the war to the mix. And look how tight the labor market still is, which might be getting untight, but. There are certain parts where you could go, if you look at just this data,

it feels like 2008. But then you look over here, this other data, and you go, well, what's the problem? Everything seems fine. There's more jobs. There's still two jobs for every one person looking for a job right now. There's a lot of stuff that frankly doesn't make sense. Here's what we can hang hour hat on. Good things happen after declines. If you give it enough time, and time is what it tastes, because it could be one year, it could be two years, it could be eight years, who knows. But if you give it enough time, things are better after declines. And the thing is, kudos to you if you panicked early and sold early. That time to panic is early, not later. Panicking now after stocks are down 20, 30 percent. Can't do it. Cann't do it. Can't come back from this. Don't do it.

Could they go lower? Sure. But like, can you panic now after the bear market is set in? And you say, well, I know it's going to go down 50%, so now I'm going to get out and save myself. New rule. If you've ever quoted Warren Buffett in your entire life, ever, you cannot sell now. It's fair. If you've ever read any of his books, how's that sound? This is glass half full. Small cap valuations are on a 20-year low.

20-year low. 20-year-low smokes. What are we looking at here? We're looking at the SEP 600. As cheap as they were back in after the dot-com bubble, basically. I don't know if this is trailing or I don't know, but this is pretty good. I guess we needed it to happen. Here's the thing, though, doing the bullish or bearish thing, I feel much more confident

investing in stocks today. In your assertions? At the beginning of the year, if you're wanting to be bullish or bearish, it feels easier to be bearish right now. And that's not even saying that like, okay, bottom is in. Stocks could easily, you could see like another two or three to a 10% wipeout like that. And it wouldn't surprise you, but you're right. The ability to extend your time horizon right now, that's about the only thing you can do

as an individual investor. Well, you're going to have to because one of the things that we've been talking about for weeks and months now is the Fed is removing liquidity from the market. It's just going to get more difficult. It doesn't mean that we have to get cut in half again from here. But we're not going right back to new all-time highs in two months. That seems highly, highly, highly, highly unlikely. And so it just might take a little bit more time to get there. They would have to completely reverse. But actually, do they cut? But getting back to the breaking stuff thing, at what point do do they blink? I'm asking, yeah. I mean, if high-yield spreads are starting to blow out, stocks are down 20 or 30%

do they get one inflation print that's a little better and go all right we're backing off that's it I don't envy the situation that they're in trust me I don't either as an honorary board member what are we thinking here I feel like there's a little bit of

they're the mom and pop investor people make fun of where they went from under to overreacting I feel there's a little bit like that that's all I'm saying by the way some of the stuff in the dock so we record the show usually what on Tuesday And so, as I was looking through this morning before, some of this stuff seems so stale.

It feels like this week was like 10 weeks and one. So I put this in. You remember like the inventory buildup stuff? When was that? It felt like that was three years ago with Target at Walmart. So, all right, Bloomberg did an extensive report on this. Inventories rose $45 billion for companies on S&P consumer indexes with the market. All right, whatever.

What we're looking at is basically Walmart, Home Depot, Target, Costco. Are you seeing, Robin told me, my wife told me that she's starting to get like email sales from Target like every day. Come buy our stuff. My inbox is full of J-Crew every day is the biggest sale of the century. Didn't it feel like sales were gone for about a year or so? You know who's not blinking? Tropical bros. I can see it.

I can see it in the back. Not seeing any sales from them. Here's my one piece of evidence for the Fed overreacting. So look at this. This is from the BLS. I think Sam Rowe posted this, actually. It shows the inflation by month going back to November 2021 of all these categories, food and energy. Look at starting in March.

I highlighted this for you, make it easy for you, Michael. And then it shows the 12 month at the end. Look at energy and food starting in March. Obviously, inflation would still be high if it wasn't for the war. Are you about to strip this away? Are you a core guy? No, no, no. I'm not a core guy.

I'm saying energy and food since March are like a pre-year. appreciably higher. And if I'm the Fed, I'm going to the president and saying, you want to slow this inflation down? Put an end of the war. We didn't start this war. There's nothing we did here. So, we have to raise rates 100 basis points to slow this down, even though we have nothing to do with this war. I'm just saying, I'm not a war strategist. I'm not saying we should go to war and get a bunch of people killed. But are you surprised that there hasn't been one leader around the whole globe who's thought, well, wait a minute, this made things way worse for our citizens. And, the prices that they're paying for stuff, why don't we all band together and try to put an end

of this? Yeah, but think about how inflationary wars are. There's no political will to go to war right now. We have drones. We have robots. We don't need to put people there. I'm just saying, hey, I'm not a war strategist. All I'm saying is, I'm surprised none of them have said, like, inflation, again, would have

been bad before, but let's strip out the war. Would inflation at 6% now or 7% instead of 8.6? Would people be feeling a little bit better about that if the war never happened? Nope. Okay. Probably potentially, but let's just say that did make it way worse, even if it was already bad to begin with. There's no doubt about that. So the U.S. average gas price is now over $5 a gallon. Can I tell you what I'm doing? I'm changing my habits. I'm walking to my office. Walk into my office every day. How far away? A mile and a half. That's really more of an exercise thing than anything.

The saving the gas is just cherry on top. Okay. Although a mile and a half of gas, it's not really burning much. On the Today Show a couple weeks ago, they were talking about, here's how to save against high gas prices. And they said, consider DoorDash instead of going out to pick up your meals. And I'm thinking, you're not expensive? Yeah. I don't think that's going to help. Obviously, that producer of that segment has never ordered from DoorDash. So let's talk about this.

Gas stations aren't making the profit you think they are. This was on the cover of Barron's over the weekend. Does anyone really think gas stations make a profit? I would assume everyone assumes it's the oil companies, not the gas stations. I mean, have you been into a gas station store before? It's not like they're the nicest places in the world. That's a good question. I don't know.

Somebody had a good quote that gas stations are the minnows and the gasoline food chain. So they broke down like where the prices and increases are coming from. So marketing and distribution, which includes getting the gas to stations and selling it accounted for 12% of the price of each gallon of gas. Refiner is accounted for 18% of it. The supply shortage around the world accounted for 59% of it. The people that are really making out like band. And there's a bunch of great charts showing like profits versus retail prices. And the higher the prices, the worst it is for the gas stations, the TLDR. It's the refiners. Refiners margins are

98% year over year. Jeez, I saw a tweet this morning that was something like, it's a good thing we decided to invest all over money in energy infrastructure now that rates are higher instead of the 12 years we had of 0% rates to invest in. Yeah. Easy to play Monday morning quarterback on that. This part of it, I thought, was the most salient point. to the public, confusion about the different roles of oil producers, refineries, and gas stations is understandable. So the largest oil company in the U.S. with substantial production and refining businesses, in addition to 10,000 stations in the U.S. have the name Exxon or mobile. However, Exxon doesn't own them. The company sold this gas station business in 2008 and now

contracts with third parties that use its branding. I guess that just shows that there is no money in gas stations, I suppose. They gave some numbers about how much they're making it. These are not necessarily cash cows. So I'm saying, if Xon's still making a ton of money, them getting out of it was like, that proves it, I suppose. Yes, exactly. That's exactly right. I mentioned that I get more bullish when stocks are falling. Crypto is a weird market where I get more bearish on the further it falls. It's such a bizarre market in that way that it feels like it's going to happen more during a bull market than in a

bear market. So for me, it's pure momentum, right? Right. It's the total opposite of the stock market. I don't lose confidence in the stock market when it's falling. I actually think, okay, this is a good thing. Expect a return to rising. The stock market is ultimately governed by earnings. Like, zoom out and the market will follow earnings. Crypto is based on belief and faith. And you could say what you want, but I don't know how you get to any sort of intrinsic value. And so the higher it goes, what's the name of these things? The higher it goes, the more demand there is. The lower it goes, the less demand there is. What type of good is that? Is that a Geffengood? I am definitely messing that up. Listen, I took Econ 101 20 years ago. Yeah, you're right. Giffing good. They generate a higher demand on prices rise, creating upward sloping demand curve. There you go. It's pretty good. That's what crypto is. The higher goes, the more people want it, the lower it goes, less people want it. It is true. And so I was watching the NBA finals game last night. How great is this

series. As somebody who's ruining very much stuff for the Warriors, last night was fantastic. To tell you, I don't really care who wins. I feel like Boston fans have had a lot of championships in their time. The Warriors, they all have these VC fans that jumped on the bandwagon and they've had plenty of championships. I didn't consider that angle, but I'm a stuff guy. I'm a Clay guy. Didn't you see the video of the VC guy trying to give high five to his wife and she denied him last night? That's pretty good. Oh, the sponsor for the NBA finals last night was crypto.com. We spoke about that last week. That they're responsible for, I don't know, 47% of advertisers, of advertisements for the NBA. You think they wish they could have that

money back? Because they just, I saw yesterday, they laid off 5% of their employees. Coinbase today laid off 18% of their employees. Block 5-2. Yeah. I said last week, thousands of employees from Coinbase and you correct to me that, no, it's not thousands, but it's getting up there a number now. This probably isn't the end of this for these places. They're probably going to be more cuts in the weeks and months ahead, if this keeps happening. For as crazy as the stock and bottom markets have been. The last like five days in crypto, this market is just pure insanity. By the way, I think we got some pushback last week that we were like too light on the weird layer be a recession. I feel like we've been talking about there will be a recession for

months. I was trying to like be balanced. Listen, the data says we're not in a recession yet. That's what it says. One place that I think it's pretty clear that there is a recession is in the crypto economy, if you want to call it that. Crypto's in a depression right now. We talked about this the other day offline. Someone asked us the other day, should we do two animal spirits that and it's not going to happen. But we basically did a full animal spirit on the phone with each other yesterday because these markets are so crazy. But the thing that's been a savior for crypto in the past has been technology stocks have held up well because crypto has these crashes all the time. They happen way more often than the stock market. But in the past, people who invest in this

stuff have had tech stocks to fall back on or angel investments in other stuff. Now all that stuff is going down at the same time. A crypto winter has never coincided with a macroeconomic downturn. Right. I mean, 2020, you could say, but that was everything, and it was over. There wasn't enough time for, like, startup to completely get incinerated back then. But crypto was already in a winter. Yeah, you're right. You put this in here from Chris Backy. Bird, BuzzFeed, Blue Apron, what's real, real? I don't know.

Groupon, Smile, Direct, and Oscar collectively raised $5.9 million in venture. Their combined valuations in public markets right now are $2.7 billion. Tough. Ooh, man. Scooter company Bird is down over 93% from its SPAC deal. It's valued $183. million dollars, it raised over a billion dollars in capital. There's a lot of that stuff going on right now.

Ooh, man. You've been on the investors getting smarter kick for a while now. There was an article last week in the journal that we didn't have time to get to, but it's talking about money going into iBonds and things like this. Money's pouring in. Let's say theoretically, Biden said, we're taking the cap off. And I mean, this would just be a transfer from the government to people. We're taking the cap off of iBonds. How much money would pour in? How many billions of dollars would point? Tons. Because right now it's a $10,000 cap, as you mentioned. Since November, there's been $15 billion that came in. That's $6 billion more than the previous 20 years combined. So there is a healthy, healthy demand for this type of stuff. The thing is we don't envy

the policymakers right now because this is a really tough environment. I'm surprised from the fiscal side that they're not doing more things, even if it's psychological, even if it's just like little things that makes people feel a little better about the situation, like this, saying, hey, investors, you have a $10,000 cap on these every year? Let's put it to 20,000. And make people feel like, I can do a little something to help with the inflation. And I feel like the policymakers aren't really doing anything to help people at all. Duncan's dunking on you in this Slack Channel. He goes, he goes bed, bring out the nukes, you're a warhawk. But Duncan, thank you for this. Duncan says gas stations make an average margin of just 1.4% of the fuel. So I guess they make their money

on slurpees and things like this, things inside the gas station. The nukes are the reason I feel like no one wants to do anything to Putin because he's scared everyone saying, I have nukes so I can just go attack this other country. All I'm saying is pound that guy into the ground right now and get it over with. Obviously, Russia's not as strong of his army as they thought we were, right? Think about how much chaos he's created. He's going to send the world into a global recession by invading Ukraine. Do you really think that's what did it? Could be. You don't think that shoved us? There's no doubt.

That took a soft landing off the table, I think. I think that's fair. Inflation was already bad before. It was already way, way higher than it has been previously. This was like the extra little shove, though. So this is another reason why people are pissed, because inflation adjustments are basically wage bumps. They're slowing down because employers can't just be like, raise. Here's another.

Here's another. You see prices going up every day. I think I talked about this. My dad said in the late 70s got so bad he would get like two or three raises a year to keep up with it. I think you're right. This hasn't been going on long enough that workers have that much negotiation power. This one surprised me. Here's something we got wrong on the pandemic.

We said emphatically the pandemic is going to make income inequality worse. And I think over the long term it still might. This is from Bloomberg. The bottom 50% generally households with a net worth of 166,000 or less. Now hold a bigger share of the nation's wealth than they've had in 20 years. their collective net worth 3.7 trillion has almost doubled in two years and is more than 10 times higher than 2011 than the day the year of the last recession. So look at the gain. This is a change in household net worth. The bottom 50% gained by far more than any other class. So they did the

bottom 50%, the top one, the next nine, and then the next 40. I mean, obviously, this chart looks vastly different if you look at dollars instead of percentage. But it's saying the bottom 50% has gained on the other ones because they had the biggest relative change. I would not have expected that, would you? Especially going into the pandemic? I don't think so. All right. So let's talk about real estate where things are changing rapidly. All right. This one is crazy. This is Eric Finnegan said. Had to update this one today for today's 6.13% mortgage rates. The mortgage rate going from 3% in January to 6% today boxes out 18 million households from qualifying for a $400,000 mortgage. That's a 36% reduction in potential demand. So this is not just people being worried about rates being higher or people being

scared of high housing prices, people will not be able to qualify for a mortgage that high because rates have moved them up and the payment would be too much. Here's another one from Tim Lucas. This will go down as one of the worst two-day streaks for mortgage rates in history. For those hoping for more housing applied, be careful what you wish for. He showed that in two days, the mortgage rate went up 63 basis points. This is what I'm talking about, the Fed breaking stuff. I don't think they've thought through the unintended consequences of rates rising this high. I was pretty, I don't want to use the word constructive because that sounds sounds like a finance TV word, thinking that like if rates rise slowly, like it won't really

ding housing demand too much. I was not banking on rates doubling in less than six months. I don't think anybody was. Nobody was. Look at the home purchase mortgage applications for the U.S. is down 40%. I think, again, we're going to have like buyers and sellers pull out of the housing market. There's going to be people who still have to move or want to move. It's going to be a very small percentage of the population. And I think we went from an unhealthy housing market to an unhealthy housing market. I don't think this improved anything. You know what's not doing well right now? Home builders. Are they getting crushed still? Yeah, Home Depot and lows. Yeah, Lenore's down 40 percent. Home Depot's down 33 percent. It's going to be tough. Actually, that's an

area where you could see a recession. Think about how many people are involved in the chain in terms of just labor. How many people work in the housing market? From realtors to brokers and everything in between. Well, yeah, you probably don't hear it as much as like crypto people being laid off, but refi activity has to be close to zero at this point. So if you've been a mortgage broker, that's all you've been doing for the past three or four years. That is done. So yeah, why do those people need to be employed? I'm saying that there probably already have been plenty of layoffs in that side of things and it's going to get even worse with six percent mortgage rates. Yeah. The Wall Street Journal had something about saying after an epic two year run,

the country's luxury real estate market is showing sense of cooling. Talking about like awesome. housing bubble in saying that, especially like these luxury ones, are down 18%. So, Devine is like a top 5% of the market, down 18% from the same period in 2021. And that's through April 30th. So that's got to be down even more right now. They said the places where it sold the most were the Bay Area, Dallas, Austin, West Palm Beach, all this stuff. These luxury housing markets are slowing considerably. I honestly think the housing market is just going to like grind to a halt from this.

And it's going to take a while to online. Don't you think so? Mm-hmm. Again, maybe the Fed will say that's what they wanted, but, ugh, I don't know. Not good. If you're a homeowner, you have plenty of margin of safety baked in with your equity. If what you thought your house was worth based on Zillow goes down to 5% or 10%, guess what, it's still much higher than it probably should be or was a few years ago? No, part of this really sucks, and there's many, is people that said, you know what, I'm out.

I'm just going to wait for the house and mark the cool off. Well, it's cooled off all right, but now you've got mortgage rates at 6%. It's worse. That's what I'm saying. The housing market cooling off now, it makes it worse because rates are so much higher. It makes it even harder to buy. There's going to be a huge influx. I think you could still get an arm for foreign change maybe.

I'm guessing that's going up. But that's probably your only option for a lot of people right now. The funny thing is, I mean, obviously, the housing prices are different. My first one, I think, was either 6.25 or 6.5 in late 2007. And the weird thing is, that didn't seem bizarre at that time. Obviously, we're anchoring here. Well, think about how much lower home prices were at 2006. What do you do?

I mean, because you can't really put yourself in a position where you're going to squeeze into a house and then bank on refinancing because who knows? What if you don't get the opportunity to? What if rates stay high for a couple of years? Honestly, though, I think that's the thing you would hang your hat on, is that I'm going to refinance in a few years if we're really going into recession and rates will have to fall. I think that's tough. That's really tough. I mean, this is the biggest financial purchase that most people make. True. You balance that out with rent going up across the country too.

Yeah, that's true. All right, let's get back to crypto for a second. Matt Damon. Okay, real quick. Here's the top three worst things Matt Damon has ever done. Number one, he stole Scotty's girlfriend in Euro Trip, even though that led to an awesome song. Scotty doesn't know. If you watch that movie, that song will be in your head forever. Number two, The Great Wall. Did you ever see that? No. Real bad. By the way, Matt Damon hasn't done a lot of terrible movies, like horrible, terrible movies. That one was pretty bad. And then number three, his crypto commercial, it was not

the top, but close to atop. It was pretty bad. I'm blaming Matt Damon. He gets 40% blame for the crypto crash. I'm starting to catch some flack. Like, I'm some laser-eyed person. I think I've been pretty clear on my journey into learning about crypto. By the way, I'm going to get a little salty here. What? You can go ahead, but there's people who still have the laser eyes and it's a tough look. I feel like you have to, without telling anyone, just switch to a different profile photo if you have the laser eyes. You can't keep the laser eyes at this point. So there was a video going around of Michael Saylor talking about put everything you have into Bitcoin. If you have a house remortgage, you put it into Bitcoin. How long ago was that? Maybe a year ago. Whenever he said it,

doesn't matter. It's horrible advice. Somebody said something to me. At what point will your firm admit you were careless in pushing all the crypto? Cash savings in crypto, yield farming, selling NFTs for quote fundraisers, every other guest being a crypto founder. All right, lot to unpack here. First of all, it wasn't my firm. It was me. It's not like my company was talking about this. And pushing all the crypto, push, okay. So yes, it is a fact that we created a crypto. index for our clients, not for the world, for our clients to invest in. We had policies and procedures in place such that they cannot go over, I think the number was 5%. If then if they wanted to, they had to sign something. And I don't think we had anybody go over. Our average

investment for our clients was, I think it was 1%. Maybe 2, something like that. I don't think that part of it is fair. And yield farming, I never yield farmed. I don't know how to yield farm. We talked about stable coins. I'm sure we spoke about it. And yeah, we had Zach Prince from BlockFi on a bunch. Who else did we have in the crypto world on our show? We have meow. Also, that animal spirit's NFT is still holding its value.

Yeah. Great store value. So we'll get to that in a second. I think we were pretty transparent with the risks inherent in stable coins. We never pushed anybody into 20%. Obviously, we thought that was bullshit, all the Celsius stuff. I told the audience when I sold my stable coins and what I did with that money, I take umbrage, sir.

The person that was tweeting at me is definitely not listening to this. We always said, if you really need that money, you don't keep it in stable coins because they're risky. And even Zach from BlockFi said, listen, if you need that money for something, it's not like saving for a boat, don't keep it in stable coins. He said that the guy who owns the firm and runs the firm. I never said that like Bitcoin's going to take over the world or laser-eyed or few or inflation. Like we never did any of that. I think we were always pretty transparent with the risk involved. Listen, I personally owned way more crypto than I would care to admit at this point.

But I'm a big boy. It's not like these risks were blind to me. I knew what I was getting into. And we've said, personally, we do this stuff after we max out our 401K and our IRAs and our 529s for our kids. And then a tax mortgage economy. Then we speculate a little bit in some of this stuff. So we've been pretty consistently to tell people that.

And then the last thing, quote fundraisers, hey, jackass, we literally raised, I think, $100,000 for no kid hungry. So don't quote fundraisers me, sir. Anyway. We actually gave money away, yes. All right. Back to the thing about this stuff making more sense in a bull market than a bear market. This Axi Infinity was like a wonderful story that people pointed to saying, you can play this video game and earn a living.

Bloomberg had a story. Basically, it's gone. It was all kind of high prices. It's lost 40% of its daily users. The coin went from 40 cents to 1.8 cents or something. AXS, which is like the token, I guess, went from 165 to 56. Who knows what it is now? Basically, I think hackers robbed a bunch of it. It's another one of those things that it was kind of a cool story for a bull market. That's what crypto needs is, obviously it's

survived all these bare markets, but a lot of the use cases, if not. So crypto is an ongoing experiment. And I'm not embarrassed to admit that I still think that digital currencies, internet currencies are still a part of the future. but obviously, who knows? Maybe that won't be the case. I still think it will be, but obviously, obviously, I can be wrong. I can be wrong, which is a big deal. I've always looked at it as something like a venture sort of startup investment that has liquidity.

And if your startup investments in technology companies had liquidity, guess what? They would fall 80 or 90% every few years, too. It's the same deal. Switching gears. Survey of the week. Carl Kintini tweeted, work from home fatigue may be setting in. The latest one of our survey, this is from Bank of America. The percentage of response I prefer to work from home was down to 68% in June, 2022 from

from March. This makes sense to me. How about this? It was fun while it lasted. I think there should be a difference between work from home and remote work. Maybe that's the deal. Like, I could work from home. I work remotely, but I work in an office.

I just don't happen to work in the headquarters in New York. So I think that's the bigger deal for a lot of people is can you work from? any city and then use a we work or whatever shared working space. Am I getting bullish on a we work again? No, I don't think I ever was. But I think there has to be a distinction there. If I worked in my literal house, I would get sick of it. I would need to leave.

Kind of makes sense. Let's move on to recommendations. Ben, you go first. No questions. By the way, we mentioned. We mentioned that our inbox of questions from listeners is kind of a sentiment indicator because it's fallen off the cliff. like the last two, we were getting question after question and way more questions than a

bull market, which is kind of surprising. But we think it's because this bear market has lasted a little longer, that antipathy thing that you mentioned, where people like at this point are kind of wanted to not worry about it or rehash it in some way. Yeah, you know, it's interesting. We haven't received really any panicky emails, which I guess makes sense because what would somebody possibly email us? Hey, guys, I'm freaking out. Right. Yeah. But yeah, our inbox has been pretty dry, which is a good point. All right, Ben, what do you got? let's see. Stranger Things, we finished. It was season four. I got to say, like the first season was awesome. The second season was terrible. Third season was good again. I was pretty sick of it at the beginning of this season. The episodes were all way longer. The kids are like 30 years old now. They're not as cute as they once were. And the first like three episodes, I was like, oh, I'm just doing this. It's like a sunk cost, but I can't get myself to give it up. And then the finale was awesome. And it brought me right back. Yeah, like the whole season I thought was just kind of subpar. The finale. it was really good. They really landed the plane. They were releasing two more episodes for it in

July. I thought that was it. Then I learned they have another season coming out. Are you out for the last season? I don't watch the show. Yeah, we'll see. It's an investment at this point. I've made an investment. It's hard to sell now. I finished, we own this city. You recommended that to me a bunch of people did. I would put it in the good, not great category. I'd say, I loved it. John Bernthal playing, what was the guy's name, Wayne? Wayne Jenkins, all-timer. He was a great character. The show, I thought like three out of the six episodes were a little slow. The first two, they introduced too many characters and it was like, wait, who are all these people? But I thought it got great.

And what I loved about it honestly would put it over the top from me is only six episodes. Yes. It was also a very powerful story to show how like incentives and misplaced how things can totally get out of hand. And the fact that it was a true story is also kind of scary. By the way, I would watch a fictionalized version of him in prison, like running the prison yard. Would you not watch that? Yeah, he was a great character. All right.

finished Barry this week just has to be like the most unique show on television it's a completely different show that it was the first two seasons I enjoyed the first two seasons more but I think I'm more impressed with this season like it was just really really well done it's one of my favorite shows very good I did a couple of oldie comedies this weekend knocked up was on the rewatchable so I watched that one it's too long but like the first hour or so by the way there's so many movies like that from the 2000s that the first half to two thirds of the comedy are way than the end. And then, do you know what your Meet the Parents came out in? 98? I heard Ben Stiller on a couple of podcasts and he was talking about Meet the Parents.

Came on 2000. 2000. Okay. That movie still holds up. I love that movie. I mean, there's some of that stuff would probably be problematic these days, but it really, really holds up. Who asked Ben Stiller, how's your portfolio? Owen Wilson. That's Owen Wilson. Okay, I wasn't sure. Strong to quite strong. Ben, last week I was speaking about, like, has anybody had a better run than Tom Hanks from 92 to 95. Judd Apatow's run is pretty ridiculous from 04 to, I don't know, 09 maybe. Starting in 2004, he did Anchorman, 40-year-old Virgin, Talladega Knights, knocked up, super bad, Sarah Marshall, Stepbrothers, Pineapple Express, Funny People. It's a pretty good run. Pretty good. I'm still reading his new book. It's not bad. Anything else? No. Do you want to give us your Jurassic Park

thoughts. Oh my God. Okay. I, like many young boys that saw that movie when it came out in 93, 94, was absolutely taken. By the way, the first movie was so big. A reporter from our local newspaper interviewed my mom and all of us kids when we walked out of the movie to ask what we thought about it. Oh, wow. I was in the paper the next day. I actually didn't even really like the lost world, but I loved it. Same thing with Jurassic Park 3. Like, if it's on TV, I'll throw it on. I love seeing dinosaurs on the screen, even though I didn't really care for those movies. I thought the first reboot was good. Fallen Kingdom was less good.

This most recent one should not have even existed. It was a really bad story, bad writing, bad acting, the dinosaur scenes were just okay, and it was two and a half hours. And it made me sad. I thought the previews looked good. Everybody involved should be ashamed of themselves. That's pretty strong coming from you. This seems like the kind of movie you would like, even if it's a bad, good movie or good, bad movie.

I don't even know if it was entertaining. I mean, I guess there was some decent parts. I was like, all right, it's enough for it. I kind of want to leave. It was long. It really sucked. You know what else kind of sucks? Obi-Wan kind of sucks.

I know we spoke about it, but like Star Wars has completely lost its way. And one take that I have is that Darth Vader is a legendary character. He has meant for the big screen and seeing him on a TV just cheapens the entire experience. I'll watch it because it's only six episodes, but it sucks. I think this is my last Star Wars series. I don't know how you can have nine movies and then five different TV series and not run out of stories. It's too much. So I said last week that Netflix ruined everything, and this is maybe an example of it, the algorithm going overboard.

But you can also say that maybe we just love to complain because there's a lot of good TV on right now. It really is. There really is a lot of good TV. We finally finished Pachinko last night and then I got a note on my phone that lists all the TV shows I'd want to catch up on. I like 15 shows right now. I'm trying to catch up on. Here's what Netflix did do good. I love Tustle, the new Adam Sandler movie.

So I was expecting junk because those Netflix movies have pretty much stunk. But I really liked it. If you're an NBA fan, you'll love this movie. because he's a scout for the 76ers. There's a ton of NBA people in the movie. The acting was good. The story was good. Yeah, predictable, whatever.

I really enjoyed it. I was not expecting much. I really enjoyed it. I did finish Days of Thunder. You know what John C. Raleigh is in that movie? I think it's his first movie. Okay. I don't remember that.

It's been a while since I saw it. All right. That movie sucked. I was like, you know what? This might actually, yeah, yeah. It was terrible. Okay. That's also Tony Scott.

So Tony Scott did this and Top Gunn. And Top Gun is entertaining enough. This one was pure trash. No offense, anybody that loves Days of Thunders. If you're out there, I don't even know. It was kind of the poor man's top gun. It stunk. Can I get my one Tom Cruise?

This was like a hole in my Tom Cruise 1980s viewing experience. I had never seen the color of money. Oh, that's a good movie. I didn't like it. Really? Really? It didn't do it for me.

Okay. I don't know why. I just thought it was just like, eh. It was like way down the rung of 80s movies from Tom Cruise for me. The biggest hole in my Tom. I didn't see Born on the Fourth of July. Okay. That's what he should have won his Oscar for.

I got to watch that It's a dark one But it's been a long time since I've seen it I thought that was like his asker one that he didn't win Okay All right This is a week Yeah

Here's a thing We're gonna get through it We always do Might take a little longer than previous times Who knows? We'll see Is the Fed going to blank What if the Fed backs off

And the market's like Now you're really dead If the Fed backs up prematurely The market's like You idiots And the market sells off harder I think the market is punishing the Fed right now.

And I think the market is going to push the Fed to tap the brakes. So we went from the Savers are being punished to the Fed is being punished. Title of show right there. The Fed is being punished. I was literally writing that in as we spoke. All right. If you have any questions, comments, hate mail for Michael. Animal Spheres Pod at Gmail.

What did I do? I'm just kidding. Pushing crypto? Good God. Animal spirits pot at gmail.com. Yeah. I was a little overblown. I mean, I was never a laser-eyed person.

Stop it. Stop it. Don't blame me. if you lost money in crypto. I lost money too. You said, listen, I'm doing this to learn and understand the space and- And speculate. Wait, one more thing on crypto. It is kind of crazy that prices are basically back to where they were at the peak of 2017. That's kind of crazy to think about. Eith did. Eith round trip to the peak of 2017. Bitcoin's not quite there yet. It'll probably get there. That's wild. Anyway, talk to you next time.

Thank you.