Animal Spirits Podcast - The Influencer Bubble (EP.86)

Episode Date: June 5, 2019

On today's show we talk about the influencer bubble, causes of death, peak smart phone, and the intelligence of the bond market.  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 sponsored by Whitecharts. Go to Whitecharts, tell them Animal Spirits sent you, and get 20% off your first subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Battenick and Ben Carlson as they talk about what they're reading, writing, and watching. Michael 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 Rithold'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. Welcome to Animal Spirits with Michael and Ben. You know it's also 20% off? Google's stock price? That's right. Hey, 20% down. Are you a buyer here? No. Call options? Nope, nothing. Nothing of the sort. You know what part of the cycle we're in? What's that? We are in the, I reached out to four companies to do my backyard part of the cycle without answering. You want to know what?

why that's happening? Why? It's nothing to do the cycle. Is it seasonal? Yeah, because it's the middle of summer and everyone's busy. You have to get them like three or four months in advance. Yeah, I dropped the ball with this one. Your backyard's not going to get done this year. Probably not. Okay, that's too bad. You know another part of the cycle we're in? Some Swedish firm in San Francisco is doing a Pogo startup to compete with the scooters that we used a few weeks ago. So Ben and I are recording this from a we work in Los Angeles and I now have four scooter apps on my phone. I just downloaded lime and wheels. That kind of makes me think you would try this pogo stick thing. The scooters are unbelievably dangerous. It's called kangaroo with a sea,

kangaroo, kangaroo. This just looks like a broken arm waiting to happen. Who uses pogo sticks? How much money did this company raise? This has got to be a joke. I won't believe this so I see it, although I guess stranger things have happened. So you use the scooters again today? I used not a scooter, this company called Wheels has bicycles. So bicycle scooters. Okay. Powered bicycle. Yes. I'm surprised that they're not forced to have helmets waiting for you for these things. I guess maybe they make you sign off when you scroll through 20 pages of fine print. So I wrote a post this week called the coddling of the American investor. And one of the charts that I didn't include because I didn't really think it added anything was how alternative funds have

performed over the last 10 years. That was a good title. Were you pretty proud of that one? Well, I just took it from the... From the book. Yeah, but still. Sure. So Jeffrey Patak tweeted this a while ago, a chart showing the number of unique funds and how they've done since. So it looks like around 130 funds have been in existence over the last 10 years.

And we'd just say 50 of them are dead. Another 25 of them lost money. So right off the bat, half of them don't exist and having made money, which is pretty remarkable. So I always think the problem with alternative funds is not necessarily the investment vehicle, although obviously it's been a tough 10 decades, but it is so hard to stick around waiting for these things to turn. And so it looks like basically a small handful of done 10% plus per year, which is the stock market has done more than that, basically. Right. So it looks like, I don't know, five out of 130 have kept up with the stock market. That's what you would expect, no?

Yeah, definitely. And that's like the fallback for a lot of people is it's a raging bull market, just wait. If you are in one of, call it a managed futures strategy for the last five years, What do you do now? Man, I mean, if you look at what investors are doing, they're bailing. Because if you look at the assets for those funds, they are getting out hard. And I mean, it's a tough one because so much money flowed into there after 2008 when it was one of the few strategies that actually was up like double digits. So there's probably the question of, man, does this just not work anymore?

And then the other question is like, am I just being stubborn? Here's the other line of thinking is I can't get out of this now because I'm going to get out of it right as the market crashes and I'm going to look like an idiot twice. That's one of the things where investors have these sunk costs. I don't know the answer. It's a tough question, but it's something you have to go into thinking that this certainly can't happen. Well, and it also goes down to, I mean, obviously you need to think about the why you're investing in this strategy in the first place or any of these alternative strategies, not specifically managed

futures, is probably position sizing. Like if this is, I don't know, call 10% of your portfolio, okay, that's a pain in the ass and it's been a long, long time, but you could probably live with that. If this is 40% of your portfolio? And that's one of the hardest things for investors to do is at what point am I wrong? So I think you have to actually define that in advance. So if one of these strategies that you're going into is sucking wind for years and years. But what's years and years? Because we know that five years is barely enough time.

Yeah. Ten years is probably very enough time. But here's the thing. You put it up front. Am I going to rebalance into the pain here? Or am I going to get rid of this thing the first time it goes against me? Do you think anybody actually does that? Probably very few. But that's the hope, I guess, is we're not just going to bail. So like you do a post-mortem before it begins, a pre-mortem. I'm sorry. them. Yes. So this tariff thing has gotten out of control. Meaning what? This is a CNBC headline from today. Chipotle says Mexican tariffs could cost it an additional $15 million, possibly forcing price rises. Fifteen million? Doesn't seem like a lot. I didn't think so either. If you spread that

across all their restaurants and all their sales, what are they going to raise prices by 23 cents a bowl? The good news is 95% is untariffed. So invert. Okay. So we're in California. Why can we bring avocados back with us from here? Don't they make them here? I'm not traveling with avocados. I don't want to get arrested. Okay. The New York Times had a long piece this week, and they basically made the point that the bond market is really smart. So they said the bond market is trying to tell us something, in parentheses, worry.

And they went through a number of examples. And one of the first example is that 10-year yields across the board globally are falling. So the U.S. is falling, Australia, UK. Wow. Japan and Germany are back into negative territory. By the way, I just brought up a chart of 10-year yields, and they are collapsing. Yes. And obviously the idea is...

By the way, I'm not a new world. Well, I know what you're thinking. I've been looking at the chart. I made it sound as if I'm only looking now for the last six weeks. Wow, look at that. Han, the stock market is up to over the last 10 years. But the idea is, okay, rates are falling. They're trying to tell us that the economy is going to be slowing. And the other thing is the yield curve thing, which we've talked about. And so I pulled up a chart from Y charts that we created that has a 20 year, 30 year, 10 year, 7531, three month treasuries. And it shows them going back to the early 90s. And you can see in the chart, which will provide in the show notes. The yield curve gets much more narrow from the

top to bottom before recession, and it sort of widens out at that. And I get the thinking behind that. But I mean, is the bond market really that smart? It's Einstein. If you look at the rates over the past, even 10 years, 12 years going back to 2007, there's been so much movement over time. And the spreads have compressed between these maturities in the past. And then they blow out and they rise. And so we had two years of rising rates and now they're falling again. So when rates were rising, were they saying, okay, the economy is going to be good for a couple years, but then it's going to crash. I mean, there's so much money in the bond market. Can you really attribute it? There's so much that goes into a supply and demand and investor preferences. Is it really that

smart? That's what I'm trying to say. We spoke about this during the big short, rekindled. If the bond market was so smart, how do you explain all the shit that people were buying in 2006 and 2007? And I'm not one to sort of argue with the yield curve. It's got to be saying something, but did you hear what I just said. I feel like you just totally blew past that. Yes, that was good. Nice plug for our rekindled podcast. I was looking at our podcast reviews today for some reason because there was a funny one on there. Someone pointed out to me. They said that this is a great show except their TV recommendations are terrible. And I put on our Instagram feed, no way, my TV recommendations have outperformed

by 7,000 basis points since inception. Your TV recommendations are money. No, but there was someone who gave us another review. I don't know, but let me tell you this. Last week, I said that we have a lot of dumb emails and I wanted to set the record straight because I feel like that's not very nice. I didn't mean that. What I meant was we have some crazy emails. Yeah, but it's like, it's like one out of ten. So it's a loss ofversion. You remember those. I think we have a really intelligent audience that sends us good questions. And just judging by the listener questions we go through every week, yes, I agree. Not dumb emails. Psychotic. We have good emails and we have psychotic emails. There's a couple here and there. Okay. But back to the bond market thing. You felt bad that I

totally glossed over your point there about the big short. I don't know if I'll ever get over it. So here's a good review from someone on our page. And this is, I can't believe I'm reading reviews for our own podcast on the podcast. But after saying some nice things, easily my favorite part is is Michael not listening when Ben goes off on a tangent. You just made that up. I'm posting it. Okay. So anyway, I think, yes, bond market is not as smart as people think.

That doesn't mean I'm arguing with the yield curve by any means. But I think there's just way too many factors that go into the setting of interest rates to say that the bond market. Well, here's the other thing. For the last 10 years, people say interest rates have been manipulated, right? We can all agree on that. Interests have been manipulated. Wait, are you saying that sarcastically?

I mean, they have been. The short term has. Obviously, the long end hasn't. But can you really argue that interest rates have been manipulated? but then the bond market is really smart, too. How can it be both things? You can't say the bond market is smarter than the stock market if those rates have been manipulated.

If they've been manipulated, then... If we can insert a GIF here, that's the pointing head emoji. Not emoji, GIF. Nailed it. Good one. I also just think the whole notion of... It's on the business page in the New York Times. It's not telling you anything.

If it was that easy, everybody would be listening to the same thing, and clearly they're not. I took a look back. I wrote my very first piece on the yield curve in, like, 2016. It was getting close to... So it's one of those things that, like, even if it does... does have a signal when you look back and it's kind of close to those gray bars on the recession. Like in the time frame you're using, that timing can be a big part of whether you're really right or

wrong. Okay, so Benedict Evans from A16Z had a cool chart and he talked about mobile and how basically the mobile story is done because everyone has a phone now. So he said humans over the age of 15, there are estimated 5.3 billion people that have a phone. Five billion of them have a mobile phone, four billion of them have a smartphone. So that means there's a billion people that are using still a flip phone, I guess. But those are insane numbers. Four billion people worldwide over the age of 15 have a smartphone. And his idea was, okay, what is next? With that being said, is the growth value theme about to shift? Because everyone has a smartphone? There's nowhere else to go. I'm kidding. But of course, today is the day we're recording us on

Tuesday. No, Monday. I'm sorry. Google is getting destroyed after some antitrust talk. I'm usually not in the same room as you, so I actually got a chance to see you go through your 26 charts or whatever on your... What did you think? I mean, does it really do anything when you look at all those charts? It's part of my routine, Ben. Not a morning routine? Not a morning one. Afternoon routine.

All day routine. Okay. And so you notice those charts are ugly. Is that you're telling me for the text? I think everybody noticed, yes. Yeah. The biggest thing I keep thinking about this from the context of my children is just that this is just part of their life now. the smartphone having that. It's just so interesting seeing them grow up with this being part of

their life where, as to us, it kind of came in slowly. We got a chance to adapt to it a little bit. So part of the growth of phones has been the influencer market. And last week there was, it seems like maybe there's some cracks. Maybe the bubble is bursting. An Instagram influencer tried to sell some t-shirts and only 36 people bought. Is that the story? So she had 2.6 million followers and she only sold 36. t-shirts and then she went on a rant on Instagram to complain to her followers. Why are they not buying her t-shirts? Is that because they're all bots? Is that because it's just harder to get people to act? Then what's your Instagram takeaway? I don't know. But you know what I did on

Twitter? I muted my first word. Have you ever muted a word on Twitter? No, I don't even know how to do that. Okay. You know a lot of people mute Trump? What was your word? Drake. Really? You're done with it? It's every single tweet during the game is Drake. Yeah. He got exactly what he wanted. He got attention. It's quite annoying. Yeah. Honestly, like, I think it's kind of funny, but I'm over it, too. But then you have to mute Aubrey, too, which is his real name.

And then people started calling him that now. Yeah. Okay. Survey of the week. I literally only read the title of the article. Honestly, for surveys, that's pretty much all you need to do, right? Good point. Life hack.

Here's the title of the article. I'll look to it in the show notes because that's just what we do here. American millennials have an average net worth of $8,000. And it's part of a bigger financial problem that generates. is facing. We're not a fan of surveys, and we're definitely not a fan of generational lumping. Yes. So they're comparing millennials to baby boomers and saying, let's just move on. Okay. Here's another one for you. And this one I think we'll be able to relate to, I can kind of relate to it now. Parents are going into debt over their kids' extracurricular activities.

So this is looking at... Is this the next bubble? Yes. So they did a study and they said, the funny part is, is eight and ten parents in a new survey are hoping that the lessons that they give their kids and the sports that they're playing are going to lead to something else down the road. So looking at it as an investment. And they found that. Let's see. Don't you think every parent hopes that? Yeah. So 90% of parents who dropped at least $4,000 a year believe their kid will earn money from that activity. What? Compared to 75% of parents who spend less than 1,000. Come on. I understand parents are dumb, but you really think 90% of parents. Honestly, here's one of the things. After having kids, I have more sympathy for people that don't have a lot of money saved. Because I have more sympathy for them than people who just spend it on themselves, I think. Because it's hard to turn down. spending money on your kid, right? So I can totally get why there are a lot of people out there who probably should be saving but aren't because they're spending it on their kids. I actually kind of understand that now because this stuff can be expensive. The hope is that if

you're spending money on your kids, you're not spending as much on yourself. I can kind of get why. The problem is it says a lot of these people are going into debt to spend this for travel leagues and music lessons. I don't think anybody thinks this way, but spending on them in their early years might prevent you from spending on them in their later years. Because if you invest in their education and things like that they're not going to live at home hopefully you just have to buy the therapy for them later on right the thing is this is one of the things i'm least looking forward to like i think it's going to be great what do you mean when my kids get a little older the thing i'm least looking forward to in terms of extracurriculars is dealing with the other parents oh i think that's

going to be really my daughter's in t-ball right now she's five it's one of those things where they all get to get a hit and run the bases and it's fine now but you can already tell people are going to overstep the line and be annoying and yell and i'm not going to deal with that the parents are going to be harder to deal with than the kids. I am not looking forward to that. Okay. So this was a pretty good one from Our World and Data, which is like one of the few positive websites on the internet, I think. I've never heard of it. They talked about it in the book Factfulness. Max Rozer is the guy's name. But what's name of the site? Our World and Data. So they have a ton of good charts. And they looked at the causes of the death in the U.S. They found out what Americans actually

die from versus what the media reports on them. And so they found terrorism and homicide account for 56% of media stories are about death in the U.S., but they account for less than 1% of actual deaths in the U.S. So this is why people get so scared about this stuff and worked up because it's always reported on it. Obviously, they're not going to have lead off the news story with local news saying, hey, Jerry died from heart disease today. But this is the thing when you hear people talk about this stuff, I feel like watching the news is just rot for your brain a lot of times. Because when you hang out with family members and people maybe outside of the finance world. I don't know why it has to be outside the finance world, but isn't there

a lot of, boy, did you see how many people died in this today? And it's always a lot of negativity Yes. You get that a lot? Yes. Okay. I noticed that a lot, especially. Wait, you've had people say to you like, boy, look how many people are dying. It's just kind of like looking through the local news stories on their phone and be like, oh man, four people got shot again today. It's like, if you want to focus on that stuff, it's really easy to because it's constantly in your face. Well, let's just stick with death for a minute. What's the worst way to die? I'll tell you. Having your skin and your organs melt from nuclear radiation. Still in Chernobyl, huh?

Episode four? That's kind of hard to watch, actually. We don't want to give any spoilers, but the dog stuff. That was harder to watch than the human stuff for me, I think. Yeah, that was tough. I listened to the Michael Lewis Malcolm Gladwell podcast, the bonus episode for his season against the rules. Yeah, it was good.

I thought it was really interesting hearing him talk about podcasts versus writing because, and I guess I never really spent much time thinking about, like, how Malcolm Gladwell is kind of the opposite of Michael Lewis. in the sense that Michael Lewis is very focused on character development and Malcolm Gladwell just, I don't know how he's the opposite, but he brings out stories in places that you wouldn't normally look. Michael Lewis is more of a storyteller and Malcolm Gladwell is more of a connect the dots kind of guy. Yeah, that made sense. And they're both good, I think. So Mark and Aaron had David Letterman on and it was really interesting hear them talk about

their substance abuse and just being in the business. I want to talk about the Letterman one too because I listen to that. Here's the interesting part. Whenever you hear now that, that more celebrities are doing podcast, you kind of open up the curtain a little bit. Everyone always says Letterman is their guy. Yes. Like every comedian, every actor, when I made it to Letterman's couch, I knew I made it. And he is like a god to those people. Everyone always talks about how they're so nervous to go on Letterman.

And he talked a little bit about his career. And I thought the funny thing was that he said, you know what? Every once in a while I look at Seinfeld or look at Steve Martin, and I think those guys had the career I should have had. So even a guy like Dave Letterman, who is at the complete top of the mountain for every other person in the entertainment industry looking at. He's still, like, in the back of his mind thought, like, maybe it could have been a little different for me had I'd done something different. It's like there's just never any, I mean, he is the guy, but people still. And the

other part was, he kind of asked him about his feud with Jay Leno. Did you get the story about how Letterman bombed at a comedy show in Denver? So he bombed at a comedy show in Denver, and somehow the word got back to like New York or Boston, wherever they were doing it. And Leno called up Letterman's wife and said, I want to go pick up Dave from the airport so I can make fun about it. I thought that was pretty good. new season of the Netflix show, which I don't watch, came out, but I did watch. I don't know why I watch this. Kanye was on. I don't see how an interview show can still make it these days with podcasts around. I'm not going to sit there and watch two people talk when I can listen to it

on a podcast instead. Kanye West is really something else, not revelatory, but like, I don't even know to say. He's just a interesting sort of guy. Listener questions. Ready? Aside from the much anticipated Wellstack conference, could you guys please provide a short list of your favorite industry conferences. I'm hoping this will lead me to a place where I can further confirm all my pre-existing biases. I guess Berkshire is a place to do that. Yeah. If you want to do that, that's for sure. We don't really attend many conferences anymore. I went to Inside ETS to the first time this year. That was overwhelming. There was like 3,000 people there. It was massive. But Inside ETS who were working with for our Wellstack conference, they run a tight ship.

They know how to put a conference on, right? Yeah, it was very good. I've never been to the Schwab one, have you? The one in, is it Orlando? Why did I put this in the dock? Maybe it was just because we want to do a shameless plug for Wellstack. Again, we'll be doing a live animal spirits. We're still coming up with some interesting ideas on that, but September, Scottsdale, be there. So getting back to your part about having interesting listeners, I am always shocked at the number of young people who actually do have their stuff together and send us questions. I'm a 19-year-old business student who just finished my freshman year at the University of Wisconsin. Go Badgers, I suppose. I'm lucky enough to have a mass a respectable sum of savings from high

school jobs and a generously paying internship I'm working this summer. My only major expense is rent, so I feel as though keeping all my savings in a traditional savings account paying 0.01% as I've done since I started working as a very ineffective financial strategy. What would you recommend in terms of account allocation I should open? Well, obviously, you should be getting more than 0.01% on your savings rate. Yes. We've talked about this a number of times at the podcast. You can find any sort of online banking account that should pay close to 2% these days. So you and I just spoke about this on the rekindled episode of Where the Customer's Yachts that can't give advice like this to somebody because you don't know the first thing about them. You don't know how they react to falling stocks or rising stocks. I mean, so I guess my recommendation to all of these questions is what should I do is like, I don't want to say figure it out like you're on your own, but you really are. And you might find that index funds don't work for you because you're very risk of us. So you can't sit through a 20% drawdown. You might find that you love to do a fundamental analysis. You might find that you just want to target date fund. So we just can't give that sort of advice. But the biggest thing is this is a 19 year old who already has figured

out how to save. That's going to do you far better in your life than any asset allocation or investment strategy. That stuff matters because sitting in an account that pays 0.01% is not going to do any good. But starting out saving and then figuring out from there, even a subpar investment strategy, if you're a good saver, we'll get you much further in life than someone who can't save, but thinks they're Warren Buffett or whatever. So somebody said, why doesn't the article read, stock slump as bond prices sore? Because obviously it's always, it's always talking my yields instead of price. So the question is, which comes first? Price or yield movement, it doesn't matter. Here's my answer. Yields drive prices, obviously. So the idea was stock slump as bond yields are

lower. Right. But the alternative, because no one really cares about bonds probably, even we talk about a little on this podcast, people care about stocks. They certainly don't care about bond prices. They care about bond interest rates. All right. Let's do an informal survey of the two of us. How many people actually understand the dynamics of bonds that when yields go lower, prices go higher? What population are we sampling in this fake survey? People who have money to invest? 50%. I was going to say 15.

15? Yeah. Okay. I think people just don't pay as much attention to the bond market. And bond market doesn't move as much either. So even when yields to fall, bond prices aren't actually soaring. They're going up a little bit. Okay.

This is a good one. Was curious what your thoughts are on someone who has a job with an unpredictable income, like a day trader or a poker player like myself? I've been of the mind to buy a place outright when I decide to or putting down like half, but was wondering where the pros and cons of that are. So I think this kind of gets to a bigger point. They're trying to figure out because I have an income that's unpredictable, should I just save up enough and buy a house in cash or should I hold some back and just do half?

I think it's a lot harder to financially plan when you have an unpredictable income like this because obviously you're not working on a set number that you can plan out until your year on and entire your budget on. So would you say that locking up half your money in a mortgage is probably not the right thing to do? I mean, the good thing is it could lower your monthly payment significantly? Right. Well, he's saying, is it because I have a risky income, does it make sense to completely

you take that mortgage off the table and buy a house in cash if you have a significant windfall. Does that decrease your risk or does that actually increase your risk by putting all of your eggs in one basket in a house? Does that increase your risk dramatically? Because what if you need those eggs? Yeah. I think that's kind of the idea is a house in itself is risky too, even though you're unlocking that payment. But I guess that's the thing. It offers you more sort of short-term flexibility in the fact that you don't have a payment, but maybe long-term you're not as flexible because you can't spend your house unless you took some equity out. So I guess it depends what you're comfortable with and how risky and how volatile your income really is. But maybe this is

something worth exploring for us on the blogs is how do you plan financially with an income that is not the same every time you get paid? All right. Any of the recommendations for the week? Last week I was pounding the table on loon shots. And I didn't finish the book yet, but the second half of the book so far is not nearly as good as the first half. You're like a dog with a tail between his legs right now. No, but here's the thing. Remember, you said, did they talk about power laws yet? And I was like, nope, nope. He got there, didn't he?

He got there. I mean, you have to. Okay. So you kind of said loon shots. I'm not unpounding the table. I'm just... You're pounding it with one fist and not two. Yes. So you said that Loon Shots is like the book of the year in terms of like a pop business book or whatever. I think Range is probably going to be up there too by David Epstein. I read that on the plane ride to Los Angeles or I finished it at least.

It's a really good book and he's got some interesting ideas in there. but I wish I would have never listened to a podcast with him before I read the book because it made the book... Antichlamatic? A little bit. So I made the point on Twitter last week that the podcast tour is now like the book tour, which makes sense because you can reach a lot wider audience. You have to get it out there.

But then if you listen to a few, and his name must have popped up on seven of my podcast last week. He was on Bill Simmons and Patrick. I listened to him on Bill Simmons. And then I'm like, you know what? I'm not going to listen to any other ones because I want to hear the book. The problem is all the good anecdotes and stories, like the top six or seven of them from the book are said in the interview. And so the book was still good, and there was a lot of other good stuff in there, but it almost ruins the reading experience for me.

It's like going into a big movie you wanted to see, your friend comes out and tells you the six or seven best parts ahead of time. It kind of takes the excitement out of it, and the expectations are sort of changed. So maybe that's what I'll just have to ignore the podcast book tour in the future. But this book was good, but honestly, I think for someone who doesn't want to read a long book, or I guess two or three hundred pages, it's not bad, or doesn't want to get into all the details. you probably could just listen to two or three podcasts with him and not read the book. So it's almost like you have to weigh how many people are going to read it from listening to a podcast versus how many people are going to not read it from listening to a podcast. Did you get any of that with your book?

I didn't really think about it. I didn't really do a giant tour. You didn't do the podcast book tour. But I mean, obviously when you write a book, everyone's going to want to talk about the best stuff in your book. Yes. As an author who wants to spread the word, how much do you divulge and how much do you hold close to your chest and say, just read the book and you'll see. I don't know, Ben.

Okay. I mean, I don't know how many people actually read the whole book anyway, but that's where I'm going. Okay. Is that it? That's it. All right. Send us an email, Animal Spiritspod at gmail.com, and we will talk to you next week.