Animal Spirits Podcast - The most obvious recession ever (EP.258)

Episode Date: May 25, 2022

On today's show we discuss, the big housing miss, inventory build-ups, private market slowdown, and much more.   Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. Michael, Minneapolis Federal Reserve President Neil Cashcarry. And your colleague. My colleague was talking about strong consumer balance sheets, a topic we've been talking about on the show before. He basically said, are these stronger balance sheets leading people to spend more or be more confident or just change their behavior? And he said, if that's the case, the Fed might have to get more aggressive. So one of my favorite charts on Y charts is real retail sales. This is with inflation accounted for. So we're not nominal people here. We're using real. And look at this thing. It's still way, way above trend from before, even after

accounting for inflation. Even after inflation, it's up 16% since pre-pendemic levels. So we're going to talk about this on the show a little bit today. There's too much demand. There's too much damn demand. But is it possible for like retail sales to fall back to trend without, oh, they're going to? Can we do that without really hurting the U.S. economy? That's my question. No, no, we can't. You see the inventory buildup at all the retailers, which we're going to get into? No, you can't do it.

Can't do it. All right. If you want to check out some of these economic charts from Y charts, remember tell them Animal Spirit sent to you, get 20% off your initial subscription. We've had a lot of people reach out to us, say, hey, we appreciate the subscription. We like to help out people who need research. Go to White Charts. Tell Mental Spirits sent you.

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 Batnik 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 Rit Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. I forgot to mention

during all the economic market turmoil, we've got a conference coming up. We've got a conference, an IRL, so to speak, that's in real life, a real life event. It's in Huntington Beach. It's called Futureproof. And it's put on by yours truly, along with the team at advisor circle, Matt Middleton, John Swolves. It's going to be awesome. I feel like we've had a progression.

How many conferences that we put on at this point? Like, I don't know, five or six. and every one of them I think has gotten a little bit better than the previous. Let's be honest, the first one we did was smart beta panels at like some stuffy New York place. It was a conference. And they've each gotten a little progressively better. We didn't know. This one, I think, is going to be awesome because it's all going to be outside.

There's going to be concerts. There's going to be bars. There's going to be all these hotels. It's going to be amazing. We took our inspiration from the Fire Festival, except no fraud. Yes. Zero fraud. by Southwest, one of those.

September 11th to the 14th, Huntington Beach, on the beach, four city blocks. What we're not doing, to Ben's point, there will be no smart beta panels inside of a hotel ballroom. There will be none of that. Maybe one. Just kidding. None. So if you want to go, there's going to be tons of people, advisors, like 3,000 people maybe,

that's what we're talking about. It's going to be big. All right. We will link to that on the show notes. Yeah. Big boy. Oh, I saw, there's a great Twitter account. W.E something, like 90s, WWE. Somebody tweeted, I'm sorry, Ms. Jackson with the Rick Flair Wu

underneath. Oh, that's not bad. That was back when it's called WWF as well. That reminds me. This is so weird. You know how we talk about, I sent you those sneakers that I wear? I got a pair of enclouds, which are like, I guess, I think they're trendy. Yeah, you said these are the trendy new shoes. They're very comfortable. I said, send me, I don't know what they are. I see them everywhere now, all over the place. And on your Instagram? Oh, probably. I don't really go on Instagram anymore. Okay. Robin got me a pair. I'm like, what the hell is this? I just wear Nike's. I don't know what this is. Anyway, now I love him. But my point is this. It's sunscreen season. Okay. When I go on the water, I put on sunscreen. When I go outside, I put on sunscreen. I'm very pale. I burn. I bet you turn into a lobster. I lobster. Yeah, yeah. So I don't know how this happens, but on my phone, Instagram now knows the specific sunscreen that I use. How? Seriously? How? I don't know. I like the no ad one. I don't like the name brand ones. I'm an

So I don't know how Instagram knows the exact sunscreen that I use. I haven't Google searched it on the day that I used it, whatever. But listen to this for a coincidence. This is this for coincidence. My friend texted me that tweet from the WWE and I'm on the water in a backyard and I hear that song playing literally three seconds after I got the tweet. I'm like, what the hell is happening? It was two guys on a jet ski. We're blasting that song. It's like enemy of the state. There's a government. government conspiracy. People are following you around. That's got to be it, right? What are the odds? Okay. Ben, before we get to the markets, I want to mention a few things that we missed last week when we were talking about signs at the top. And there was probably more. How about buy now, pay later? Ah, yeah, good one. We at the time kind of said, this doesn't make sense. What happens when borrowing costs increase? Those companies are getting hammered, obviously. Yeah, they're getting killed. I was walking around New York City, just looking up, buildings, all the skyscrapers, 19,000 feet tall. I don't know how tall they are, just all over the

place. That's fair. But they're not going to stop making it. Last one. There was a book called Just Keep Buying. Hey, come on. That one's for bear markets too. By the way, I just want to say No, that book's especially for bear markets. It's especially for bear markets. Go ahead. Yes. So I'm taking a vacation during a bear market right now. I'm in like a hotel lobby. I was having a little bit of internet issues. So if it looks like I'm in a weird place, it's because I am. Boy, taking a vacation during a bear market is great. I highly recommend. I don't know if you can plan that around that because they don't necessarily come on time, but it's kind of wonderful. The stock market is crashing, and I don't have a care in the world.

So, highly recommend. All right. Ben, last week or two weeks ago, you were joking. You're like, why doesn't Powell just tell everybody, listen, we're going to continue to raise rates, but don't worry, we're not going to cause a recession. Well, he literally did that. And the market screamed higher on the day. but credit to me 24 hours later

the market said we're not buying it you know the meme of the girl you know the mean when she's like this and then she does that that's what the market did

because the next day the market by the way speaking of higher lows listen been talking a lot about higher lows there's no hurry to catch a falling knife

and growth stocks because you know what will there be like a 30% rally in some of these names I guarantee it some of these companies are going to rally like 100% there's going to be like a three

or four week period where some of these companies down 90% are going to double and you're going to go, what the heck just happened? And then they could crash again. So the thing is, though, I can't get excited about a high or low because we're in a downtrend, which are lower highs.

So I'm not interested in swimming against a tide. You know what I mean? I said it, I don't know, two months ago, though, wouldn't a recession be bullish for growth stocks? Interest rates come down. Inflation comes down. That's bullish, right? I don't really know that, but it could be just throwing it out there.

So, everyone's bearish. some of the data here. It really has only been five months at this point. It feels like it's starting to break people's will a little bit, just a tiny bit where it's like, okay, this. It depends which stocks you're talking about. Okay. For the mega cap growth, correct. But we were talking about literally, maybe not a year ago, but in December, Arc was down 45%. True. It's been a while. Depending on where you count. That's what I mean. It's been a minute. If you're a hypergrowth tech investor than you've been dealing with this for well over a year now for some of these names. It's a long time.

Okay. So we've got global growth optimism. There's a fund manager survey at a new record low. We've got cash at the highest level since 9-11. Again, this is a Bank of America, global fund manager survey. I said this a while ago, not to have myself in the back, but we were talking to Josh on the compound offends. And I said, if we get a recession, will this be the most obvious incoming recession?

that we've ever gotten. And I think that's why people are positioned with their head between their knees because it seems so obvious. And now I feel like today, it was like, wait a minute, are we in a recession? We're getting inventory billed. We're getting the advertisers warning and we're getting new home sales numbers that came in way, way, way light. I think part of it is the two paths that people see now are either inflation stays high or a recession. And no one sees any middle ground between those two. Do you mean end, inflation stays high and the recession? Or you're saying a recession is going to call off inflation. Yeah, I think that's the thing, is that people think if things just keep going the way they are, inflation is going to stay high. If the Fed does what it's doing,

then you think that the Fed can cause a recession and not have inflation come down? What if? That's the nightmare scenario. That is the nightmare scenario. It's hard to see how that happens. I know it has happened. It happened in the 70s. Let's not even go there. How about that? Let's just move on. Well, just the reason why you would think that by definition, a recession cools off demand. But in the 70s, you also had the big oil embargo and supply chain. It was an energy shot. Parallels, parallels. I don't see it. I was going to get to this in a little bit. So everything that people... How are they not parallels? Because there are supply side issues. Okay. Commodities, war. Everything that people have been complaining about, everything that the people

who were angry wanted to happen has happened. Speculative stuff got blown up. Companies that don't make money got crushed. Crypto crashed. V. VC is slowing big. take time. We're going to talk about that. The Fed is pulling back and raising rates. Mortgage rates are rising. That's going to cool the housing market. And interest rates are rising. For all of people that have been worried about all this stuff, it happened. If that was a stuff that was so worrying, and now all that stuff has, it's not over yet, but it's at least come into a better place. Yeah, we're working on our way through. So I would agree with you. I think the people that were worried about overheating, we've handled a lot of that stuff. I think that people should

think that's a good camp that you said this. I'm quoting you. Recessions are a necessary evil. They're not a good thing. because people lose their jobs and it hits a lot of families. They're not a good thing. But I want to be in the optimistic camp that this is not going to be a long, deep recession, that what we're doing is merely cleaning up the excesses of the past couple of years. And was there a lot of excess? Yeah, there was a lot of excess. I also think we've learned that inflation hits more people than unemployment, even though what we've had in the job market is really great because a lot of people who are unemployed now of jobs again, the fact that inflation hits more people makes it more of a hot

but an issue and makes people a lot angry than some people losing their jobs. Totally. All right. I want to get your take on this. Balchutas tweeted that bond mutual funds hit with their worst week of ad flow since March 2020, $23 billion. So it's the 13th straight week of outflows. You're to date up to negative $157 billion.

It's a lot of coin. However, he also tweeted that ETFs took a nearly $50 billion over the past month. And one of the big reason why is because bond ETFs, they accounted for $32 billion of that number, haven't only taken in $17 billion a year-to-day prior to that. So we're looking over the last, what did I say? Over the last one-month period, bond ETFs took him $32 billion. And again, in the same month, there was $23 million coming out of bond mutual funds. So what do we make that?

Is money coming out of bond mutual funds are going into bond ETFs? Well, you lock in the losses now and then just put it from a mutual fund of an ETF. that actually makes sense. So maybe it's not just that like people are running to the exits for bonds. They're using this as a taxable event and then making the switch over because they You know what? I'm going to run with that. Embedded gains and neutral funds. That actually makes sense. There's a bull market in tax loss harvesting. There we go. See? There's always a bull market in something. This is pretty crazy. Nate Grassee. Target Day funds account for 40% of total assets in 401K plans, Vanguard administrators up from 12% in 2010. They also taken 60% of new

contributions. This is like the one area of retirement planning that somehow people have gotten right. That fund that is your auto-elect fund that you get put into unless you opt out. This is one of the greatest things retirement plan administrators have done. Totally. Duncan just slacked him that he hears me breathing heavy into the mic. Listen, I have asthma. I'm an out loud breather. I'm sorry. My nose is always clogged. Can you hear me breathing? Are you a mouth breather? I have a mouth breather. Okay. Look at this chart.

Hey, it happens. I'm looking at the S&P 500 value divided by S&P 500 growth. Went a 52 week high, pretty much taking back all of the pre-pandemic. This is a chart. I know we keep talking about this. It's like maybe getting old. The thing is you got destroyed for 10 years if you were a value investor. I guess it was really more like the last four or five years that it was really painful,

but it's a long period of underperformance. If you held that value fund and stayed with it, you're being rewarded. But you had to wait a long, long time. So I wonder how many people actually did. That's what we need to report on. Someone can fill us in like, what are the value growth splits now? This sounds like a Jefford-Battack, bad signal. How much money stayed in value funds? Oh, versus growth versus came out and landed a growth all at the wrong time. I would wager that a decent chunk of money left value in like the winter of 2020. Okay, this is a new one for me. So this is from a Yahoo finance story. that corporate equities account for about 33% of household net worth. And this is from Goldman Sachs. That means that this year alone, household net worth has been reduced by roughly $8 trillion. Now, the whole thing is now, okay, the wealth effect is kicking in. So stock markets are down,

bond markets are down. People are going to start feeling it and cutting back. This is one of the things that does not make sense to me at all. The other thing is people are saying, well, this, it has to go into housing. Housing has to come down big time because stocks and bonds are down. People are going to feel less wealthy. We've heard for years, there's this drumbeat of wealth inequality. The 10% of households own 90% of the financial assets. And so if that's the case, why would the majority of the economy, which comes from people on the lower end that are spending and not saving, why would that impact them at all? If this is just going to impact the top 10% of households, they're going to be fine either way. The wealth effect does not

make sense to me at all. I don't get it. Well, you could say, but what about the wealth effect with the middle class? But the middle class, obviously, if housing fell 10%, they'd feel that. But two-thirds of their wealth is tied up in their house for the middle class. So for them, the middle class is outperforming right now. But it's all one thing. It's like the flywheel is now going in reverse because like it's nothing but headlines, headlines, headlines. And it's not just headlines that are scaring people. You know it's scaring people. Five dollar gas. I think that's more important on the psyche of consumers right now than their 401K balance, which they're not going to touch for 30 years anyway in some cases. It is funny though. It's kind of bunk. Oh, it's

Oh, okay. If you went back to 2018 and somebody said, these are the returns for the next four years, 2019, and I might be getting these numbers sort of incorrect, 2019 of 28 percent, 2020, of 20 percent, 2021, of 27 percent, 2022, down 18 percent. How many people do you think say, you know what? I'll take that all that. Let's do it. Yeah. So I looked at it, if the year ended today, so you said that we're down, what, 18% on the year, give or take where we're at, because we have a crash and a comeback and a crash, whatever. If the year ended today, I mean, this is kind of like, if the year ended today, the NICS would be in the playoffs, whatever. But if the year ended today, this would be the seventh worst calendar year since 1928. This kind of

surprised me. I guess I must have looked at this before, but out of the past 95 years of data, there's only been 11 double digit down years. It's basically one out of 10. One at a very 10 years, we'll have a double digit down year. But if you look at these years when it happened, Great Depression, great financial crisis, 1937 crash, 7374 bare market. There was a dot-com crash. The World War II, the only one that really was kind of, eh, was like a 1957-58 recession. And that was a 10% decline. So it's these outlier years that have big, huge down years like we're having now.

I just wonder, so the other one was, it's pretty rare for stocks. Hold on. This is an outlier year, no? I mean, of course it's an outlier year. I'm not even just talking about it with the data. I'm just saying, think about what's going on. Inflation is literally at a 40-year high. we're living through history right now. We are going to remember this for the rest of our investing

careers. True. Does that mean we're going to turn into like gold bugs? Are we going to start a gold newsletter in the next like five years? Because we lived through the 2002 inflation. I know what it looks like. You know what? I might skip that chapter. I'm just going to gold mining. Let's go straight to gold mining. All right. I'm going to go for silver, what do they call it, junior silver miners? Or is it junior gold miners? The other thing that's rare. It's rare for stocks to fall two years in a row. It's only happened four times. So Great Depression, in 1929 to 1933. They fell four years in a row. Three years in a row from 1939 to 1941 in World War II. Two years in a row for 73, 74, and then three years in a row from 2000, 2002. I actually think, I mean, that could certainly happen this time around again. I think the way things are moving so much faster, that's almost going to be harder to do to have this prolonged, really drawn out. I feel like if we're going to have that 40% crash, it's going to happen. Don't you think it's going to be quicker than like a three-year slog? Well, maybe your market's moving quicker thesis is being challenged because this is like a grind lower. Counterpoint. Stocks had an all-time high on January 3rd. It's not that long ago.

That's not a counterpoint. That's almost six months. Six months in the grand scheme of things is not that long. I've removed that counterpoint. We're not talking grand scheme. There's no grand scheme. Life is a grand scheme. Let's revisit this at the end of the year, okay? Because I think finishing where we are is less likely than finishing down 30. or down five or up five. I think it's more likely that we finish down much lower from here or much higher from here. That's my take. Take it for what it's worth.

Okay. Not much. This is a good tweet. Jeff Wanninger, over the last 64 years, stocks that paid no dividend had returns that were no higher than the market, but with risk that was definitely higher. How about this? Instead of liking a tweet with a heart, you just say, good tweet. That's what it says.

Good tweet and you click it. That's a good tweet. Yeah, that's not bad. I would put like Stitch Fix is one of those stocks. No dividend, much higher risk. That makes sense. People want to see cash flows. All right, what's your ultra-QQQ here?

What is it down now? 75%. Oh, the TQQQs are in its deepest drawdown ever. I'm definitely, definitely not intentionally wagging a finger. I don't mean it that way. I just wish that we could like sort of track the sentiment of our inbox over time. My sentiment is pretty much the same as our listeners, with the exception of this leverage stuff.

I think it is important to point out, too, that... This is tough. The NASDAQ 100 isn't a greater drawdown now than it was in March 2020. I mean, I know tech stocks held up so much better then because people thought, well, tech stocks are going to help carry us through the pandemic. But this is the biggest NASDAQ sell off since 2008. That's a long time. All right.

Let's talk about private market. So last week felt like the week that every venture capitalist on Twitter was posting their memos and thoughts and things that they sent to their companies. Don't you think that there's a little bit, obviously they don't want this to happen to their startup, but don't you think that giving them the control again, the VCs versus the founders

probably felt a little good because the founders have had the upper hand for a long time now. They could get any term sheet they wanted. They could get all the money, whatever valuation they wanted. For the past couple of years, sorry, we're oversubscribed.

Yes, exactly. And oh, by the way, we just did a seed round. Two weeks later, we're doing an A round. It's going to be a double valuation. Sorry, but yes, there was a lot of how to survive this. People are going to be fired, a lot of this stuff. SoftBank, Masa Soan said that they're cutting their private investing by 50 to 75%. A16B put out a How to Survive thing. We spoke to a company last week that we've been

talking to for a couple of months. And they're a went from a big number to one third of that number and they're smart and they're taking it. It felt like it just happened very quickly. Overnight. I think they kind of made the point. It felt like last week was capitulation for VCs. If we would have closed this deal a month ago, we would have gotten three times as much or something. This all happened really, really fast. And it's interesting because it took a while for it to trickle down and it finally is there. It felt like last week was capitulation. And what's interesting is that companies that were successful in raising large rounds in 2020, 2021. If they need to raise again, it's going to be harder. Are we going to see tons of

down rounds? Down rounds is going to be a thing. How many investors are going to be excited about doing that? People are going to be judicious with their cash. Be like, we're going to save this company. Sorry, good luck. By the way, capitulation is the word of the month maybe. If you look, a lot of people have been waiting for capitulation to say, okay, this is the bottom. But not all corrections need capitulation. I know. But this actually kind of feels like one of those times when maybe we do need capitulation. No one can pick the bottom. No one can ever pick the bottom. What does capitulation mean? A down 13% day? Isn't capitulation for some stocks down 90% from their highs? That seems like a lot of people are still in the towel. Or isn't capitulation your stock

was down 80% and then on earnings it falls 30% more? I don't know. That's the kind of thing where I don't know how you define that. I agree. Okay. You know, and I know what you did last summer when Jennifer Love Hewitt is screaming, what are you waiting for? That's me to people that have cash on the Southerns, I've been waiting for a dip. If you're waiting for competition, come on. Could stocks fall another 10, 20%? Of course they could. What do you think?

Come on. But yeah, buying in a bare market. Yes. Especially, I wrote a piece on this last week. Dollar cost averaging right now is the greatest strategy on Earth. Because these purchases you make in a bare market in the future are going to be, especially if you're young. This is when you want to do it.

Ramp up those savings rates. Look at any chart of a bare market. Look at maybe 2020's a bad example. It happens so quickly. It really doesn't matter when you buy. It really doesn't. The only thing that matters is that you actually do buy. If you buy here on the charter, here, here, here, or here, here, your future self will

not begrudge you for not buying the very low. And you don't have to be a hero and try to pick the bottom either. Unless it's growth stocks. Then you're looking for a higher low. That's obvious, though. It's funny because all my growth stocks are hitting lower lows. Yeah. Lower highs and lower lows.

That's a bare market. Every state in the union. Oh, in the union. Okay. Every state of the union now has pump prices. I'm looking at this chart from Bloomberg, above $4 a gallon. First time ever. California, it's $6. How do you fill up a tank for $6? I've got 22 gallons of my tank, not to brag. I drive a standard Jeep Grand Cherokee. It's got a big tank. Imagine paying like $130 just to fill it up. I rented a car when we were down here, and they asked, so we got a Jeep Wrangler.

They said, do you want to take the charge and we'll charge you or fill it up yourself? And I said, well, what's the charge? It was a hundred bucks. And I'm doing the quick, trying to do the math in my head being like, well, I don't know what's better. I said I'm going to wait and fill it up myself because I don't know how much when you're driving it. But I had to do the math in my head at least to be like, actually... You're waiting until the dust metals. Yeah.

I'm hoping depletion kicks in when I leave tomorrow. So I think this is from your identity. I can't remember who this is from. But a year ago, American household spent about $2,800. at an annual rate on gasoline. During March, they spent roughly at a $3,800 rate. During May, they are spending an annual rate of almost $5,000. This is the soccer coach gift. Which one? Ooh. Oh, yeah. Now people are calling for $6. But back to the consumer thing that we started with. At what point does this, it's Memorial Day, we're coming into peak travel season for people.

Do people actually start cutting back or do people just go, high prices of gasoline suck, but I'm still going to buy them? No. Okay. So, well, you have to drive. What are you going to do? So the question is... Do people, like, run the math? If it costs $1,000 of fill up your RV and drive across the country, do you still do that? Or you do just, like, park it in your backyard and have a staycation? The question is, where do people cut back first?

I'll tell you where. Netflix. See, that's not going to be me, ever. Cable will be the last thing. I'll sell my house before I take out cable. Yeah, no, I agree. There's probably some ancillary things that people will... Gym memberships, obviously.

I'm sure there's people who have canceled their recurring thing for Palaton, a lot of that stuff. You're right. That's the first to go. The recurring bills, it depends. Some recurring bills are critical, your television, your internet. Other recurring bills like your gym membership, Netflix, Sayonara. First to go. All right, cars are getting ludicrously expensive. The average price paid in April 2021 for a new vehicle was $38,000, $30,500. Nine months later, that same model year vehicle was selling for an average of $40,700. I keep saying this. The lots are still empty. This is ludicrous. I took my car in for an oil change last week to the dealership. The whole dealership parking lot was empty. There's still no

cars. And I asked them about it. I'm doing my channel checks because I care about the viewers and the listeners. And they said, look at that big bucket over there. It was a big bucket full of keys. And they said, those are for the new cars we have coming in next week. He said every single one of them is already spoken for. So like they can't even get inventory in before it's already out the door. And people are paying higher prices. oof. All right. Here's a take for, I'm going to defend my Fed official's honors. Maybe all of the inflation is not the Fed's fault. This is from the Wall Street Journal. The UK's annual inflation rate jumped to a 40 year high in April, 9%. Look at this chart here. UK, US, Germany, France. It's high

everywhere. Inflation is high everywhere. Maybe, just maybe, a once in a hundred year pandemic combined with people not knowing how to staff up, people being sick, supply chain issues, maybe that was a bigger reason for inflation than the Fed. I'm not saying the Fed is innocent here. They obviously could have taken their foot off the gas pedal sooner, but you can't have inflation high in all these other developed countries and blame everything on the Fed. Is that fair? What if the Fed is a central bank for central banks and every central bank takes their cue from us? Now, come on. Do you think the Fed caused inflation in the UK? No, because here's the thing. Remember, the ECB was raising

rates in the 2010s. They were going the opposite of the Fed. Remember, the Fed stayed easy and the ECB was going the other way. I'm defending the Fed's honor. I've been dissenting for a few votes, but now I'm defending their honor again. I'm just saying, of course, what the Fed did was part of it? So here's the other thing. To your point about what if the Fed doesn't do it? If the Fed wasn't the main culprit of inflation, can they be the one that stops it? I think that's like the huge question here. If they weren't the sole cause of it, can they stop it? It's just like what level is it at? That's the thing. What are we getting into here?

It feels contrarian at this point to almost say we're not going to go into recession. So this is from Joe Wisenthal interviewed Neil Duda yesterday. I guess it's from Renaissance macro. Here's what he said. And Wisenthal asked him, like, do you think consumers are going to come in? We're going to go into recession? He said, I think people are conflating a micro issue with a macro. And the stock market is mostly about stuff being sold to people and other firms.

So I can see why investors are anxious. But the economy is more about doing things for people, services, in other words. And that part of the economy appears to be booming. people are conflating a normalization of consumption behavior with a recession. He's saying we can do this. The funny thing is that feels like a contrarian indicate, I don't know, if you had to put a probability on it, these things are so hard. Obviously, every economist says 40%. It feels like, I don't know, there's a 70% probability we're going to a recession. Doesn't that feel about like 70% feels about right?

Like, I don't know, maybe 30% chance we don't. There's a 40% chance that we don't go into a recession. You got to stick with the 40. That's true. It really just rolls off the tongue. But anecdotally, we traveled this week. The airport was slammed again. People are traveling.

We flew, we had to make a layover, which always is. never fun. But at the Charlotte Airport, just slammed with people going places. Make a layover. Sorry, I couldn't talk. You know what? I've been in the sun a lot. I've been doing a lot of those Miami vices have you had. I had two Miami vices yesterday. I will say. It's now the animal spirits drink of choice. Man, that's good. Plus a huge pineapple slice in there. It's so good. Here's what can happen. Here's what can happen. You can see a continued acceleration in services, travel, events, things like that. But places like Home Depot and Walmart where you're buying things get totally slammed. So maybe we have like this divergence there. It's like the

band. Dang it, I can't talk again. It's like the baton handoff. The baton handoff. The baton handoff from goods to services. Isn't I mean. Yeah. So here's the thing. Go ahead. This recession, it could be the kind of thing where it's not broad base. It's just hitting certain sectors way worst than others. Because I think high gas prices are not going to keep people from traveling. I think a lot of people are still going to travel this summer because they've put off trips for so long. So this is my wife and I's first trip away from our kids for an extended period since 2019. We put this off for a very long time because of the pandemic and other stuff going on and having three kids is they're always busy and stuff. I think there's a lot of people who put stuff off

who are now going to say, screw it. I'm doing this. That's true. But there are probably more people who don't have that luxury, who are just like, I'm used to spending $2,500 on gas. Now I'm spending $5,000. I don't have excess money to do what I want to do. Not at all. Not at all. I think you're shaming me. No, not at all.

All right. So 10,000 boomers a day are retiring. Maybe that's going in reverse. We've got 10,000 people unretiring. This is from Nick Bunker. Unretirements continue to rise. As of April 2022, 3.3% of workers who were retired a year earlier are now in The funny thing is, is because of the negativity bias in a lot of people, when all these people

retiring early, that was a problem. And now that they're coming back into the labor force, this is a problem. Of course. Do you think it's a good thing or a bad thing? I don't know. I guess it's a good thing that people can shore up their finances and work a little longer. Just sitting by the pool with a drink in my hand yesterday. And I can still do work and stuff, but like just sitting there doing nothing, it's not easy to do. Like, I think a lot of this unretirement stuff, people probably got bored too and like need something to do. Obviously money's a part of it, but I think part of it is just people get bored. It's hard to do nothing for that long, isn't it? Some people probably argue with that statement. Let's give a little tease for our show

on Monday. That was an interesting one. We've got a real estate show coming up. We're going to get to the housing market. We talked to a really interesting real estate fund that is trying to change the rental market game and make institutions a bigger part of landlords. So the stat that we heard, 95% of all housing rentals in the country are from individuals, just people who own one, two, three, whatever, ten houses maybe. It's not Black Rock, and it's definitely not Vanguard because they don't own any homes, Michael. Keep Vanguard's name out of your mouth, please. But we got a really interesting talk to your book coming on Monday about how the rental industry, a single-family home rental industry is changing. That should be a good one.

Wait, hold on, before we go to the house, and you said, like, can a recession be segmented? And maybe, just maybe, like, it's concentrated in tech, which would have been unthinkable a year ago. Carl Kintanilla just tweeted, 2002 tech layoffs is a percentage of staff laid off. Better 50%, Klarna, 10%, Camia, 25%. Robin, 9, Peloton 20, Carvana 12, Netflix 2. You know what the big lesson is here for everyone? Literally everything is cyclical.

Because in the 2010s, when everything else is going slow, tech was doing amazing. Tech was booming. This is just a great reminder that everything is cyclical. And the economy, it takes a while. It took 40 years for inflation, but that's coming back. In life, you will be bald. You will be bald. And you will tell me when to shave it. How much would that be worth if they could? Remember that movie Duplicity with Julia Roberts and Clybe Owen? Did you ever see that one? Not a terrible movie. No.

It was a con artist movie, but the whole con revolved around a company said that they- What happened to Clive Owen? That's a good question. He should have been James Bond. But the company claimed that they had a cure for male baldness and ended up being a con. But what would that be worth? I mean, were you talking like a $50 billion company? Okay. Well, hold on. What would that be worth in 2022 or 2020? Different markets. All right, real estate. Housing is slowing, which makes sense because rates rose. So George Perks did this one that looks at how much of a down payment, how much of a monthly payment, basically housing affordability chart. And you can see this looks Like a mortgage chart in some ways, like it's just straight up, which frankly makes sense.

This one from Redfin is crazy. The home mortgage payment is up 43.4% year over year from what it was at previous housing price levels and previous mortgage rate levels. Yeah, this has to come down. An insane move higher. Mike Simonson does this thing every week where he does a thread. One of the few threads that I'll read. Most threads I'm out. I'll read the first one. Sorry, I'm not going any lower. If it's got the little spool on it, I'm not going to read it. Sorry. It's never time for a thread. Never. So he said, available inventory of unsold single family homes jumped eight percent this week. Pretty big jump. So it's now 344,000. Unfortunately, I mean, in 2015, it was a million. Supply housing is bottom. We're probably never going to go back to those lows from where it was.

But it's moving up. We're going to see higher lows. These are the higher lows. It's just still a very unhealthy level. But here's the follow-up. Even as inventory builds up a bit, home prices hit a new record high this week. 443,000 for the median single family home in the U.S. He says my take is that it just shows how much buyer momentum we had. People finally getting their chance after long battle. So I think you're probably going to see this like exhaustion of buyers. Like the buyers who have been waiting are going to say screw it. I've been waiting for so long. I've been outbid a million times. So I think you could still see this one final push higher in prices from the people who are waiting and then it's kind of exhausted. That's it, the thrust. And exhaustion. What's the technical

analysis term? It's some exhaustion thrust. That's a thrust. Did technical analysis get all of its words from Top Gun? Are you going to see it in the theater, by the way? All right, we're really doing this. All right, I guess we're doing this. I rewatch Top Gun this week in preparation. Okay. It's exactly as I remember it.

All right. I don't want to hear it. I think the new one's going to be awesome. The new one's going to be great. The scene where he gets on the motorcycle and they just start, what's that song? Take my breath away. What was that? It was so weird.

I'm sorry. I'm not going to shit on Top Gun. It is a great soundtrack. I understand its cultural relevancy. I understand that it catapulted Tom Cruise to be the biggest movie star in the world. He made aviators cool. Wingman brought that into the... I get it.

I get it. It was a huge movie at the time. I'm just saying, watching it with fresh eyes for the first time, 40 years after it was released, it's age. That's okay. I'm not hitting nostalgia. Not hitting nostalgia. No, as much as I hate this take, I almost respect the fact that you're putting this out there. This is kind of like me hating Star Wars.

I almost respect the fact that you're being commugged about it. No, I don't hate Top Gun. I'm just, I'm not being curmudgeoned. I respect nostalgia. I'm the king in nostalgia. I missed it. I missed my window. If I saw it, and then I reached watch it today, I would have loved it, but I didn't.

But anyway, the new top gun is going to be amazing. I am seeing them in theaters. I might have to do that, too. Mike Simonson also was a podcast I listened to. I can't remember who he was talking to, but this one kind of blew my mind. Foreclosures are way low because there was a foreclosure moratorium, but people still are now getting behind, especially probably if you bought a new house and interest rates are higher. But he said 90% of all houses in foreclosure right now have positive equity. So it's not like people in 2008 when

they fell behind and they were underwater. Huh. There's a huge margin of safety. Even people who are behind in their payments. Here's another one that was kind of interesting. 17% increase in housing prices over the last year. What do you think the increase was in property taxes year over year? Five? 1.7%. He was saying, get ready to pay more in taxes. It's coming. With these housing prices being higher, it's enough. It's enough. We spoil the briefly. New home sales, bombed, badly missed expectations. So tell me what I was here. 591,000, down from 709,000 units in March. So we've got one, two, this is the third month of slowing. It's not a surprise, though. Don't you think there's a lot of people who went under contract

with a builder and then look at the prices now and also the mortgage rates and go, screw this, we're out of here? I'm sure a ton of people dropped out that we're going to build a new home. Yeah. Did you read this, the signs of hitting did it post on Airbnb? Yes. Basically saying the business is good, but the stock is still kind of over. It was interesting. It was saying Airbnb has come lower on an absolute basis from where it was before, but so many other tech stocks are even lower than this, maybe they're a better buy.

That was a good point. Because he wrote a post about it maybe four months ago when the stock was at 100, and he said he would get interested in the 50 to 75 level area. And that's basically where we are. Obviously, there's not investment advice, blah, blah, blah. That's basically where in our hand. And then he revisited that post and said, The problem is, yes, Airbnb is more attractive, but so a lot of other stocks are even more

relatively attractive to where they were. My thought is, though, the really great companies you want to own might never get to those levels that you think are great buying opportunities. I'll buy it when it gets here. Maybe it's because it's such a good business, it's not going to get there. Oh, they'll get there. Oh, they'll get there. I was thinking about this.

Maybe Airbnb pulled forward a lot of demand as well, because these extended stays, these seven-day two-week getaways, that's like bull market behavior. Yeah, you're right. That has to be a shrinking amount of people who can actually pull that off. By the way, we asked the front desk here. I just feel like everyone did that. Everyone did that already. Like, people did that. Like during the pandemic, it's been two years. They did that. They're not, go ahead. My wife and I were looking to Airbnbs today because we said, hey, maybe we'll bring our kids back to this same resort in Marco Island next year for spring break. And the guy at the front desk basically said, don't come here during spring break. It's a madhouse.

So I wanted to ask you how packed was it? So we started looking for Airbnb's instead. Not true. Wait, whoa. I just did it? I just did it? Didn't I? What did you go? Didn't I just do it? Spring break for you? Yeah. So it wasn't too bad for you? Yeah, it was fine. No, not at all. He said in spring break around here, it's a little crazy. In fact, well, it's all relative. Listen, I walked to Times Square. True. You're used to it. All right. Maybe this will mark the bottom, Ben. We're switching the segment. Bad quarter guys. Right? Wah, why. Bad quarter. I don't even want to get into this. So this target of Walmart,

doesn't it feel like that was three weeks ago? Yeah, it's a long time ago. But people looking for capitulation, doesn't it seem like high-quality consumer-stable companies like these just getting massacred? You were saying, didn't you say, like, Target and Walmart had their worst one days ever since 1987 or something? Literally. Yeah. Not good. No, not good at all. But doesn't that kind of seem like capitulation, like the stocks that you'd think would do well? Here's a thing. I listened to your podcast with Dan McMurchy the other day. I think he made a great point about like giving some of these CEOs a little bit of slack for some of these companies trying to figure out inventory levels and staffing and how much they have to pay. I wouldn't want to be doing that right now with how crazy things have been with

people in and out from being sick, people changing jobs. Like people trying to hammer them for having like really high inventory levels and they should have seen this coming. This has been the craziest period ever for this kind of stuff. So how is this possible? Snap reported earnings like two months ago, a month ago? Now they come out and they're like, all right, it got bad real quick. And so they're down. How much are they down? And this has got to be their biggest decline ever. 40% I'm sorry but Snap as a macro indicator

seems very bizarre to me I get what they're saying like maybe advertisers are pulling back doesn't this seem more likely to be a one-off than anything I'm sorry I can't with a straight face think that Snapchat is a bellwether for the macro

well I would agree with you if this was coming out of nowhere if this was coming out of nowhere then you would say okay TikTok is killing you guys but it's not just them Netflix, Facebook. It's not just them. Okay. By the way, have you ever used Snapchat before? No. I do agree that there's probably a lot more idiosyncratic risk going on here than macro forces. I'm just saying, if you're a CEO right now, blaming the macro, that's like your salvation right now. You have an easy out if you want to. And I feel like it's hard to determine whether it is just a one-off or a company or a CEO's deciding to blame the environment because it's a tough environment.

I don't know. Do you think the 12-year-olds using Snapchat are like using it less because inflation's high? Come on. No, but it's the advertisers. But if the 12-year-olds are still using it, then the advertisers would still pay up. So maybe it's just their business. That's what I'm saying. I'm sorry. I've never used it before. Did Kathy would really tweet about 50% GDP growth or did I misread that? I'm not even kidding. Was she talking about the current growth, the current GDP accelerating by 50%? That must be what she meant. I'm going to give for the benefit. it out. I have no idea. Whatever she was saying. Let's just read the tweet. Okay. She said Ark Invest must share more of our research about artificial general intelligence and how it is likely to transform the way the world works. Within six to 12 years, breakthroughs in AGI could

accelerate growth in GDP from 3 to 5% per year, 230 to 50% per year. New DNA will win, exclamation mark. Okay. I should take back what I said. It's hard to read this and think that she meant going from three to five percent, that we're going to increase that by 30 to 50 to 50 because it says from three to five percent per year to 30 to 50 percent per year. Is it possible that she really thinks that GDP can increase the 30 to 50 percent per year? I'm thinking that's going to happen. That's got to be a growth. So if growth's with 3 percent and she gets great 50 percent, it would go to four and a half percent. That'd be my reading of it. I'm going to give her the benefit of it out. What do you think is more likely

if AI decides to take over the world? Terminator 2 or like in her when all, like Scarlet Johansson and all the other little earphone. People just decide to like start dating each other in the Metaverse. Like she? Or no, her. I'm sorry. Her. It's on Netflix right now. I just watched it again a couple weeks ago. Remember at the end, they all decide like, we don't want you any more human. Great movie. I think that's an interesting look at what the future could be like. All right, survey of the week. We haven't done a good survey anyway. What do we got here? 88% of U.S. startup leaders worried about fundraising, signaling slower growth ahead. Okay. Here we go. One and four startups plan to hire remotely and less expensive markets.

Okay. Two and three startups, founders and CEOs say their business has declined or stalled due to the pandemic. Okay. Seventy-nine percent plan to raise the services of their product. Yeah, I mean, this week really did feel like. I was saying this to you the other day. A change. I have a lot of respect for people who decide to go out on their own to become a founder because if your whole life can change overnight like that and you don't have like the backstop of a big company behind it. Obviously, there's big rewards if you're a founder and it works out. But having something like this happened where your business can literally change overnight and you might be gone in a couple months, I have a lot of respect for people who can take those kind of

risks. I don't think I personally have the ability to do that. For show, we spoke earlier about Netflix and cancelations. This is very interesting. No, they're not good response right there. Not good. Yeah, no, I wasn't listening. Just here, of course we were listening. It's hard to be a startup founder. I agree. For at least the past two years, most people canceled their Netflix accounts had been subscribers for less than a year. That trend peaked in the second quarter of 2020 at 70% when only 6% of cancellations came from people who have been on Netflix for more than three years. People who have been subscribers for more than three years accounted for just 5% of total

cancellations at the start of 2020, but that percentage has risen steadily over the past couple of years hitting 13% in the first quarter. So what they're looking at is the breakdown of cancellations and then how long were those people subscribers? And now, for the first time, basically, in a long time, ever, you're seeing loyal customers that have been with them for more than three years say, you know what? I'm good. I'm done with Netflix. I can see that. By the way, they have Netflix on our TV in the hotel. Why do I still subscribe to Netflix? Why do I still subscribe?

It's fun to click through and look for movies. We use it at the hotel here. Can someone answer me this? Why does literally every hotel on the planet have LG TVs? LG. I've never seen an LG TV in someone's house. LG TVs are in every hotel on the planet. How did they get that contract? And they never work. It's a great point.

So where are those people going? So this is a company at Antenna Traxis. In 2020, people canceled Netflix and went to Disney Plus ahead of Hulu and HBO and now Paramount Plus was on top, ahead of HBO Max and Hulu. For the first four months of this year, Paramount Plus, Peacock, and Disney Plus were the most popular options. Why? I think Paramount and Peacock are only five bucks, five or ten bucks. Does Netflix give away for like a free month when you sign up now?

They're going to have to do something like that. They must. What if they lowered prices? Would you see a huge influx of people coming because they've been raising prices? That'd be interesting. This is interesting. So the share of US TV, that's streaming. It looks like it's 30%.

So streaming is not small anymore. Is it higher or lower than you would have anticipated? So what do you think this is? So it's number one is Netflix, two is YouTube, then Hulu, but what's other? I guess this would be Paramount, Peacock, what else? There's a million of them. There's a lot of other streaming things out there. I probably have them all.

All right, let's go on those questions. We're going along. Oh. Oh. You want to do one? That's fine. It's up to you. Let's skip it.

We're going along. Okay. All right. That's true. By the way, credit to Ben, credit to Ben, he's on vacation and he's on like a second and a half delay. Maybe not that long. And the Wi-Fi was not working in my room, so I had to come down to like the

business center. So this is what I do for this podcast. I care. Credit to bed. The lady at the pool yesterday, who brings us our drinks and stuff and sets a towels up, I said, hey, you're working too much. Get off your computer. Said, you know what?

You're right. Bring me a Corona. All right. Recommendations. I finally finished Tokyo Vice. It'd been a while. I think we kind of fell behind and got into other shows and came back to it. That's the kind of show that gets better over time.

I loved it. How good was that show? They introduced a bunch of characters at the beginning of the show, and you think their character arcs are going to go a certain way. And some of them did not. The gangster guy who sang the Backstreet Boys song, them in the car. Like, that guy, he was way more, he was like way deeper than I thought you'd be as a character. That show was really good. It left me wanting for more. Fly on the

wall podcast with David Spade and who's his Dana Carvey. They had Dennis Miller on and they were just telling jokes from other SNL comedians the whole time and telling stories and it was fantastic. He was probably a little before your time, a little before my time too, actually, but he's still pretty good. Dennis Miller? Yeah. My one vacation wreck, Kindle Paperwhite for By the Pool, because you don't get any glare when you're reading it. You can read it, even though it's really sunny out. I'm sure you stay in the shade, though, because you get burnt. So we watched Forgetting Sarah Marshall last night on Netflix? I was thinking because we wanted to watch a nice vacation movie. Best vacation movies. Now, obviously, National Ampoons is up there,

ex-Vagas vacation because that one's stuck. I'm out. I have a bone to pick. When we're doing lists, you got to share these lists with me because last week you did a sequel list and I was called Completely Flatfooted. So now I came a week later with my own sequel list. Go ahead. What's your vacation movie? It's in the dock. Vacation movies. Okay. Forget Sarah Marshall. Heartbreak Kid, I think, with Ben Stiller's underrated. The Great Outdoors with John Candy. Wait, the Great Outdoors. Never seen my one. You'd probably hate it because 80s nostalgia. National Lampoos, all those, ex-Vagas vacation again. Weekend at Bernese, probably.

Couples retreat should have been better. I think that one is overrated. Should have been better. I completely agree. No, no, no. It was properly rated. It wasn't that great. It was like a sex. It wasn't that good. Although I did like, that was a good line that's couples of treats. Stanley with the C. Oh, yeah. Here's one that I shouldn't have liked, but I did. Into the blue with Paul Walker and Jessica Alba. ever seen that one robin loves that movie she loves that movie okay i shouldn't like it but like secretly i do so that's all i got okay oh also here's my question to you okay go ahead i was going to say something else but i no i watched beautiful girls last week some of the stuff didn't age well but whatever happened to matt dillon he was like an amazing actor good comedy drama wait is that a joke

is that a joke or you stealing my line i literally put it in the dock oh that was you i thought i put that in there i just watched beautiful girls with him i just deleted it because i thought I put it in there. I put that in the dock. What did you see Matt Dillon in? I literally thought the same thing. I swear to God. Oh, okay.

What did you watch Matt Dillon in? I can't remember. You've ever seen beautiful girls before? I put that in the dock. Oh, okay. I thought the same thing. Why was I thinking about Matt Dillon? I think I saw a tweet or something.

Okay, so the reason why I was like what happened to Matt Dillon was, I can't remember now. I can't remember. I saw him somewhere. But I'm going through his IMD. And of course, he broke onto the scene with the outsiders in 1983. But then not really like much unless these are like 80s, early 90s. movies that I completely missed. He did a bunch, but I don't remember any of these. Then in

1998, he was in two of the biggest movies of the year, maybe of the decade. There's something about Mary and Wild Things were both 1998, and he was prominently featured in both of those movies. And then, I don't remember him in Crash. I can't really remember that movie, but he's done a ton of movies since then. I haven't seen a single one. What happened? You mean DePri wasn't bad. But yeah, he fell off the face of the earth. What are the odds that you and I were both wondering what happened to Matt Dillon? Beautiful Girls is a pretty good late 90s one. It's got a few weird plot lines, but I like that one.

Okay, so I did watch E.T. this weekend. Hold on. Hold on. I'm almost done. 90 seconds until your next Miami Vice. I watched E.T. with the boys. Absolutely flawless. The John Williams music is ridiculous.

I did cry. I'm not embarrassed to admit. I don't remember that movie because I haven't seen it probably since I was like seven years old, but it's absolutely perfect. Just absolutely perfect start to finish. My son always wants to rewatch the last 20 minutes where the action really picks up and riding their bikes. It's great. Oh, my God. Okay. So I saw a tweet that blew my face off.

Laura Dern in Jurassic Park, because there was like, was the age gap inappropriate between her and Sam Neal. She was 23 years old in that movie. Whoa. Seriously? Okay, she's looked 40 since she was 20 then, yeah. I couldn't believe it. Oh, I'm a huge dinosaur guy, and I saw the trailer for Jurassic. I don't even know what the last one is. I cannot wait. I absolutely cannot wait. But I watch on Apple Plus, there's a thing called prehistoric planet. It's insane. It's so freaking good. It's like watching National Geographic, but the dinosaurs. They look so real. David Attenborough is a narrator, cannot recommend it highly enough. And lastly, Ben, here's my list for best sequels, which are mostly overlapping with you. Obviously,

the godfather, before sunset, Rocky 2. Now, here's a question. Is Rocky 2 eligible? Because where do you draw the line at sequels? Is it only if there's one and two movies, or if there's a trilogy. Yeah, that's true. I said Austin Powers 2. Anyway. So that's, yeah. The Empire strikes back, naked gun two and a half, the dark night aliens, kill Bill, the

born supremacy, Lord of the Rings 2 tower, Spider-Man 2, a quiet place, and Mighty Ducks 2. That's a pretty good list. You got something that I missed. That's not bad. Mighty Ducks 2 is definitely unwatchable, but 8-year-old or 11-year-old me. I love that. Did they go to the Olympics? They were doing three of those.

Oh, they played Iceland. Great movie. Oh, yeah. All right, Ben, listen, I'm jealous of you, but I'm happy for you. I'm not jealous. I'm not jealous. I'm happy for you. A little bit jealous. I talked to you on the phone, and my wife said, it sounds like you're rubbing in Michael's face

that you're drinking and lounging by the pool and sit up. I'm just a ton of it. No, I love it. I love hearing it. Animal Spearspot at gmail.com. See you next time. Thank you.