Animal Spirits Podcast - The Round Trip (EP.259)

Episode Date: June 1, 2022

On today's show we discuss what the narrative would be if we went back to new highs, why high oil prices are so worrisome, why the housing market is more important than the stock market, some good news about the U.S. economy, the new Top Gun 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 Masterworks. Ben, I am at the dashboard with all the offerings. You see what I'm saying? Yes. Just poking around, looking at the art. I see this Glenn Ligon. This is a painting. It's called The Stranger. What are your thoughts? It really speaks to me. First of all. Listen, I don't think we pretend to understand art in many ways, but this one is a solid color. Well, is it, though? Click it. At first blush, it appears to be solid black. But you see what's going on here? You see? No, explain it to me. That, my friend, that's art.

I can't explain it. If you don't say it, I can't explain it. Okay. Art is like crypto in some ways. It speaks to some people, not other people. It makes a lot of sense. Here's the best part about Masterworks. This year, especially, nothing's going down.

Has anything in your portfolio in Masterworks gone down? No, here's what I love about this. You could click on the deal sheet. And Ben, since you don't know what you're looking at, let me just explain it to you. This painting is a characteristic example of Glenn, like Owen's textbook. Say this is textbook, Ben. I'm sorry. I've misread. It's not textbook. It's text-based. This is a text-based work which explores the themes related to authorship,

history, and identity. Well, the good news is MassWorks actually picks out the painters and the paintings for you. So you don't have to do it. They hand-select them ahead of time, and then you get to invest in which ones you want to do. So go to masterworks.com.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and

should not be relied upon for investment decisions. Clients of Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, I was basically just on vacation for about a week. Not to brag. Not to brag. I did Florida for four days. Came back.

I didn't even think about it this way. We went right before Memorial Day. Came back. I had like a day, basically, to catch my breath. And then Memorial Day weekend was here. So I was on like a seven or eight day bender, basically, where I was completely kind of off the map, not much social media. Your throat sounds a little hoarse.

What's going on? I think just a little. Too many wheat beers? I think we got a little something. around the family. Everyone keeps losing their voice. But this is the whole thing about, I think, the way to live a good life is balance. For a whole week, I basically was just eating a bunch of crap and a lot of day drinking out in the sun a lot. As wonderful as that is, part of me yearned to be back into the office. Is that bad? No, not at all. We love what we do. Okay. But I haven't

been paying attention to anything. I have no idea what's going on. You're going to have to fill me in. Oh, for real, for real? Yeah, I'm just kidding. I still pay attention. well here's what's going on then the s mp 500 the energy sector that's what's going on we've got this tweet from you spoke they show that the energy sector the weighting of the s mp 500 got as low as 1.9 percent and it's now almost 5 percent that's a massive difference needless to say i did a longer history of this back in the day in 1980 is this when you said it's xomobile the next general electric or was this before that? No, I think I wrote a piece when oil went negative, kind of what happened to the energy sector. So it was almost just as good. But it was almost 30% in 1980. Like six out of the top

10 S&P 500 names were 30. Almost 30. It was over 25. I think something like six out of the top 10 names in the S&P in 1980 were energy stocks. And a lot of them don't exist anymore. But the fact that it got to 2% is just, so I guess energy and tech kind of switched places in some ways. But what's energy up year to date so far? I'm checking right now. I think 60. Could that be right? Sounds about right. Yeah, 61%. Yeah, 61%. Okay.

Unreal. And tech is down 20% as everyone predicted. And obviously with everything else, there's other stuff that's going up, but energy is kind of saving the day, I guess, by more than doubling from that low. Here's the chart from Jeff Weniger. What we're looking at is the S&P 500 consumer staples. Okay. So those are things like toilet paper, detergent, things that you buy regardless of the macro environment.

divided by consumer discretionary things that you might pull back on when things get things that you want versus things that you need. Well said. And what we're looking at is an absolute spike. Now, mind you, this is important. This is an equal weighted basket because if you just look at X, Y, for example, I think Tesla and Amazon are like 40%, maybe more, but this is equal weighted. And what Jeff is saying is, I'll just quote him, all of those upended the labor market, do with that what you will. When he says all of those, what he's talking, talking about is spikes, again, in staples divided by discretionary. We're looking at the Gulf War recession, the Asian contagion, the global financial crisis, the 2015, 2016 slowdown,

COVID, and now this recent event that we're experiencing. I mean, last week we had a lot of these retailers in the headlines with inventory build and all that sort of stuff. And consumer discretionary stocks were kicking ass. Home Depot and those were like the stocks of the year in 2021. Now, literally zero percent of consumer discretionary stocks are above their 200-day moving average, according to bespoke. The funny thing is, is that we're going to talk about this later in the show, but this consumer discretionary chart seems to go right along with personal savings rate. Personal savings rate was high and people were spending a bunch of money.

Now both are coming down. Is that fair? Yeah. Okay. That's fair. Thoughts, Ben? What do you make of this balance? Are you buying it?

You buying this bounce? I don't know. I give up because some people want capitulation. Some people think it's a dead cat bounce. Some people think, who knows? I honestly have no idea. So our colleague, Nick Majuli, did a piece. and dollars in data this week that looked at historical debt cap bounces and some of the worst

ones. And every time that there's been a big, nasty crash, stocks have bounced along the way some way, 10, 15, 20 percent. I felt pretty confident after the 2020 bottom that like we were going to see all the time highs. You made fun of me at the time. I felt pretty confident about that. This one, I have zero confidence either way. Actually, you know what? We got to get a Calci bet. Could they do that for us? Will there be a new S&P 500 high in 2021? I'm going to say no. What's your year again? You said 2021. I'm sorry, 2022. I wonder what the odds would be. What would the odds need to be for you to say yes? If it was like 4 to 1, like 80% no, 20% yes. I was going to say if it was 30 cents. I'd probably buy it. You'd buy 30 cents. Okay. I don't know if I'd buy 30 cents for now.

What if it's 2023? Ooh. New old time highs by 2023. I'd say 50. 50. I think 50 50 is fair for 2023. Anyway, I'm going to talk about this with Josh later today on what are your thoughts. What would the narrative be if stocks do hit an all-time high later in the year? I think it would just have to be that the Fed either threaded the needle and or here's what I think it would be. It's not going to be hindsight by this because I don't think overreacted to 8% inflation is like, of course you're going to react to 8% inflation. I think what we would say to like LOL would be remember when rates went from 0 to 1% and everybody freaked out, I think that's what it would be. We would make light of this. We would make light of the fact that people overreacted to a rate

The narrative would be, see, I told you inflation was transitory. It really was. That would have to be it. Wouldn't it inflation coming down? That would have to be it. But that would have to be it. And it would also be that we overreacted to a normalization. I do think the one biggest worry for me is, I mean, the war could stop and that could help a little bit.

I don't see what is structurally in place to, like, meaningfully bring down the price of oil. You saw news out of Europe this morning or yesterday that they're going to completely, I didn't read the article. So forgive me if I'm picturing this, but they're going to completely like stop importing Russian oil. Okay. That along with China coming out of their lockdown, which is another, how many billion people with demand? That would be the one thing. If oil stays high, I don't know how you see inflation slowing down.

If it stayed where it is, that doesn't mean inflation is going to go higher. It just means it's going into the same level. But if it continues to rise, then that'd be a problem as far as I'm concerned. I hate to be pessimistic. I just feel like it's just so early. We're just so early in this cycle that maybe stocks discounted this. And I'm not saying that stocks have to fall another 20% by any stretch. By the way, though, last week, you told me that my market's moving faster theory is

being put into the test here. But I think it still lives because look at how fast the yields went up. Look at how fast mortgage rates went up. It's morphing into other sections of the economy. I could see not a ton more downside, but just a choppy, disgusting mess for a couple of quarters. Sure. Put it this way. What's more likely for the rest of the year? New highs and new lows. I mean, I think that's easy. I think of new lows. What do you think was more likely? New highs this year? Are you hopping on the Top Gun bandwagon? Because I think you're a fair weather fan. You've been talking smack about Top Gun. Now you're promoting the new movie and you're wearing a T-shirt. Would the facts change? I change my mind.

Hold on. What do you do, sir? I'm sorry. I wish I could personally take 20% of your enjoyment from the new Top Gun and take it away from you because you don't deserve it. Sorry. Oh, I deserve it. I don't think you do. I was thinking about this. What would be my call name? I want a call name. I mean, something, the bald bomber? I don't know. Not bad. All right. We were talking about talking about that. Mine would be like, Target date bombing? I don't know. I got nothing. No, yours would be 6040. Oh, okay. That's not bad.

So Balchuris has been writing about this for a while now that assets and actively managed funds has been rising, not because of inflows, but in spite of aflows, actually, there's been a tailwind. Obviously, the market has gone up. But now they've seen $3.3 trillion in assets to race this year, which is about $20 billion in annual free revenue. Almost all of it is due to the bare market tax, only 9% is because of outflow. So just $250 billion. Well, that's a lot, actually. Actively managed AUM stayed high because the market was going up and it kind of masked money not going in anymore. That makes sense. You asked about capitulation. I don't really know if I buy this. Gina Martin Adams tweeted capitulation or question mark. Valuations have plotted the

same course of about 32 times to about 16 times, but three times the speed of the tech bubble. There is your theory right there. Here's my grammar question. You do an exclamation point and a question mark in the same punctuation, which one goes first? Question mark or exclamation point? I never know which one to put first. I think the question mark goes in the middle. I think she did it right. Okay. All right. I don't know if capitulation, you could capitulate on valuations. I'm not sure about this. I'm not sure how I feel. I guess I'd be convinced, but I don't know. I just don't know. I just don't know. Picholation. We didn't have to swing to the other side instead just getting back to Everett. Yeah, we just revert. All right. Last week, I sent out the bat signal to Jeff

Patak, and I said, did people stick with value funds? He said, looking back over the past 10 years, value fund investors hung on for the first one to two years, then started fleeing, but have come back the last few years, all told, 111 billion in outflows from value versus 590 from growth. This is kind of crazy. So a ton of money come out of growth. I think what you may see here, though, is people going from growth stock funds to index funds and ETFs? Yeah, I was about to say, does that actually make sense? Because why pay for large growth when you can get it all in the index? I think that might be it. Or going to the NASDAQ 100. I'm sure a lot of this coincided with huge inflows into the NASDAQ 100. So more money come out of growth than value. but I think there's a good reason for it. Look at this rolling 12-month chart of estimated flows. So money is going into value coming out of growth. Huge money. Yeah, lots of money coming into value. That, again, makes sense.

All right, last week, I made the case for the wealth effect being bonk. Bunk, bonk. Yeah, sorry, I still can't talk. So I did a little digging on this, and I think where it shook out a little bit is, I think what the Fed is doing actually kind of makes sense. So I looked at this through the end of 2021. The Fed does this where they update assets, liabilities, holdings, of financial assets for the different tiers. Top 1%, 90 to 99%, 50 to 90, then bottom 50.

So if you look at just net worth, the top 10% has like 70% of the net worth. The bottom 90% has like 75% of liabilities. So the rich hold the assets and the people in the bottom end hold a lot of liabilities. But here's the shakeout by stocks and real estate is interesting. The top 10% owns 90% basically of the stock market. But when it comes to real estate, the bottom 90% owns 55%. So my whole thing about housing being way more important to the middle class, the middle class actually owns more of the housing than the top 10%. It's completely different from the stock market. So maybe what is going on in the Fed trying to punish stock market investors is a good thing because they're kind of going after rich people for the most part, if that's what they're shooting

for, a wealth effect, because that's obviously one of the biggest reasons 2008 was so bad because people got underwater on their homes. They over leveraged. And where I kind of shake out on this is housing is way, way more important in the stock market. So even if the housing market slows a little bit, people are so much better off right now from their housing that having a bare market for stocks is not going to impact a large number of people. And the Fed has maybe a little bit of a longer leash because of it. I think that could be mostly right. I guess the question that I would have is, but don't stock prices impact things like hiring. I guess you could say like CEOs are going to pull back on investment in hiring because of this. We'll

into the labor market thing a little later. It doesn't seem like that's happening quite yet. Companies take their cue from the stock market. Their prices, their currency. And it's the investor's willingness to subsidize or not whatever plans they have. That's true. If it made CEOs cut back a little bit. But I think, again, this is the Fed threading the needle. If they could just harm the stock market and make the stocks get on 20 or 30 percent. I think that's wishful thinking. Because, like, for example, guy that I know that works for a big Dow component was saying that they are freezing like all travel. And any discretion I respect, basically. All that sort of stuff has ripple effects throughout the entire economy.

That's fair. Again, I think it could be those bigger stocks that are part of the stock market that are more impacted than, say, like small businesses and such. But here's the other part of this. So I still think we're fairly early in the tightening cycle and investors feeling things out and where things are going to shake out, what inflation is going to be, how high rates are going to be, all that sort of stuff. It's also possible that companies are overreacting on the downside. And that if the stock market does recover more quickly than I am thinking it does, I don't think you'd be back to business as usual. I don't think we're going to go from this to let's pay 90 times sales again for unprofitable companies that we're going to require. I think

that part of the cycle is over. But I think you could have companies like go back in the pool pretty quickly. I think the other part of the narrative, you asked like, what would the narrative be if we hit all-time highs again? The other part of the narrative would be interest rates went up a ton in a very short amount of time. And they did a lot of tightening for the Fed. That was a overdone, and maybe rates come back a little bit, and that's what would help the stock market. That's looking at this. Obviously, it seems like the bearish narrative is easier to paint that picture right now than the all-time high near it, which is maybe why that other one would happen.

I don't know. Yeah, I think if you did a poll, what's more likely, new highs. Again, we're so much closer to new lows. So this is maybe even a ridiculous premise, but it would have to be 100% people who would say new lows or 98. A lot of people. I agree. Anyway, last week we spoke about that it just seemed like, for whatever reason, private markets, like woke up and smelled the roses about what's going on.

There was a lot of letters with like ancient Chinese proverbs in them, a lot of Warren Buffett quotes. People are batting down the hatches and getting fearful, well, those are fearful. Sequoia had, I don't know if it was leaked or whatever, but it was a Zoom call that they did with 250 founders. And they said, we do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic. They've been listening to Michael Batnick, no more V-shaped recoveries. Yeah. We expect the market downturn to impact consumer behavior, labor markets, supply chains, and more. It will be a longer recovery, and while we can't predict how long we can advise on ways to prepare and get through the other side.

So there was a lot of that, not just from them. But I think that last part is important that the market downturn will impact consumer behavior. It will impact labor markets. It will impact supply chains. I do believe all that to be true. Isn't it kind of crazy to think how much of business and the economy is really just a state of mind? It's like based on faith and trust and psychology. Confidence. Frederick Lewis Allen, he wrote only yesterday. He wrote a bunch of books in the 20s and 30s. He wrote this thing about the 1920s boom.

That happened right before the Great Depression. And it was something like prosperity is more than an economic condition. It's a state of mind. State of mind. Right. It really is where it's like a psychological, like I don't want to use like the flywheel term because it's so cliche. But the economy is kind of like that.

So much of it is based on trust and faith and the psychology. And it's also amazing how quickly. can shift like that. I'm not Duncan because we're all like this, literally, like especially me. It is in our nature to prepare for a storm after the roof blew off. They put this letter out and they're also sharing that 61% of all software, internet and fintech companies are trading below pre-pandemic 2020 prices. Wow. So maybe VCs are overreacting, but the reason why I would say no is because they control the money supply. It's on them. Like, they control it. This is where the confidence is coming from. It comes from the top down. And if they say that we're not going

to subsidize you, then you're out of business eventually. So like, for example, they're talking about where the liquidity is coming from. And they said crossover hedge funds, which have been very active in private investing over the last few years, and have been one of the lowest cost sources of capital, are tending to wounds in their public portfolios, which have been hit. hard. So I guess just to think that this is going to turn on a dime and revert to back the way it was possible, but I really do think it's highly. If you were a crossover hedge fund right now and you invest it, you say we're going to invest in growth no matter where it is in private companies or public companies. If you have your public company that are down 80% versus the privates that

might have been marked down 20%, why wouldn't you put all your money in the public ones right now? You don't have to do with the liquidity. You don't have to deal with the founder. It's more mature market, I would be putting all my money there right now because that's where the bigger deals are. Look at this chart of EV to revenue multiples and EV2 revenue divided by growth. So like adjusting for growth. And look how quickly these things corrected. This is the good thing. It's round tripped. The excesses of the post-pandemic behavior, stimulus, easing, all that sort of stuff, went up in flames. Okay. So last week, someone asked like, what are we calling this shakeout right now? I think I got the name. It's the round trip. Everything has round.

You see this huge spike up and then this huge fall off a cliff and everything kind of came back to where it was in most cases. I really do think a lot of it was just everything was just so, so easy. Yeah. This is a great chart from CB Insights like depicting the current environment. Miami funding falls back to Earth after bonkers Q421 when deals reached a new life. What does this mean Miami funding? Like stuff that was being funded from Miami? The city of Miami. Okay. Because everyone moved there and that's where everything was coming from. In 2004, there were 72 deals at $2.2.2 billion. And now in Q1, it was 81 deals, so more deals at just $1.1 billion. Okay. So more deals at half the price.

So do you think everyone just kind of looked around a little bit? I've used this analogy before, but the Forrest Gump where he stops running in the middle of the desert and he's kind of like, I'm going to go home now and everyone looks around going like, wait, what? And they just followed him out there. Like this New York Times story about Substack. They talked about how Substack was trying to get evaluation of like a billion dollars a couple months ago. And they finally, they took it off the table because they realized it wasn't going to happen. But they got to $650 million evaluation last year and had some pretty big investors. And they found out they had revenue of $9 million in 2021. Nine million dollars. And they're looking for a $1 billion valuation. Maybe there was just

way too much stuff pulled forward and everyone finally realized like, wait a minute, if other people are going to stop pulling stuff forward, what are we doing? Yeah, I think a hundred times sales strikes me as excessive. I think what happened, though, the reason why it like the ice broke when it did was because it came from the top. In private markets, the deal terms come from the top. Co-to, Tiger. They're setting the price, yeah. They're setting the price. And everybody has to dance while the music's playing. And they pulled back and boom, everybody put out their pieces. We need to raise cash. We need to survive. Like it just started from the top and it just spread like wildfire in the last 10 days. Now, I said to you that this equity is the currency for

these companies. And this is why it can affect the real economy. So employee options underwater. And this is from Morgan Stanley. 27 companies of our coverage have average equity strike prices underwater by a median of 28%. Jeez. This is a true story. It happened right here in my town. One night, 17 kids woke up, got out of bed, walked into the dark, and they never came. back. I'm the director of barbarian. A lot of people die in a lot of weird ways. You're not going to find it in the news because the police covered everything all up.

On August days. This is where the story really starts. Weapons. So, remember last week we were talking about Best Vacation Movies? And, by the way, I forgot one. Sideways should have been on there. I think we forgot Sideways. That's a vacation.

They go on a week-long thing. trip for the guy's bachelor party. Wine tasting. Thomas Hayden Church is amazing in that movie and one of my best friends from college, like looks like him. Maybe he has some of the same manualisms. But I rewatched great outdoors, which again, I don't want you to watch because you're going to hate on it because it's an 80s movie. Oh, don't worry. I won't. But I love that movie because John Candy is one of my all-time favorite actors. But Dan Aykroyd plays this traitor from Chicago. He's a shooter guy. He drives the bends and he's got the aviators and he's got his slick back care, and he does the perfect, like, Chicago shooter guy. I'm a big wig. And he's talking about

how he had 300% profits trading Deutsche Marks, which is kind of funny. It's always like currency trading back in the day in the movies they would talk about. And he talked about how he made 300% in it. Hey, wait. Hey, wait. The Winnie the Pumium. Currency Trading FX. There you go. Not bad. They're grilling out and they're at their rental on the lake, and he's telling John Candy, how I made 300% trading Deutschmarks in a week. And John Candy, I don't know if he stole this from someone. I'd never heard before. He said, easy money is money easily lost. And it was like, oh, John Candy. nailing with wisdom. Did you read this Wall Street Journal article about the people who put 90 to 100%

of their money into Tara and Luna? Hang on. Before we get to that, I'm always afraid that I'm going to do the Winnie the Pumim, but like totally like butcher it. Backwards? No, like literally get it wrong. When somebody's like, that's actually not what happens. I got you. You know what I mean? Just like your sayings. You don't know what the Martindale strategy is. So Matt Levine wrote about this a while back that investments that promise safety and stability are much riskier than investments that promise upside. People's antenna is intuitively, wait, you're saying I can make 80%? That sounds, you would think that the alarm bells went off at

20% in a stable coin, but the whole story just sucks. The Wall Street Journal, as they do, they get these retail traders who made a big mistake. So they talked about, they said a surgeon in Massachusetts can't stop thinking about he lost his family's Nessag, a young Ukrainian considered suicide after losing 90% of his savings. Other investors have given up dreams of starting a new business or quitting their day jobs. So this 44-year-old surgeon saved almost 200 grand and he put 90% of it into the stable coin. 90%. I guess there's another one about this 45-year-old former teacher in Utah took out a $95,000 loan against his house in December 2020, put it into Anchor Protocol, encouraged by an online investing course, plan to use the interest payments and

other gains to attend a U.S. accredited medical school in the Caribbean income doctor. That dream is gone. Maybe the thing is, like, no matter how safe you think anything is, you don't put all of your money into it or the majority of your money. There's a reason diversification is the best risk management tool in the world. I don't care how safe you think anything is. Don't put all of your money into it. There's too much risk. Is that the takeaway? That's a good takeaway. The least specific stable coin takeaway is no matter how safe you think something is, don't put all of your money in it. Yeah. Diversify. Diversify by strategy, by yield, by asset class, by geography, all this stuff. that's how you protect your money from all of it going up in flames.

All right. Inflation, we got core PCE last week coming down a little bit, still pretty high. There are some good news on the inflation scene. Fertilizer prices are down 30%. Lumber was cut in half. But the butt and the big butt is crude oil. Crude oil is not budging. And we just got a big inflationary print out of the Eurozone, up 8% in May.

core inflation 4%. Yeah, but that's the Fed's fault. A lot of people took umbrage with that thought, saying it is the Fed's fault for what happened in Europe. I don't know why. In Europe. Yes. I still don't get that. By the way, have we had any BuzzFeed type articles about here's how bad inflation is in 1986. When Top Gun first came out, you could have bought this Big Mac for 12 cents or something. That's got to be coming. I did have an inflationary conversation the other day with my wife. What were we talking about? Well, we went to get ice cream this weekend. And they had a big sign when you walk up. And it said,

We apologize for our prices this year. Inflation is killing us. I should have taken a picture of it. Still didn't seem that expensive to me. Inflation is the one vegetable. By the way, speaking of me being 60-40 is my call sign, you know my ice cream cone order is every time? My go-to.

What do you think? What's your go-to? We're talking ice cream. Yes, ice cream in a cone. What do I get? Okay. I'm going to guess that you get a chocolate vanilla swirl, obviously. But you dunk it in the chocolate coated.

No, I'm not even flashing enough to do that. I just get a twist. It's a 50-50 portfolio. Chocolate vanilla. Okay. But do you get the baby cone, like the crappy one? Or do you get like the nice waffle one? Yeah, and I'll get the crappy one.

I can see you getting the dip, the dip into the chocolate with the extra, all that stuff on it. Oh, I get the fudge and the whipped cream and the peanut butter. Forget about it. By the way, I saw myself in the mirror the other day. My profile is not looking so hot. Because I started working out, I think that I can now like less healthy. That happens. That's what I heard.

I've heard a lot of stories about people who train for a marathon and ended up gaining weight because they just eat more to compensate. Yeah. I'm like, yeah, I just worked out for 50 minutes. I could have, like, three burgers. Tell your personal trainer that you want to do some core work. That's all we do. Okay.

It's core. All right. But I got to get back on. You know what they say, Michael. You can't do a whole 30 in the summer, right? You can't do a whole 30 in the summer. Six packs are made in the kitchen, they say. Not in the wait room.

Connorsen tweeted something that's interesting. There's all of these mixed signals going on in the economy. He said the nudiest thing to me is over the past month, travel leisure companies have reported an acceleration and retail. and retailers have reported issues, and the focus has all been on the latter as signaling recession. By the way, I do think you keep saying that, like, well, people book a trip, it's going to be one trip. Yes. I don't think that's the case.

For the most part, for the most part. Okay, yeah. Like, we went on a trip, and we got back and immediately booked another one because we're like, okay, traveling is fun. And we put it off for way too long. I think the travel boom is going to extend a little longer. I think people are going to keep that going. Well, Southwest said that they continue to experience acceleration in bookings. Delta expects two and a half million passengers this Memorial Day, we can up 25% over 2021.

So maybe it's not surprising that, and I apologize for this, that we're focusing more the negatives and not highlighting the positives, but that's a fair point. Speaking of this, Matthew Klein wrote this, which, by the way, that guy is so sharp. He was on Cardiff Garcia's new podcast, and he did like an accompanying blog post on the overshoot with some of his charts that they talked about on the new bazaar. He says, this is, like, I know people think because we got this high inflation that everything we did during the bailout and the sending the checks must have been bad. I think some people legitimately believe that. Americans produce 3% more goods and services in October, December

2021, which is Q4, and in October December 2019, after accounting for inflation. He's saying the economy is bigger now than it was. It seems pretty obvious now, but thinking back to what we went through with the pandemic, the fact that the economy has continued to grow through that period is kind of insane. Now, people say, well, of course, we printed trillions of dollars, but it's still like, that didn't have to work. That could have been pushing on a string. It didn't have to do that. He said, while the massive influx of money

may have even helped set the U.S. economy up for more success in the future, total GDP was about 3% higher in Q1, 2022, than at the end of 2019, total employment is still 0.5% to 1% lower. The difference has come from higher productivity. Perhaps not coincidentally, we have also witnessed a surgent entrepreneurship

and new business formation since the summer of 2020, basically saying, like, we have fewer people back in their jobs and the economy is still humming along and bigger than it was, so people have got more efficient and more productive. and maybe I'm making a leap here, but do you think that's part of the work from home stuff? Is that possible? I do just think that people have to take a step back and realize what we did, how the economy kept chugging along, despite everything that's happened, is kind of a miracle. And I think we did

kind of thread the needle on that in some ways, even though inflation is high. It's about as good as we could have expected to do. At what point does the tone shift from what you just said to we did too much. If we have another 18 months of high inflation, well, we look back on the rescue as being a mistake, or at least the size of it. I think some people already do. Hey, let me see this. This chart from the Council of Economic Advisors, the personal savings rate fell to 4.4 percent, the lowest of savings rate has been since 2008. And it says personal savings as a percent of disposable personal income. How is this calculated? It sounds very difficult to calculate. I got to be honest with you. I don't know how they calculate disposable income. Or personal savings, for that matter.

Is this on the blockchain? I think personal savings is kind of a filler between what people spend and then what they earned. I think it's kind of a filler number. All I'm saying is I'm entrusted. Sorry. Maybe a nerdy economist can help fill us into this. I honestly don't know. Ali Wolf tweeted, I know Brian Moynihan of B of A says this a lot, but it's still worth repeating.

I agree. Bank of America account holders who had an average balance of 1 to 2K before the pandemic had an average of 4K in April. Those with 2 to 5K before the pandemic carrying an average of 13K today. It's amazing. It's crazy, right? I know people want to say this is all government sending out money, but they send out $1,200 checks. This is probably more people just... They sent out a few of them.

Okay. But still. Here's the other point. That's amazing. But that could be gone in 12 weeks. Probably will be. That's all the vacation spending right there. The student loan thing keeps coming back up and they said they might cancel up to 10K of student loans,

up to a certain amount of income. I just put this out there because I think we talked about it here before. I said, I'm sticking my theory that canceling 10K in credit card debt would have a much greater impact on the economy and canceling 10K and student loans. I honestly don't have strong opinions on this. either way. I just thought, I think for the economy. I do. Okay, you do. But man, so this tweet did some numbers and people were just going bonkers in the comments. I had to turn it off. Yeah, I can't imagine. This is something that people have very strong opinions about. I don't really think I do.

What's your strong opinion? I'm not one of the people who, it's all personal opinion. So I won't get mad at anybody for feeling this way. I don't like begrudge people getting their student loans canceled because we have to pay for hours. The problem I have is it doesn't do anything. It just doesn't do anything to the system. It doesn't fix anything. I also don't think like the personal responsibility moral has. You've learned nothing. I just don't think it does anything. What are we actually trying to do here? Because the education system sucks. You know what you should do? Cancel interest forever. Something like that. But what does this do actually? What does this actually do? Is the next president do the same thing? Well, the point is it it should come with. There's a

problem. There should be some strings attached with the colleges. That's the problem, them raising the rates so high. I agree. I just think that there are issues and this doesn't do anything to fix the issue. Also, maybe not the best time to introduce more demand into the economy. It really is. Yeah, in an inflationary environment, probably not a great timing for this kind of thing. On the other hand, people would say, listen, I'm ready to buy a house. Canceling 10K and student loan debt would be really helpful to me. Great. Cool. I'm not mad at that. I just, if we're trying to fix things, this is not it. Like you, I wouldn't get mad at people who did it just because I paid mine off. I really don't care, but there's some people who really, really would be mad if that happened.

I understand that mentality. I'm glad I don't have that, but I understand it. They think it's not fair. I get it. The new BMO ViPorter MasterCard is your ticket to more. More perks, more points, more flights, more of all the things you want in a travel rewards card, and then some. Get your ticket to more with the new Bimo. V.I. Porter Mastercard and get up to $2,400 in value in your first 13 months.

Terms and conditions apply. Visit BMO.com slash V-I. Porter to learn more. Okay. Mortgage rates fell to 5.1%. Biggest drops in 2020. Thoughts? I think that was the top. Are you seeing anything anecdotally in your neighborhood? Home prices coming down? Are they still going? I still heard a story this weekend where someone said they put their house in the market and got 25 offers in two weeks. Wow. You're still hearing anecdotes like that. I guess I did see one house that was put on the market it's been on for two or three weeks and is still there. And that's surprising because most of them you see a for sale sign and then two days later a sold sign or a pending. Case trailer numbers came out today, up like 20% year over year. Actually, there's a house around the corner from me. Nice enough house, but they listed it for nine hundred thousand dollars. Maybe. And it's not a $900,000 house. And it's not a $900,000 house. There's this Enber paper that came out this week talking about how work from the market for quite a while. So there you go. Sample size of one. You say that like it's not a 900,000 house. There's this Enber paper that came out this week talking about how work from home gave us. Do you think we got this one-time boost in home prices that is just never going to go back? And we've just, we've raised things up. The tide lift at all ships. I believe that.

I think prices can come in a little, but they're not going to go to what it was pre-pendemic. I don't think that's going to happen. This National Bureau of Economic Research paper said, I'm sorry. This is not solicit for 1.15. My bad. There's no way this house is selling for 1.15. Not a chance. So we show this shift to remote work explains over one half of the 23.8% national housing price index over this period. And the cross-sectional estimate combined to the aggregate shift to remote work implies that remote work raised aggregate U.S. housing prices by 15.1%. They're saying it's not like it's speculation or other financial factors. It's just people moved from different places and went because they had money in California wherever and they could

in New York, they could now go to these other places and afford. And that demand combined with lower supply gave us this one time boom in housing prices. It kind of makes sense. I'm looking at Zello as we talk. I got this one house in my neighborhood, price cut, 50K. Okay. house on the water. That's good. I think it's enough. I do think a lot of people have said, like, let's just put out a crazy number and see what happens. So it's good to see those crazy numbers coming in.

Like everything else, that was the excess of all access. And it's not that home prices are going to fall. It's just that they're not going to continue to rise as much as they have. So I had this thought about when we were in Mark Weil in last week. So there was this picture of the J.W. Marriott went to open in like 1970. You went to seen it when you were there. It's right when you, one of the bathrooms you walk in and there's this picture. I put it in here.

and it's just one tower of a hotel, and then behind it is all barren wasteland. There's nothing there. So this is in 1970. And now there's towers all along the beach. There's houses everywhere. See, our parents really did have it better. Sure, they had to pay a 15% mortgage rate for their second vacation home. But look at this.

You can get your vacation home anywhere. But it just had me thinking that the housing market, quote unquote, is still so young. From everything that we try to make it as, like, the housing market itself. Wait, what? Think about like the housing market as like this. financial asset. Things were so underdeveloped back then. Even like the suburbs were really created in the 50s. And it's actually a guy in New York that David Halbertsman book the 50s to talk about how the suburbs itself, all those like cookie cutter houses, that was like something that came

about in the 1950s after the war. And so my whole point is that so much of this is still so new. And what we think as like the housing market really has only been around for as a financial asset for, I don't know, call it 40 or 50 years in a meaningful way. So like we talked about the single family rental home being 95% by individuals. Oh, by the way, shout to plug that podcast that we did. Yeah, people are going to look back on that. So that's our talk your book for Monday. 95% of... Yeah, we had Joe Alassan from the Pete group talking about 95% of single family home. I think people are going to look back to a number like that in like 50 years and be like, that's crazy. Why was there not more professionalization, institutional there? And I think...

95% of investment homes are owned by individuals. Yes, that are like rented out, individual single family home rentals. Here's another good chart from Jeff Wenninger. The National Association of Realtor members as a percentage of U.S. labor force, this is pretty crazy. It's higher than it was in the dot-com bubble. I'm sorry, in the housing bubble. So almost 1%. Is that possible? Almost 1% of the labor force is a realtor, or at least has their license. That's kind of crazy when you think about it because think about how low the supply of housing has been. And then there's more realtors now. Do you think people have tried to jump into that as a career because they see housing prices going crazy. There's nothing to sell for a lot of people. A lot of these realtors probably can never

find any clients to sell for them. Did you buy Adam Newman's coin yet? Is it a coin or what is it? I'm sticking by my theory that if Charles Ponzi were around today, he would have run the Ponzi scheme and then gone to jail or got a slap on the wrist and then immediately come back out and done something else. Everyone gets a second chance these days. Did you ever watch the show or not? I still never watched the show. We crash. Now, everyone says it's great. I don't know. I feel like that was a big animal spirit's talking point for every week. I'm We had something about WeWork at the height of it. What was that?

2018, 2019? I can't remember. I don't know. I mean, it says Andreessen Horowitz gave him money. I don't know how just this guy being involved in anything is not a huge red flag. The fact that is that he already became a billionaire from that from WeWork. What motivation does he have to do anything good? Isn't he on the naughty list?

Exactly. This is from the Wall Street Journal. They're talking about the fact that like, why is this happening? They're saying demand remains red hot and that there's like more jobs opening than people. And they're also saying that. that like people are quitting lower wage industries, like restaurants at high rates and leaving businesses. So look at this chart here that shows a lot of them, like golf courses and restaurants and RV parks and fitness centers and hotels still have fewer people working for them.

They did pre-pandemic. They have all these restaurants they interviewed and they talked about how they can't fill employees. So they're, instead of being open seven days a week, they're open five. What? I was just reminded. I was a caddy back in the day. I went to a golf course. I think like my friend's dad got us him. Maybe it was his friend's country club. and we got one chance and they threw us out. Seven iron, huh? Yeah, you're fired.

We kept losing the balls. I never played golf. I couldn't find the balls. But don't you think part of this is just that a lot of these places just don't pay enough and people now can get jobs with much higher pay

and that's why they're having trouble still. Their businesses were predicated on. I don't know. Hotel workers, where are they going though? Amazon for $18 an hour, Walmart or Target for $18 an hour, Best Buy, whatever, like all these places that offer higher wages now,

why would you put up with it if you have a lower wage anymore? I think part of it is these places unfortunately need to raise their how much they pay. All right, moving on to recommendations. All right, maybe your Top Gun. Before I get to Top Gun Maverick, the real Top Gun, there was an article in the ringer by Adam Neiman, who's on the podcast a bunch. And here's what he wrote. In March 1987, almost a year after it opened the top of the box office charts and stayed there, it became the first VHS cassette price to own at under 2695, effectively rewriting the rules of the then developing sell-through market while also staking out new terrain in the field of product placement. Two things on that. One, huh, I didn't know that it was

the first VHS, did you? No. I'm saying it's a first VHS price below 2695. Oh, I apologize. Damn it. But still, really comprehension. The inflation on this, you can buy one on Amazon for 99 and watch it a million times digitally now. Okay. So this is the coup de grace. Here's the quote. The thundering transcendent dumbness of the dialogue, all of those insults, put downs, I don't know what that word means, about flying, whether it's by the CD or pants or what the ghost reaches an apex with Maverick's deathless assessment of his own cockpit existentialism. If you think you're dead, even more than Mavericks claims of feeling the need for speed, the line sums up the genius of the movie. It's so stupid. It's brilliant. It's so

dated that it stands the test of time. It's so flawed yet impossible to imagine any other way. That's perfect. It's so stupid. It's brilliant. It's so stupid. It's brilliant. earlier. Okay. Top Gun Maverick did $160 million, the biggest opening of all time for a holiday. Did you go see it? No, I didn't see it. This is the first movie in 10 years I have extreme fomo. I'm going to try to see it sometime this week. I have to. I've not heard one bad thing about it. All jokes aside, it was just the perfect movie theater movie. It was exhilarating. It was electric. It was loud. It was America. It was just a Yeah, just like the first one.

It was so good. Well, not exactly. It was so, so, so good. Okay, I watched, you know a Star Wars guy, but I got to say, Star Wars is, it's in a weird place because the three sequels. Because there's been a million of them? Some were better than others, but now, I mean, I didn't even watch Bubba Fed. I have no interest in Bubafet.

The Mandalorian's pretty good. But I'm kind of excited about Obi-Wan. I'm a little bit excited. Two reasons. One, it's only six episodes, I believe, so already you have me. But it ends when the show starts, it says previously on, and it picks up where Revenge of the Sith left off. Okay.

Where he doesn't know that Anakin didn't die. There's so many of them. I got nothing. It's fatigue. It's a lot. Duncan said he's laughing. He was saying Bubba fat. Boba fat?

Boba, yeah. Bubba fat. You said Bubba. Not like Bubba gump. It's Boba, I think. I say Bubba fat. I'm sorry. Always have always will.

All right. We finished This Is Us, which is the last network TV show I've watched, like on NBC, ABC, CBS kind of deal. Is that the series finale or season finale? It was a series finale. Okay. It's been on for a while. My wife and I stuck with it. She probably liked it more than me. The finale, I thought, was just okay. The second to last episode. By the way, this is the only time you can say this, Penn Ultimate, the Penn Ultimate episode. Second to last was better than the finale. It's probably the last network show I'm ever going to watch. I can't imagine there's another network show that could get me to watch if it's not on Netflix or HBO or one of those. Who watches CBS? Who? People 60 and older. it's got to be it. Bill Simmons with Brian Curtis on the press box pod was great talking about

his journey of starting a podcast and why he did it and some of the lessons he learned. It was really good. There's some animal spirits parallels in there. I won't compare ourselves to Bill Simmons, but there was some parallels in there. I will just say that. Him talking about taking everything him and Cousin Sal were doing off the air and putting it on a podcast, kind of reminded me of that's what you and I did. We took our phone calls we were having anyway and said, let's do it as a podcast. I finished a bunch of fiction books. I'm just going to rattle them off on my trip because I start a fiction book. I get into it and then I move on to another one. So I had my Kindle, I finished four books.

Hold on, what does it mean? You read one and then you read another? I'll read a few chapters, see if I like it, and then I'll just hop on to something else. My Kindle's full of books. So since we fell by Dennis Lehane was recommended by my dad, he said, hey, there's a lot of twists in this. There are a lot of twists, eh, seven out of ten.

The old man by Thomas Perry is about a guy who steals a bunch of money in a war and comes back and isn't on the run for the rest of his life. Six and a half out of ten, not bad. Beautiful World Where Are You by Sally Rooney is kind of a quirky romantic one. More like a rom-com kind of one. If you're into that kind of stuff, seven and a half out of ten, if you're into it.

You read rom-coms? This is news to be. Occasionally. I've read a few of her books. I'm trying to broaden my horizons. You like young teen fiction. I'm a young adult novelist. The Fisherman by John Langan, which was about two guys who both had deaths in their family.

Like their wives both died and they took up fishing, which was a, I can't remember who recommended to me. Kind of sad at the beginning because they lose their wives and their families, but then they are brought together by fishing and then there's like a mystery involved. So all not bad. No great ones, but all like in the 6 to 7 range. When's the last time you read a fiction book? I don't know. All right. Animal Spiritspod at gmail.com, and we will talk to you next time.