Animal Spirits Podcast - The Four Most Dangerous Words (EP.161)

Episode Date: August 19, 2020

On this week's show we discuss the speed of bear market recoveries, signs of inflation, the hardest problem in finance right now, which stocks day traders favor, what makes investing so difficult, being right for the wrong reasons, how the real estate market is changing on the fly and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at YCharts. This weekend I wrote a piece looking at the S&P 500. And earlier in the pandemic, I looked at the break even and how long it takes to get back to even when stocks fall into a bare market. And Whitecharts has this tool where you can look at the S&P 500 total return. So with dividends included. And last week, it blew through the all-time high. So on a total return basis, it took 97 trading days to get back to all-time high. And it was pretty easy for me to look at this with Y-charts data to pull it up. Go to Y charts, tell them Animal Spirits send you, and they'll give you 20% off your first subscription. We're going to talk about this a little more on the show.

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 Holtz Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Rit Holt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So some data I looked at

this week, it took 23 trading sessions for the S&P 500 to fall 34%-ish. It then took the ensuing 97 trading days to break even if you include dividends. And I know people in the trading community like you don't like to use the dividend total return. You're more of a price person. And I think we're probably going to break that today as we tape this on Monday. But it's pretty wild. So I looked at all the different break-evens. I looked at the fastest recoveries from a 30% plus bear market. And there was one in the 30s. We had these echo bear markets after the Great Depression. So there was one in like 1934, 35 that came back in six months, call it. But that wasn't to all-time highs. That was still well below the peak of 1929. So this is not only

the fastest 30% bear market of all time. It is the fastest recovery back to all time time. It took just less than six months, which is pretty crazy. So this whole thing happened ridiculously fast. And now you can say, well, it was a pandemic. We had all this money thrown at it. This is just a one-off. It's something completely different. All right. Let's hear your recency bias take. Please. I'm very curious. I just think these sharp vs like this are going to be the bear markets of the foreseeable future. I think this is exactly what happened in 2018. It happened in the pandemic. I think unless we get something like the dot com blow up where we had the dot com stuff, and then we had the Enron crisis, and then we had 9-11, where they had like three

or four different things thrown at the market at once, I think it's possible that this V stuff is the way bare markets work in the future because technology has sped things up and we have so much more government intervention than before. Tell me why I'm wrong. Obviously, you never know, but is it possible that that's the case that these things are going to just happen quicker than they did in the past? And you don't get your chance, you don't get 18 months to sit there and think about when you're going to buy or not. I definitely don't buy that. Do not buy that. Sorry. All right. Hold on. We have had these V-shaped recoveries multiple times during this bear market. We had, I don't know why this one sticks out, maybe because there was a specific moment in time where I was getting on an airplane to a State Street event in Boston. And I look at my phone and it was the Ebola virus. Remember that in 2014? I think it was October. It was over before you knew it. And there's been a series of V-shaped recoveries along the way, obviously. Well, we had one in 2018. What was that? That was a V, right? But, for example, stocks didn't go anywhere from 2015 to 2016. I guess it was like 18 months.

Anyhow, the point is that that's not really germane to this topic. But what I'm saying is that I do not even for a second by the fact that bare markets are going to be Vs going forward. I'm just operating under the assumption that technology. is speeding everything up, and I think that markets could fall into place there too. I don't know. Here's another thing. This doesn't matter because labels are so dumb. Is this a 1987 thing where, let's say for whatever reason, we get out of this pandemic and we have a huge post-pandemic boom and stocks take off for another three or four years? Is this the same bull market still? It doesn't matter, but semantics. My point is, it obviously will take a while to change the psychology of buy the dip to

get me out. That doesn't happen overnight. So yeah, you might be right in the sense that It takes an economic calamity, a virus, like three things to change investor psychology. But you don't think that we're going to see an eight-year bare market at some point in our lifetime. I'm not saying panic has been completely withdrawn from the market, but don't you also think that it's just been beaten into people's brains that when stocks fall, you buy. Otherwise, you're missing out on a generational opportunity. A hundred percent.

That has absolutely occurred. And I'm saying that's not permanent. I'm saying it's going to take one of those hugely long drawn. out bare markets to break that cycle, I think. We might not see it until you're 50 years old. And by the way, happy birthday to you. Your last birthday before 40. I'm closing it on 50.

You're looking wonderful today. You're wearing a flowered shirt. Just for you. Is that for the special occasion? Yeah. And my dad reminded me that technically since there is no year zero, this is your 40th year walking the planet. So basically he's saying I already am 40.

Thanks, dad. You're 39, but on a total return basis, you're 40. Yes. Now we're talking. I'm back at all-time highs yet again. And I was trying to figure out this morning. Technically, does this make me the oldest millennial on the planet? I can't tell if I'm a millennial or I'm just nothing.

What year were you born? 1981. 1981. So you're right on the border. You're one of us. I'm in between millennial and Gen X and I'm basically nothing. Well, your abs say millennial, but your caffeine intake or party intake says boomer. All right.

Whoa, party. Okay. That's fair. Oh, your investments say boomer. That's for sure. Yeah, okay. All right. So last week, we've been talking a lot about inflation on the show, and there was something that said, like, it was a quickest inflationary spike in 30 years or something from the core inflation numbers. So it rose 0.6% from the prior month, which is a huge jump month over month, obviously. So on an annual basis, it's 1.6%, which is a 4 month high. question so when you're looking at inflationary data on say whatever you're using what data series do you use do you use year over year or month over month I guess typically I'm looking at

training 12 months so year over year right yeah so I use year over year too but I'm reading this book called the great inflation I actually I put it down a few weeks ago I'll get back to it but excellent book Robert Samuelson is the author and he made the point that inflation is month over month. That's how you feel inflation. You don't really feel inflation as a consumer year over year. You don't compare it to 12 months ago. You compare it to last month. So when looking at, I was a year-over-year person, but I think month-over-month makes more sense when you're trying to think about the psychology of how inflation ravages or affects societies. Like GDP, should we annualize it too? Have you been to the grocery store lately? By the way, the grocery store is like your dice. I know. I got to stop that. You're knocked up. dice roll. I got to stop that. So everyone is worried that we've had all the spending and inflation is coming. I tend to think that economic data for the next, I don't know, six, nine, 12 months, however long this is going to be, is going to be really screwed up because we saw this huge

stop and everything and then starting again. I'm no macroeconomic forecaster, but I think that this could be a short-term blip where we had supply that basically stopped dead in its tracks. For most things, call it March and April. We talked about this last week with lumber prices being at all-time highs, in aluminum having our time. I think supply fell off so quickly. And I'm sure a lot of these companies and firms and corporations said, all right, stop production, slow it down or we're shutting down. And then all of a sudden, demand came back with a vengeance. And now I think demand came back quicker than supply. So Conner said it's pretty much a short-term fix. And he looked at the auto market for this. And he said it's basically this pandemic-related

supply and demand dynamics or distorting price signals in the short term. So he said, we might get hot inflation prints for a few months, we should expect them to go back to normal as production does the same. So we had these huge price spikes in these things because there was no supply, but demand came back way quicker. So I could see that where we get some headfakes for inflation, and even if it comes down the road a little bit, it's not here yet for good. You're in the transitory camp to use a Fed ward. Sure. That sounds good. Yeah, I'm data dependent. All right. But I think even though we could get it, I think now is probably not the time to say that it for sure is here.

I have no opinion on the future of inflation. I think that from everything that I've read, out of all the variables that are difficult to predict, and they're all obviously impossible, inflation seems to be the one that stumps everybody. Yes. And the easiest one to predict is Tesla share price. It only goes up. That's it.

Somebody sent us Howard Marks wrote a memo, I guess, a week or two ago. And I don't think this is him. He's quoting somebody. Conrad de Quadros said, annualization is useful in normal. times for comparing a quarter to the recent prior years, but not very useful for current circumstances. Most other major economies do not report annualized changes in GDP. It is not reasonable to expect the second quarter's drop to continue for a year. So, there you go. Howard Marks is on my side. That's not Howard Marx. This is a common right to quadris. But yeah, this was interesting

to me. So we have been getting a ton of emails. And I think we'll get to a few listener questions later in the show about what do I do with my cash or what was my bonds. What do I do, there's nowhere to go. I want to stay liquid, but I want to earn something with my money. Tough situation there. This is the question in the markets right now, I think. A lot of people want to know, like, should I sell my stocks? You're going to always get the same questions about the stock market. I think the question is, what do I do with the safe part of my portfolio? And there is not one easy answer. Well, because the anchor is interest rates. Starting interest rates, whatever maturity you're looking at, that's pretty much what you're going to get.

Interest rates impact everything else. Everything else is tied to interest rates. You can't decouple them. So this is an amazing stat from the memo. Ninety-seven percent of outstanding bonds yield less than five percent today and 80 percent yield less than one percent. I repeat, less than 80 percent of bonds outstanding yield less than one percent. I don't know what to do. What do you say? There's got nothing. Preserving wealth these days is as hard as it's ever been. How does that sound. Yeah. You and I are on the record for anti-a anecdote indicators, even my plumber story, notwithstanding. The magazine indicator, I just think it's just too easy these days. That being said, this one was one of the best time ones I've ever seen. Somebody polemic TMM tweeted a Costco email

today, gold bullion available alongside cheap perfume and golf putters at your local discount warehouse. Literally, Costco is selling gold bullion. He said, that taxi driver index flashing red. And this was the day before gold had that flush. So there you go. I thought this is a pretty good one. Also, TMZ are selling a subscription service. We put this on our Instagram page. I forget what exactly it was, but they're selling it for like called 30 bucks marked down from 1400. I don't know where they got that number from. It's a 97% discount. Again, magazine indicators, stuff like this sentiment data. We've been pointing this stuff out for literally years and years and years. I thought this one was a joke. How is

TMZ selling a day trading service? Well, it's TMZ. Why not? They're a gossip mag. How do they have a day trading service? We've also said, listen, it's hard to use, like I understand people dunk on the economist as a lacking indicator and always being on the wrong side of things. But I don't think that you could take magazine indicators from financial publications,

generally speaking. Like, they're in the financial markets. So, but. They're reporting what's happening. Yeah. So if you see something like sports sales. traded for kids, talk about day trading. Yeah, that's probably legitimate. Or Time magazine with the housing cover. So when you see TMZ start doing the trading stuff. I still think, though,

back in the day, the death of equities thing, there just was so much less news back then. And now there's so much that you can pick an anecdote every day if you want. That's why it's so hard to use them as a signal, if that's really what you're trying to do. So Robin Hood's story of the week, There was some data outlast week that they had 4.31 million daily average revenue trades, darts, compared with only 1.1 million at each trade, 1.8 million at Schwab, 1.86 at Interactive, and 3.84 at TD Ameritrade. So even though they have a fraction of the users, these people are trading their asses off. And then they sell that order flow, whatever, and they're making a ton of money. I don't want to question their integrity as a firm, but would it shock you in the years ahead

if we had some nasty scandal with Robin Hood doing stuff that was a little, like they're not going to be a vanguard that is championing their clients, where Robin Hood does something that is shady business practices against their clients? Did they get dinged? I think they paid a small fine a few years ago for not overseeing where the orders are going. It wouldn't shock me. But isn't it also kind of crazy that people left this company for dead, us too probably maybe, a few months ago when they shut down during the height of the pandemic in March, they're just

crushing it now. All right. So, for example, in the second quarter, Schwab gets 11 cents per hundred shares for their equities. Robbenhood gets 17 cents. Schwab and E-trader run the same. For options, Schwab gets 37 cents. Robbenha gets 58 cents.

So market makers are paying up for their order flow for Robinhood. And I wonder why. But it's also worth noting that, yeah, these other firms are doing this. the same exact thing, maybe just not as much in bulk as Robin Hood is. Let me ask you a question. So let's say that they're not, there's no evidence of this, but let's just say that they're not getting best execution, that the spreads are a little bit wide at Robin Hood. Do you think that the consumers care? Probably not. And how would you ever really know? I remember back at one of the firms I used to work for in the fund, we would try to track

the trading impact over a day. So you compare it against the VWOP, the vine weighted average price or like the current price you're getting, it's pretty much an impossible thing to do to really understand how your execution was. Because you could want to get in right now because prices are rising fast or falling fast. And if you miss a few cents on the bid ask, who cares? So I think trying to gauge what that stuff really is is next to impossible, especially for a retail trader. Because Robert people are trading so much, they received $180 million in the second quarter, which is more than half of their revenue. I don't know where the other half comes from. Schwab, for example, 66 million. E-Trade $110 million. So Rombahood is more than Schwab and

E-Trade combined in terms of payment for order flow. In terms of companies that have been there for a while. So JPMorgan had this piece they put together called Follow the Robin Hood money. They're looking at behavior of individual traders and what they're looking at. And so they looked at these studies and they tried to replicate these studies from Brad Barber and Terence Odion who looked at these studies in the past and they've used broker data before. And so this one was 2008. And these researchers found that the people who buy stocks are, they buy exactly what you'd think. So it's stocks in the news, stocks experiencing abnormally high trading volume and stocks with extreme one-year gains.

Did they break this down for target date funds? Yes. The 2065 is really in vogue today. And then so they also looked at another study by the same researchers and they showed that over a one year period, you can use these stocks as like a contrarian indicator. So you'd short these stocks probably. that are really popular, but over a one week period. Excuse me. I thought that was, I thought you're getting personal there. No, no, you personally, not for your trading diary. You would short them over one week and then get run over by the momentum trader. Don't you dare put trades in my paper account. But over a one week period, momentum works. And so these stocks continue to do well. So they tried to replicate these. And basically, they found exactly the same thing. So

Robin Hood traders are doing nothing different than the crazy traders of the past. They're looking for attention-grabbing stocks, their stocks that are going up, and then they stock the trade a lot. This is where you inserted Jesse Livermore quote. Yeah. I'll let you do the honors. So here's the thing. Excuse me, sir. Fine, I'll do it. There's nothing new under the sun. Yes. Speculation is as it holds as the hills. Here's the thing. There you go. I've been trying to give day traders the benefit of the doubt, but I think I have to maybe pull that card because last week when Tesla did it a 4-1 stock split and it was 15% the next day. I can't defend that. I'm sorry. There's no defending that.

No, hold on, hold on, hold on. But maybe it's the smart money that's pushing that stock around because they know that the dumb money is going to chase it. I mean, if you were one of these big... Do you buy that? Do you buy that? I'm not even kidding. I have no idea. That makes no sense to me. Do you think that big money is coming in because they know that little money is going to chase? Yes, I'm sure that there are hedge funds that are like, we're playing the Robin Hood game now. I'm sure they are in front running and figuring out. But, I mean, I wish we could get

some of these bigger stocks to split just to keep testing this theory. It would be a great experiment because it doesn't really matter if they split. If every stock split in the Dow, it would be 36,000 by the end of 2021. Yeah, there you go. Or it would be cut in half, wouldn't it? Because it's a price-based. The divisor changes. Newb whale. Okay. Sorry. I don't follow the Dow. I'm not a, what's the opposite of a newb whale? I got nothing. Okay. Actually, let's get into that. What is the opposite of a newb whale? I'm not sure I have a word for it, but let's go to this John Templeton quote. It's different this time. Or the four most expensive words are, it's different this time. What is the actual quote? I found it last week, actually, and he wrote a piece in like 1993, 16 investment rules or something. And he said,

the investor who says this time is different when in fact it's virtually a repeat of an earlier situation has uttered among the most four costly words in the annals of investing. That's the actual quote. Okay. So the quote that we all use is much better, but it's good to know the original source. His quote is kind of a hedge. He hedges a little bit. Didn't he say that 20% of the time it actually is different? Yeah, I think Marks wrote a piece about that saying, yeah, sometimes it really is different. So let's talk about one time where it really was different.

I was thumbing through against the gods for a story I wrote a few weeks ago called The Light of History. Sorry, somebody caught you off. Someone recently asked me, hey, I'm teaching a finance class. I want to give people a book that's accessible but also teaches them about finance. And I said, against the gods. This is too much. You think so? As an introduction, I think so. That's pretty technical. A lot of the history stuff.

I mean, it was one of the first few books I read. And yeah, it probably was over my head at the time. But now I liked it so much. I'm reading it again. So continue. So you read this book, you said, F this, I'm buying a target date fund. This is way too complicated. All right. If you want to follow along, this is on page 182. I'm going to read. This might take two minutes, so bear with me. So he says, dependence on reversion to the mean for forecasting the future tends to be powerless when the mean itself is in flux. Boy, do I love that line. And by the way, we're talking about Peter Bernstein. I don't know if we said his name. Yes. I wrote about this passage last week without even realizing you're going to read this. Really?

Yes, I wrote about his free regression to the mean is such a frustrating guide, but keep going. Okay, so here we go. In 1959, exactly 30 years after the great crash, an event took place that made absolutely no sense in the light of history. Up to the late 1950s, investors had received a higher income from owning stocks than from owning bonds. Every time the yields got close, the dividend yield of common stocks moved back up over the bond yield. Stock prices fell so that a dollar invested in stocks brought more income than it had brought previously. That seemed as it should be. After all, stocks are riskier than bonds. Bonds are contracts that specified precisely when the borrower must repay the principal of the debt and provides a schedule of

interest payments. If borrowers default on a bond contract, they end up in bankruptcy, their credit ruined, and their assets under control of the creditors. With stocks, however, the shareholder's claim on the company's assets has no substance until after the company's creditors have been satisfied. Stocks are perpetuities. They have no terminal date on which the asset of the company must be distributed to the owners. Moreover, stock dividends are paid at the pleasure of the board of directors. The company has had no obligation ever to pay dividends to the stockholders. Total dividends paid by publicly held companies were cut on 19 occasions. Again, let me repeat that.

Total dividends paid by publicly held companies were cut on 19 occasions between 1871 and 1929. They were slashed by more than 50% from 1929 to 1933 and by about 40% in 1938. So it is no wonder that investors bought stocks only when they yielded a higher income than bonds. And no wonder that stock prices fell every time the income from stocks came close to the income from bonds. Until 1959, that is. At that point, stock prices were soaring and bond prices were falling. This meant that the ratio of bond interest to bond prices was shooting up and the ratio of stock dividends to stock prices was declining. The old relationship between

bonds and stocks vanished, opening up a gap so huge that ultimately bonds were yielding more than stocks by an ever greater margin than when stocks had yielded more than bonds. And I'm going to skip over only because I'm reading forever. He basically gets at the point that the thing that causes change was inflation. And again, it's page 184 if you want to look at it. And let me just finish with this. Although the contours of this new world were visible well before 1959, the old relationships and the capital markets tended to persist as long as people with memories of the old days continued to be the main investors. For example, my partners, veterans of the great crash, kept assuring me that the seeming trend was nothing but an aberration. They promised me that

matters would revert to normal in just a few months. The stock prices would fall and bond prices would rally. I am still waiting. The fact that something so unthinkable could occur has had a lasting impact on my view of life and not investing in particular. It continues to color my attitude toward the future and has left me skeptical about the wisdom of extrapolating from the past. So he talks about, I wrote out of this last week, I said the five hardest questions to answer in investing. And I said, the hardest questions are, am I being disciplined or stubborn, or am I being foolish or staying ahead of the curve? He talked about there's three reasons why banking on regression to the mean can be so frustrating. So he said, sometimes it happens at such a slow pace that any

shock to the system can disrupt it. Sometimes regression happens so fast that it overshoots to the upside or downside. And sometimes the mean itself is unstable, meaning yesterday's normal can be replaced by a new normal of things in the system have changed. So this is the question you're asking yourself. So if value stocks have outperform growth stocks for 90 years, What if this is the moment that stops? That's the question people are asking themselves. And the question they ask themselves every time something doesn't work. This is what makes it so difficult to do this. You truly don't know. Well, I was talking about this with Josh. And at some point, you have to make decisions in investing. There's always going to be forks in the road.

So you don't want to be the investor that just missed the internet completely. Just completely missed it. Thought it was going to be a fad. Ah, you fools. I've seen this movie. before. No, you haven't. But you also don't want to be the person that buys telecom or media stocks in December of 1999. So it's really, really hard to find the middle ground. This is my personal risk preference. I could never be in too concentrated of a strategy. This is the only strategy I'm employing because you open yourself up to the possibility that it doesn't work anymore. And yeah, that's why it's so difficult. Okay, speaking up, here's another thing that makes investing so hard. So Dave Portnoy is now transitioning over into Bitcoin, which is not shocking at all.

That seems like an easy leap for a day trader to make. Surprised it took this long. He talked to the Winklevoss twins last week because they're big Bitcoin proponents. Here's one of the clips that he played from their talk. And if he mines all the gold and the asteroids above Earth, then all of a sudden, is that like a real statement? Yeah, I think he will. So all of a sudden, wait, what?

He's going to mine all the gold in the asteroids. So there's billions. of dollars of gold floating on asteroids around this planet. And Elon's going to get up there and start mining gold. And then it's going to fall from the sky. What are we talking about? And it would be as planet full of sand. I don't know if you're serious.

No, we're totally serious. When Dave Portnoy can't tell if you're joking or not about an investing idea, now here's my take on this. Wait, does that mean it's different or not different? The fact that he couldn't tell that they were joking is if one of your actual investing thesees sounds so outlandish that someone doesn't know if you're being serious or not, typically not a good thing. But here's a thing. These guys were in on Bitcoin very early, and they made a ton of money. So one of the things that's so frustrating about investing, I think,

for intelligent people is you can make money and be right for the wrong reasons, and it doesn't matter. Everything we heard about Bitcoin in 2017 during that bull market has proven to be totally inaccurate. All the reasons that they gave us for why the price would continue to rise, If you take out that one month period where we just had to blow off top, Bitcoin has actually done pretty well. I'm shocked at how just relentless it's been in, it's come back every time it's fallen. So again, if you take away that blow off top when it went from whatever, 13,000, or 10,000 to 20,000 in a month, it's actually held up pretty well. But all of the reasons that people said at the time for because it was going to replace the dollar and it's going to be the new form

of payments, none of that has come to fruition. It probably never will. Still could. No, I'm going to say no, Bitcoin's not going to replace the dollar, timestamp. But now they've transitioned to say, okay, it's the new millennial gold, which I actually think is probably not a bad way to frame it. If your whole thesis revolves around someone flying to outer space and mining gold in the asteroids, I'm just saying that's one of the reasons that investing is so frustrating because you can be right for the completely wrong reasons just because the price agrees with you. Is this thesis that there's going to be an oversupply of gold? Yes. Due to Elon mining the asteroids, but Bitcoin has a finite 21 million unit supply.

So gold prices are going to crash and everybody who bought gold for store value is then going to buy Bitcoin pushing up the price of Bitcoin? Yes. I'm in. I'm in. He says gold will be no different than sand in the future in terms of it's worth, whatever that means. Anyway.

So what does this mean for value? There are now a finite number of value stocks. You can never create another value stock. So value is supply constrained as well. Unreal. Really, truly. That's the bulk case. Let's talk about real estate.

There was an article in the New York Times that I wrote about last week, the owner of Ark Restaurants who owns a Brian Park Grill, which is right outside of our office, which I've been to... That's right across the street, right, from the office? Yeah, I'm sure we've eaten in there before. Did it close? No, no. There's still people there.

There's outdoor seating. He said, there's no reason to do business in New York. I can do the same volume in Florida and the same square feet. The idea was that branding and locations were important, but the expense of being in the city has overtaken the marketing group that says you have to be there. I think that there's something to that. I think that's certainly the idea that, and we'll get into the altruiture thing in a minute, I think that there is something to it that restaurants are going to think twice and retail is going to think twice about paying rates that they had previously. That can be true, what I just said,

and it can also be true that New York City is not dead. It will never die. It will always be an amazing place for young people. So I got some pushback. I thought my article was pretty innocuous. I wasn't saying that New York is dead or even close to it. But then James Altutcher comes in with a sledgehammer and said New York City is dead. And this was... He only said it was dead. He said it was dead forever. Yeah, that's a take. Why would you do that? I don't. To get people to talk about it. That's not serious. That's looking for someone to talk back to you. You only say that if you want people to come after you. That's a PR take. And I think, obviously, there's going to be a transition for all this stuff for commercial real estate and for people moving out. And I'm not the first one

to make these points, but the people who are moving out now, we're going to probably move out anyway. And the people that will move in, hopefully will be younger people who are not going afford to live there or maybe make it a little more affordable. So I think it's a tough transition period, but probably a good one in the long run for people that. And then you get new people who really want to be there. Because guess what? When this stuff opens up again and we have a vaccine and life goes back to normal, these young people have had their social life disrupted for, I don't know, 18 months, 24 months. They are going to go crazy and do as much as they possibly can. They already are. Our colleague Nick Majuli said, I love all these people saying

NYC is dead. Please keep saying it because I spent 45 minutes wandering the West Village on Friday night trying to get a table just for two cocktails. My parents live in northern Michigan and for three months of the year, it's God's country. It's one of the most beautiful places on earth. There's Lake Michigan, water, beautiful beaches, wineries, all this stuff to do. And a lot of that stuff is not functioning right now. But they said, for whatever reason, because people are just bored and want to do stuff, the town is still packed with tourists. And they said they called for a reservation last week. And the place said, call back in October. Because the restaurants now are operating at 40% capacity and people are looking for something to do, you can't get in

anywhere. Yeah, there's still places where people are doing stuff. I would short the New York is dead takes with as much money as I possibly could. Yeah, back up the truck on that short. So yeah, again, I think things are going to be different in New York for restaurants, for retail. Do I think that the tourists are going to come back? Yes. Do I think that people are going to be fleeing the city forever? Absolutely not. I think that this is definitely more of a demographics thing. So trends that were already in place are just accelerating. So I wrote an article about this yesterday. Zillow had a piece on the 2020 market, urban and suburban. There was an article in my hometown newspaper, basically saying that nobody can buy a house. No supply, basically. For every seller,

there's 15 buyers. And I'm seeing this all over my town. This is just factually happening. This would be the time to arbitrage if you were going to do it. The sell in New York or the New York suburbs and move to a cheaper place, that arbitrage would be an amazing financial move, I think, if you were willing to do it. Now is the time to do it. If you ever going to do it, now is the time. But whenever we're talking about real estate, it is so dependent. on exactly where you are. Again, I'm stating the obvious, but Zillow made an amazing point that in all but a few cases, suburban markets and urban markets have seen similar changes in activity in recent months about the same share of homes selling above their list price,

similar changes in the typical homes spent on the market before an offer is accepted, and recent improvements in newly pending sales have been about the same across each region type. So they break it down by north, south, Midwest, et cetera. They break it down further by urban and suburban. and the charts look basically exactly the same. So what is really happening, I think, is that the trends that were already in place have certainly been accelerated by the virus. Definitely. And it all happened in the span of two or three months, which is maybe it would have taken three years without this. And then the biggest outlier was, so they showed

inventory change from February 2020, and they looked at Boston, Los Angeles, Miami, Seattle, Washington, and the huge outlier is San Francisco. Right. Which makes sense because that needed something to happen to make things more affordable for people. Because that real estate market is just going crazy. Google is saying that their employees can work from home until July 2021. Did Twitter say forever? Some of them did, yeah, indefinitely. If you just Google San Francisco on Zillow.

How interesting is it going to be that those tech companies in the future that pull that back someday, very quietly, say, all right, you guys are all coming back to the office. Someone's going to do it, right? So somebody called us out for saying, I think it was you, Ben. People are leaving the cities and moving to Austin. I think what we meant was coastal cities. Right. And someone also told me, Ben, there's no ranches in Austin. I'm sure it's outside. But I've heard people like, a lot of the influencers, like Tim Ferriss and Ryan Holiday and Tucker Max, those people are all saying, I'm moving to Austin and in the outskirts, I'm going to buy 60 acres of land and start a farm because that's the next evolution of a tech influencer. You have to go from Silicon Valley to a ranch. Power for the course with your Midwestern elitism. Yes, that's me. You stupid flower, people. You had this picture of San Francisco.

You just pulled it up on Zillow, I guess, looking at the houses, and it's just a sea of red dots for sale. It's insane. I mean, obviously, I don't know what that looked like six months ago, but this looks pretty wild. It is amazing how you go from the fear of missing out to the fear of being in. And I'm sure a lot of people said, you know what? My housing price is up 80% over the last three years. If people are leaving, I'm going to sell them out and try to make some money on that before the value gets dinged.

So HomeBuilder sentiment was released today, and that's at an all-time high. What does that even mean? It's a survey. Hey, Home Builders. How are you feeling? Pretty good. How you all doing? That's another V-shaped recovery there.

A lot of Vs. Article in the journal this morning, Daily Foot Traffic to Home Depot, store since April, has been running at 35% above last years. This is an incredible quote from the CEO. All the historical benchmarks that we use to think about the business and what the growth in the business would be, like GDP and housing, none of that has a correlation anymore. So my brother called pool contactor last week and took him forever even to get into account to the house. He said in the past they would receive 70 or 80 people a year that would

request their services just for an estimate. He said now they're receiving six or 700 calls a week. Yeah, you can't get a pool. Take it pools in. Yeah. And the guy basically threw him out the most outlandish number he's ever heard and just hoped it would stick. And basically charged whatever they want now because everyone wants to do something like that. Can't even find the blow a pool. By the way, getting back to this city suburbs thing, I mean, the responses that you see in the comments section, it's all just, it's age dependent. If you're over 35, you're bullish on suburbs. If you're younger than 35 or wherever the dividing line is, you're bullish on the city. That's always the same.

A lot of takes about this stuff, asking you and I who are young people in the suburbs with kids, the way that we think about this stuff is going to be totally different from someone who's way older or way younger than us. Right, of course. But it's funny. Like people saying like, you're biased because of your position. It's like, well, everyone's buys by their position. Exactly. People in the city, people outside the city, you see the world through your own lens. It is funny how quickly it went from no one is ever going to be able to afford to live in the city again to the cities are dead and no one's ever going to come here again. That script flip really quick.

And obviously, it's neither of those two. It's somewhere in the middle, like always. Yep. Yep. Okay, so a couple weeks ago, I talked about this story about these saliva-based tests for COVID that you can get back. You could buy it a Walgreens, your local pharmacy. They cost $4 to make. you could probably buy it for $10, $15, $20.

And the question kept asking, why isn't this happening? And apparently the FDA, they issued an emergency authorization on Saturday. And the group that tested this and funded this was the NBA. So when the NBA was- Who paid for this? The NBA funded it, the Players Association. When they were getting ready for this stuff and ramping up their tests, they funded this through Yale.

Yale is the one who did the test. And now the FDA has, so I don't know if and when these will hit, but it sounds like this could really be something that you could take a test every day if you wanted potentially if this comes out. And they're saying it's 90% effective, whereas other tests might be like 95%. But if you could go to Walgreens in your local pharmacy and buy 20 of these for the month and test your kid every day before they go to school or people go to work, that would be amazing. Shut up and dribble. I was kind of feeling a little weird about the NBA stuff like that they're using so many tests and does it really make sense. But the fact that they funded this

and did this, which I had no idea. So this story was NESPN. I think that's awesome. Amazing. Yeah. Yeah, amazing. Bloomberg had a piece this week saying the number of people applying for an EIN, which is an employer identification number with the IRS, has doubled in recent weeks and over a year ago level. And it's by far outpaced 2008. So in 2008, the number dropped of people applying for these. Now it's just gone up crazy, and it's double what it was at the beginning of the year and a year ago. So people are now realizing, okay, this thing happened, either I lost my job or this work from home thing is real, and I'm starting my own business, which I think is kind of cool because if you look at history, that's a lot of really good businesses have been started, and I'm not saying

people are going to start these, but IBM was founded after this nasty Great Depression in 1800s. UPS was founded in after the panic of 1907. General Motors came out a year later. Disney opened up in the Roaring 20s, but during a recession then. Fortune Magazine is created right after the crash of 1929. Charles Schwab and Microsoft, 1973, 74. I'm not saying individuals who are starting these businesses are going to do it now, but that's typically when people find out what they're made of and start a business that can actually last, right? I'll say that 100% that's going to happen. You're going to find in a few years some amazing businesses that would start in 2020, for sure. Yes. So I think this is on the net a positive, hopefully for a lot of people that needed a kick in the

pants to do this, and this was the springboard that helped them. So maybe a slight net positive from all the crappy stuff going on. Did you know that Hard Knocks is on TV right now? I realized that when you shared this story, and I had no idea, because that's usually one of my favorite things to watch. And honestly, I have no, I don't even care. Same. Yeah, you love that show. I love Liam Shriver as the voiceover, and I love watching what's going on. And for some reason this year, I just have no desire to watch it. Well, we're not alone. Season 15 debut, average 273,000 viewers on TV, which has down 60% year-over-year when it was $705,000.

By the way, what's going on with HBO and their marketing department? Because I haven't seen this anywhere. I feel like I have no idea what's on HBO Max and what's on HBO, HBO. That's true. Usually they push it a lot on their commercials, but you haven't seen it. The HBO Max, that's going to be a case study someday in business school of how not to do a roll out like that. HBO has an amazing brand and it seems like the way that they rolled this out was just not

because they had the HBO, HBO Go, HBO Now. Didn't they let their head guy go two or three years ago with the acquisition? And that was like a big story. They just cleaned house two weeks ago too for some more people that came over because they had the merger that they, so yeah, that does not seem like a bearish on HBO. I'll still stand with them because their shows are amazing, but not the greatest rollout. Did you watch the new show last night? What new show? Lovecraft Country.

No. I've never heard of it. All right. Week one. Exactly. You've never heard of it. It's a new show. Did you watch it?

I fell asleep, but no comment on the show. I was just very tired. All right, let's move on to listen to questions. I heard on one podcast that Ben had a degree in business management. I did not major in finance, but have become very interested in stocks in investing. What advice do you have for someone who may want to transition into that job centered more around investing? We've actually got in a number of questions about this lately. I'm in my 30s wanting to transition because I like the stock market in investing. How do I become a portfolio manager or a financial advisor? I don't want to dissuade people from this, but there's not an easy path. I will do some dissuading. I was in this position a decade ago and I got very, very lucky. I just happened to meet Josh Brown at the train station, but I was not doing good job breaking into the industry. And I live in New York City. My advice is usually do the CFA or CFP,

to show how much interest you have in it, because you can do self-study for that stuff. I almost wrote an article, the worst advice I ever got. And what I was going to say was, take the CFA. Somebody was like, just take the CFA and you'll get a job as an analyst at a hedge fund. That was like, oh, wow, that sounds awesome. You and 300,000 other people every year. Exactly. The industry is shrinking right now. The asset management industry is shrinking. It is incredibly difficult to break in. So I'm not saying don't if you're incredibly passionate, But if you're like casually interested or you're like, oh, this seems interesting, understand that people spend years in universities preparing for this thing and that you are at the bottom

of the totem pole. And it's very difficult to break in. Here's something that will never go away. And I think in the years ahead, especially as we have the 10,000 baby boomers retiring every day, financial advice is going to be way more important than portfolio management. But if you're able to sell anything, that is always going to be in demand. If you can sell stuff, if you're just looking to be an analyst and numbers, the competition for that has never been higher. If you can sell something and bring on new clients somehow, that's a skill that is hard to find, I would say. Yep. So, yeah, I agree. All right, I have a CD at 2.2% that expires at the end of the month. This is an emergency fund money, but it's money for which I have very

little risk tolerance. I want the money available if an opportunity arises to purchase something, such as a boat or a down payment. Any thoughts on what you do with the money if I won't need it until spring 2021? So that's what, not even a year away. Any thoughts on what you do with the money. Allies banks, 1% savings account interest is less than ideal. I prefer a 2.5% 3 return with a little risk, but I'm pretty sure even short-term treasures won't get me their thoughts. Yeah, you're right. They definitely won't get you there. And this is a question that's coming up over and over and over. Hey, I've got cash. I need this money in nine months, in three years. What do I do? There's no good answers. I mean, I keep saying there's no good

answers, but if you want return, then you need to take more risk than you're probably comfortable with. And the risk-free rate is what it is. But especially over a year, I think people don't stop to think what they're getting. So let's say you have $100,000 in a CD and it retires. And you have a 1% on your online savings account right now. And you want to double that and get 2%. That's an extra $1,000. That's not going to change your life. It's not going to move the needle on a house down payment for an extra $1,000. So think about the gain you could make versus the prospective loss. And especially in that short of time frame, I'm just never comfortable taking too much risk with that. How about taking a lot of risk with a small portion of the money?

So let's say that you've got $25,000 that you're going to need in nine months, and you take $2,000 and I'm making this up you buy Tesla or something like that. Triple levered something? Yeah. I mean, I don't know. There's no good answers. What I just said is sort of not a good answer, but I don't think there really are many. So if you take the amount that you're totally willing to lose, then invest that, yeah, sure, if you want to scratch that edge. I mean, what's the alternative?

You can't buy high dividend yielding stocks. I'll just buy Exxon. Okay, good luck with that. Right. And then, yeah, the total return matters more than the, yeah, I agree. It's not easy. All right, recommendations. You go.

All right. Peanut Butter Falcon. You heard this one? It just came out on Amazon Prime and a bunch of streaming. I think it's from 2019. Shia LeBuff is in it and he befriends a guy with Down syndrome. And it's one of the more uplifting and just good-spirited movies I've seen in a while that have put a smile on your face and in a good mood.

I really enjoyed it. I've seen him do interviews with this kid. I know he got really screwed up, Shaila Buff did, from being a child actor. He can still act, man. He is still so good. And in this movie, he's really good, too. What was that war movie that he was in recently or in the last few years? I don't know if I saw that one.

Yeah, he's still got it. He's still pretty good. Okay, here's one. So I still have two magazine subscriptions. They cost like $10 for 24 months because no one buys magazines anymore. You really are a boomer. Yeah, I like it, GQ and Square. And GQ had this deal where if I re-uped my subscription, they would give me a deal on their quarterly GQ box, whatever it is.

You've seen these things where you do a subscription and they send you a box and you don't know what it's going to be in it. Really? Have you heard of these things before? Other places have them. So I'm like, all right, box was $50 for every quarter. And I think I got a deal on the first one. Either either free or I got 30% off, something ridiculous. Wait, what's in the box?

That's the thing. So they send it to you. And it's obviously just free samples. in. So it's, I got a watch and a wallet and a pair of socks and a bathing suit. But then they also give you these face cream. So it's like this cream you put under your eyes to get rid of the lines under your eyes. And it's stuff I would never in a million years buying my own. But it's kind of fun because you get this stuff, especially in a world without our experiences are taken away from us. I like buying stuff. And it's kind of fun to open it up. Be like, oh, whatever I got in my

box this quarter for 50 bucks. And it was a severed head. It's totally worth the anticipation. And then after the fact they send you deals saying, okay, if you like this product, here's 25% off the next time you buy it. And I liked the two and one shampoo and conditioner they got. Sorry, no offense. Since you can't. Too soon. Wait, where does this subscription fit in your budget, in your household budget? What does it count? Yeah. Okay. Good lead in there. Thank you. On Friday, we did on a couple weeks ago, on the economics of homeownership, got a really good response to that. So we're going to try to do more of these evergreen ones. And on Friday, we're doing a topic, a show totally. totally devoted to household budgeting and spending, which is something that probably doesn't get enough attention in the finance community, even though it's very important. So anyway, GQ's subscription box, I like it. And finally, been reading North of Nowhere by Steve Hamilton lately, which is my Upper Peninsula of Michigan detective novel, about the fourth or fifth one I read of that.

I'm biased because it takes place in Michigan that I like it, but it's still good. That's all I got. Okay. First, I want to recommend, I don't read any daily stock market commentary. But Aaron Stanhope from O'Shaughnessy Ascent Management has a one that he's started to put out. It's excellent. It's short. It's sweet.

It's data loaded. No like opinions or forecast or anything like that. Or it's just very good. So I'll link to that as show notes. Gmail needs to give us a newsletter tab because I'm getting a lot of those now too, but I like that one. So I finished the Foundering. We work one. So we work their market cap.

Guess what it is now? At the height, I think it was $48 billion. They were talking about maybe an IPO as high as 100. What do you think the market cap is now? You wrote it down here, so I see it. It says $3 billion. Damn it, Ben. You're supposed to bury the league.

You wrote down, we worked down to $3 billion right there in the dock. You have to look. $3 billion. Unbelievable. Okay, so. I nailed it. I had the best movie week I've had in a long, long time, which is great because I think my watching is going to be on pause as the NBA playoffs. are going to be on all day for the next few weeks.

But before I get into what I watch, I just want to briefly hit on Top Gun, which I was really surprised at the response. I think from what I saw it was about 50-50, do you think it was more defending Top Gun? I can't, we didn't really document it. Yeah, it was close. But here's the thing. Here's the one thing that everyone said to me, which my response, so everyone said, there's a lot of stuff from the 80s that doesn't age well.

But has anything from the 80s ever aged well? Fashion, maybe some of the music, but nothing in the 80s aged well. culture. Rocky Four. Yeah, but I'm saying a lot of it, nothing from the 80s when you think about it. Point taken. And this is the crux of the thing. It's really an 80s argument more than anything. So I listened to, as many recommended, I listened to Top Gun the rewatchables on the ringer. And the theme of that episode was the unintentional comedy of Top Gun. So if something is unintentionally funny and you watch it 20 years later, it's not going to hold up, right? Right. Because that's how people looked at stuff in the 80s.

Yeah. So if I watch that as a seven-year-old, I would be all in. So I totally understand people dying on the hill of Top Gun. I'm not saying it's a bad movie. I'm just saying if you watch it 30 years too late, yeah, it's probably not going to be great. It all goes back to with everything, expectations. Those expectations were impossible to live up to. However, I saw a movie. I'm not exactly sure what took me so long to get to this. I think I was intimidated by the length of the movie. I saw what has often been held up. as the best movie or truly one of the best movies of all time from 19 what year was this 1970 what year did the godfather come out 72 maybe okay yeah i think that's right sometimes in the 70s so i watched the godfather and i know i'm not breaking ground here but considering the expectations that i had going into this movie it lived up to all of them have you seen number two i haven't seen part two yet i think two is even better but the godfather was If you are a younger person and you just missed it, I think I bought it on Amazon Prime or something like that for four bucks. That's a movie that ages well.

Oh, my God. I agree. Well, it took place in the 40s. That helps. So that helps. Movies that are set in the 40s, 50s, or 60s will always age better than movies set in the 70s or 80s because things weren't so outlandish then in terms of pop culture and fashion and such. Very happy that I finally checked that box. All right.

This is very rare. When's the last time that you were scrolling on Netflix or Amazon or something and you found the movie that you've never really heard of, but you watch it and it blew you away? Been a while. Pretty rare, right? I've had a lot of swings and misses over the past few months. So Nightcrawler on Netflix was the Jake Gyllenhaal movie where you see, I've seen that gift a million times where the Jake Gyllenhaal is like, turns around and winks.

He's pretty good playing creep, isn't he? That movie was excellent. Yeah, very good. Truly, truly excellent. It's with Renee Rousseau and The Kid from the Night of and Bill Paxton, rest in peace. And Jake Gyllenhaal plays a really, really creepy dude who goes to crime scenes and the scenes of accidents and records them and sells them to the news stations. And you saw it. Yeah. I saw it after Campt. It's been a while, but I liked it. Really, really good. Okay. Lastly, I watched a movie called Green Room. I also saw this on Netflix. And this is for the horror movie fans out there. which I know there are not too, too many. But I think before I watched it, I went to Rotten Tomatoes, and I saw it got like a 91. I was like, oh, 91, okay.

It made me think that Rotten Tomatoes is the Dow Jones Industrial Average of movie reviews. Because it's not perfect, but it's good enough, right? Sometimes they're really off, especially with comedies they tend to be way off, but it's good enough. Anyway. I still rely on IMDB, which I consider the S&P of. That's good. So Green Room, just watch the trailer. and if that appeals to you.

So I don't want to describe it because it sounds so ridiculous. Movies like that are kind of hard for me to watch, though, when stuff just keeps going wrong. Well, basically, they're trapped in a house, and that's the genre. And the house is full of neo-Nazis, and they had neo-Nazi, of all people. Patrick Stewart, didn't see that one coming. Yeah, it was a good movie, though. Oh, you watched it? I've seen that one before, yeah.

Huh. I told you that. I forgot about that. I forgot that you told me that. I'm very happy to go out with a bang-up week. All right. It's about time. Because guess what? We're not going to have a good new movie for a long time. Have they started up yet again? Probably not. I have no idea.

Unless all the ones that were pushed back. Top Gun 2. Top Gun 2 should be coming out soon. How about this? Top Gun 2 will be better than Top Gun. You heard it here. All right. That's possible. All right. We'll be back on Friday talking about budgeting and spending. Send us an email, Animal Spearspot at gmail.com. Leave us a review and we'll talk to you next week. You know, you know,