Animal Spirits Podcast - The Smart Money (EP.160)

Episode Date: August 12, 2020

On this week's show we discuss what low bond yields may be telling us, why the stock market is smarter than people give it credit for, the rise of investment newsletters, the bull market in gold, when the world will go back to normal, TikTok and Twitter, annuities vs. bonds 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

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 Rithold's wealth management may maintain position. and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. So last week, the 10-year treasury yield hit an all-time closing low of 52 basis points. I think it actually got a little lower than that during the height of the crisis when it first got started, but that was the lowest closing ever. And one of the rules of thumb that people tend to think about the markets is that the bond market is always smarter than the stock market. But it seems like most people who haven't just said we're never getting inflation again, a lot of people kind of tend to think because of all the fiscal stimulus we've gotten that

we're going to get some inflation, especially if there's a vaccine, we could get a assertive inflation. And everyone thinks this is a foregone conclusion that rates would rise. But the bond market right now obviously doesn't seem to care. I mean, it should be blatantly obvious. If we're going to get a vaccine in six, nine, 12 months, whenever it is, and we're going to get all this inflation because of the spending, that the bond market could see this pretty easily. So why is this happening? Is the Fed really that powerful that it can keep rates down? Or is the bond market not as smart as we think? I think it's more the Fed. But I think that when people say the bond market is a smart money, I don't think they're talking about treasuries. I think they're

talking about corporate bonds. People that are trading corporate bonds really know the financials of the company better than the stock guys. And I think that's probably true. So do people say the bond market is a smart money and throw in treasuries? And that, I think there's a difference there. Well, because a lot of it is saying that the bond market is saying we shouldn't worry about inflation. We should worry about deflation. And that growth is going to be slower than people think. So that's why the bond market is really smarter than the stock market. And the stock market has gotten too far ahead of itself. I think you can make the case this

year that the stock market is smarter. But on the other hand, beyond the Fed, doesn't the Fed have more ammunition than anyone in terms of if they want to keep a cap on rates, they can do it if they want? I still think maybe that's what's happening here is that people think, you know what, I'm not going to fight the Fed anymore. If they want to keep these rates low, fine. I'll stay in bonds. Is it as simple as that? Are they primarily responsible for the yields at this point? Right. That's the question. Sure seems that way. Yeah. Do you have any thoughts on my bond smart money comment or no? I think it's a little more than corporate bonds. I think it's the whole bond market as a whole. I just think with the Fed being so intertwined with it now, that whole argument is off

the table. That's my point here, I think. If it matters. I don't know. But it just seems like everyone kind of thinks it's a foregone conclusion this is going to happen, but the bond market just obviously doesn't care. So, I don't know. Maybe the bond market is really a biotech investor that knows something about vaccines that we don't. So Michael Mobeson and Dan Callahan had a piece, a long piece, a really good piece called Public to Private Equity in the United States, a long-term look, and there's a ton of charts. I mean, you call this a book as opposed to a piece, don't you think?

We're going to talk about a few of them. It was an easy read. It's like 80 pages, yeah, but it's long. Okay. We've spoken a lot about this in the past. I've never seen it quantified like this. So the shrinking stock market, where did all the stocks go? Number of publicly listed companies is about half as it was in the highs of the 90s. And we've always spoken about, yeah, because there was a lot of crappy companies that were IPO that just don't IPO anymore, which is not necessarily a bad thing. But they dissected it and said that more than 90% of the stocks that have disappeared since

1996 were those of smaller microcap stocks. I've never seen it quantified like that. I thought that was interesting. Right. Because the number of stocks have gone from 7,000, call it to 3,500 since like 1990 something? The average market cap is 10 billion today, up from 700 million in 1976. Of course, that's adjusted from inflation. And they cited a study saying that looking at the cost and the benefits of listing and the propensity to list is roughly one half of what it was in the mid-1990s. Obviously, the implications being that private markets are way more deep and liquid today than they were in the 70s and certainly the 80s also. And then you have the Sarbanes actually stuff that made it harder and more onerous for companies to go public.

And so they would rather stay private in many ways because the regulations make it so hard on them. Like all the fallout from the Enron stuff made it so public companies, it was just more of a hassle to go public than it was in the past. Here's another good nugget. Companies that listed before 1970 had a 92% probability of surviving the next five years. Lowe's listed in the 2000s had a probability of only 63%. the chance of survival has dropped in each successive decade. And one of the reasons why there's so few companies, it's not just a lack of IPOs. It's M&A. These companies that are delisting are getting swallowed up. And so it's not that they're necessarily going out of business. They're just not

standalone private, standalone entities anymore. And maybe that's one of the reasons why they keep getting bigger is because they just keep swallowing up the minos. That was my biggest takeaway from this is that reading this piece, it makes sense why the huge companies, continue to get stronger. So he also had some data in here about how the breakdown looks. So he said, this is as of the end of 2019. So it's probably pretty similar to what it is today because the markets are kind of back where they were. I don't want to remind you of that again. But I did say stocks were going to hit all-time highs again. And you made fun of me for that on Twitter. And it had happened. So just pointing it out again, that your moldy cheeseburger take. Anyway, moving on.

Wait, excuse me. Excuse me. It did not happen. The high for the S&P was 3393. Total return basis. Total return. No, no, no, no, no. You're. Spiking the ball, the one-yard line. I'm pulling it to Sean Jackson. I don't care. Yeah. Okay, anyway, U.S. domestic equity mutual funds manage about $8.5 trillion. Active is $5.6 trillion of that. Index is closer to $3 trillion.

Buyout funds in the U.S. have $1.4 trillion in AUM, which includes about $560 billion in dry powder. Venture is much smaller. They manage about $455 billion, of which $120 billion is dry powder. So looking at it still, it's much bigger. So the equity capitalization of the U.S. stock market is $27. times the size of private equity business and 80 times the size of venture capital. So in terms of publicity, it is funny. Venture being such a small space still gets so much more attention from people, which makes sense because you have these moonshots. But it is interesting how much

smaller it still is, even after the huge influx of institutional capital. Yeah, the LBOs are boring, stodgy companies. Right. Which makes sense. But you have seen, they have a chart in here that shows pensions and endowments the move to alternatives. It shows the asset allocation mix between fixed income and cash, public equities, and alternative assets. And it's gone from pensions under 10% in alternatives in 1990 to closer to 25% now. And for endowments, it's under 10% in 1990 to closer to 50% now. So obviously, a lot of funds have come into place because there's this institutional imperative to get into alternative assets in recent decades. that's just helped grow the whole infrastructure of this industry, obviously.

Yeah, that was a good one. That was a really good chart. Which, by the way, side note here, I've talked to a few pension funds and endowments in the last few weeks, and with interest rates where they are, especially for pension plans, I don't know what they do. The only thing anyone wants to talk with me about now is spending policy and how to manage that in light of interest rates on the floor. I tell them, if you're in a situation where you're underfunded, and in the past, pensions were definitely higher in terms of fixed income than places like endowments because they had a more set time horizon on when they needed to spend that money, there aren't many good options right now. What are they supposed to do?

It seems like there's two options. Take more risk, invest in these alternatives, whatever they may be, or use leverage, or both. Yeah. From a government policy perspective, a lot of these beneficiaries, series, I think, are going to see their paychecks are going to have to get cut, aren't they in the future? Eventually, the money is going to run out and they're going to have to say, all right, you're taking a 20% haircut on what we promised you. Why can't we bail out the pension funds? There's so much of it, right? Maybe that'll happen. I mean, that's a problem for another day, probably. They're not going to do that to current retirees in most situations, but they're in

trouble. That's going to be tricky. A few weeks ago, you asked me, are the Robin Hood traders getting better. And I think that they're certainly getting quicker, quicker to pounce. But Mark Rubenstein, who is one of these people that has a substack letter that I think is incredibly high quality. Can we talk about that for a second? It does seem like the substack thing. We're probably a little late to this than most people, but there are a lot of... I'm late to everything, by the way. Yeah, I am too. I'm not an early adopter. No. I remember we had a friend in college when I was a senior in college. So this is probably 2004. And he brought his flip phone. out and had a camera on it. And he goes, guys, everyone's got to get one with a camera on it.

This is going to be amazing. And I thought, what a dumb idea. Well, you're still not on Facebook. No. Yeah, that's true. But, yeah, there's a lot of great writers on substack for these newsletters. They also can be in very specific genres if you want to do a deep dive on a specific companies or industries. So this guy, Mark Rubenstein, writes a lot about financial services. There's Miles Udland, Turner Novak. I don't know how you pronounce his first name. B-Y-R-N. Is that Byrne? Yeah, I don't know if that's this one, sorry. Burn Hobart?

That can't be Brian, right? Like how Brian Russell is weirdly spelled? I can't remember the name of it, but there's a guy who writes, his name is escaped me, but he writes a subject called Not Boring, which is also good. So, yeah, I've gotten into some, I've probably got, I don't know, 10 of these that come to my inbox on a regular basis now. It's funny. I feel like bloggers went away, and now they're coming back, and it's good to say.

And everyone's a newsletter now because it's easier because you don't have to actually start your own website. You can just do it here and it goes to someone's inbox. And for whatever reason, email is hard to kill. So if you can get to someone's inbox, I think you have an advantage. All right. So getting back to the robin traders, what are they going to do if the tide goes out? And by the way, aren't they going to get short?

They're going to short the market, right? They're momentum traders. This is merely an observation. If the stock market is as smart as you claim it has been, the stock market is acting like the economy is going to have a full reopen. A lot of the stay-at-home stocks are getting hit fairly hard. For example, I mean, you know the names, DocuSign, Spotify, Wayfair, whatever, whatever. They're all down 5% or so today.

That's what I think this year, the stock market is smarter than the bond market. That's what I'm saying. And I reiterate that statement is a farce because I think that when people say that, they're talking about corporate credit. Okay. I think that argument is a farce, but let's move on. Well, there's no insight into the treasury yield curve. There is.

There is insight because the insight is that the bond market thinks that economic growth is going to be lower. Okay. That's what the CFA textbooks say. If they thought economic growth was going to be higher, the interest rates would move up. That's the tell. Agreed to disagree. Okay. So, anyhow, so getting back to the Robin Hood traders for the third time now, this guy, Mark Rubenstein and his substack, which is called net interest, shared.

A study by the Shanghai Stock Exchange shows how badly retail investors perform between January 2016 and June 2019. they mostly booked losses in their personal trading account while institutional investors were up 11%. Although they own less than 30% of the market, they make up 80% of training activity, according to the report. Quote, with speculative and gambling motion, many of them tend to trade frequently, but the more they trade, the more they lose. Okay, we know that to be true. That's not controversial. Way more new whales in China right now. That's what I'm saying. So what do we think of Robin Hood doing way with their data? I don't know. I mean, there's this robintrack.net. I guess they supplied the data for their most heavily owned companies and they're going to do away with it? I mean, would it shock you if they were selling

this data to hedge funds and Wall Street research firms? Of course they are. Okay, so they're just not going to share it publicly anymore. I don't know. I think it really matters. I'm sure people will figure out where to pounce anyway. Darren Rovell had a tweet last week saying that there has been a 50% increase in average money wagered on games being played in the bubble versus NBA games before the shutdown. I guess in some ways, this is like a sign of speculation and increased risk taking now, but in other ways, people probably just really were bored and wanted something to bet on. Don't you think that's probably part of it too? Or do you think this is a sign of the times? Which part specifically, they're betting more on NBA games? Yeah, that there's a 50%

increase in the amount that people are betting now versus before the crisis started. I don't really know what to make of that. That's surprising. The thinking is, because everyone keeps saying, like, when sports comes back, all the day traders are going to leave and it's going to go back into sports gambling. That's the idea. I still think that there's room for everything to go around. I agree. The appetite for risk taking from people is not going to wane. The 50% increase in average money you wager is a surprisingly big, big number. That's what I was thinking, too. I didn't know if people were just excited to be back into it or if there really is just this increase in speculation and it's percolating all over the place. So a lot of places have made it

easier because you have higher priced shares in companies like Amazon is what, $3,000 a share or something. And I remember when I was going to try to buy my first Vanguard index fund, I couldn't afford to buy into Vanguard because you had to have a $3,000 minimum investment. I swear, you're the only person ever that started investing in Target Day funds right away and called it a day. So this is like 2005-ish call it. And I wanted to buy into Van and you had to sign up so you had to pay a $3,000 minimum to get in there. And obviously those have come down now. So I think this fractional trading is great. So you could buy a $100 slice of Amazon if you wanted to, even though it was a $3,000. And the same

thing with Berkshire Hathaway, which is about a $300,000 in chain stock. So on the edges, this is a good thing. Of course, people are using it in interesting ways. This is from the Wall Street Journal that you pointed me out to which it's bizarre that it's in this article, but so they talked to this guy who buys into fractional shares. Mr. Gonzalez, a resident of Chino Hills, California said he lost his tech job in March and is less than $10,000 in his portfolio, but he began doing deliveries for DoorDash and a proponent of the cannabis legalization. Mr. Gonzalez said he often spends $4.20 on stock purchases. The number 420 is a popular slang code for cannabis consumption among marijuana enthusiasts. All right. Not something you expect to see in a serious news

publication. So he's spending $4.20 on his stock purchases because he can now do fractional share. So I'm sure that's... And you're telling me this is the smart money, Ben? I... All right. Fair point. Antiqued. No disrespect to Mr. Gonzalez, but... They said at Fidelity, it's gone from in March, the number of accounts that have done fractional trades have gone from 100,000 in March to almost 350,000 by July. So there are a lot of people doing this now. And there's another 120,000 at Interactive, another 60,000 at Schwab. We say Robin Hood traders as a short-term catch-all for these people, but obviously there's a lot more going on. It's not just Robin Hood. People are trading everywhere,

which again gets to the point that Robin Hood as a brand has become really strong and just that they're entrenched with that label, right, as traders? By the way, which, begs a question, why did Apple split? Four for one. What's the motivation? To try to mess with a Dow, probably? I don't know. Does it really matter? Yeah, it doesn't seem to matter anymore. All right. So there's a new paper by Claude Arb, Kim Harvey, and our very own Tadis, Wisconsin, examining gold and what drives it. And I thought that this is a really good line. The supply and demand for gold affects its price, and its price affects supply and demand. So everyone's writing about gold, given the price. The FT did a piece. This is interesting. So GLD has their gold in

London vaults owned by HSBC. They have 1,200 tons there. Allegedly, allegedly, not a conspiracy theorist. Okay. Which makes it a bigger... I don't know. You're getting close to being a conspiracy theorist. Actually, I'm really not. I don't believe in aliens. I don't believe in any of the nonsense. I'm a straight shooter, Ben. I don't believe in Fed manipulating. Same thing. I would love it if someone would send this into us. Who is GLD buying the gold from? That's a good question.

It says they have bigger gold holdings than central banks in either Japan or India. If they're buying, who's selling? Peter Schiff. I don't know where it's coming from. So they have 1,200 tons of gold. They have more than the central banks of either Japan or India. I don't know why that part specifically is relevant, but... Just showing it's a big, big number.

Those are two large countries. So I actually wrote a piece last week about how there is way more money in GLD and IAU, the two biggest ETFs and there was at the peak in 2011. But what I didn't do, which was New Bailey of me, I did not compare that to total ETF assets. So the FT did that. They said that gold-backed ETFs represent about two and a half percent of global ETF holdings. And back in 2011, it was 10%. So even though there's more money now as a percentage of the ETF assets, it's gone way down.

By the way. Again, it was 10% in 2011. 11, 2.5% today. By the way, what? Add this to the fractional share thing, why it's so much better to be an investor these days. In the past, what would you have had to do, gone to a outlet mall or a strip mall to buy bars of gold to put in your backyard? And now you can just buy it in an ETF for a handful of basis points. Commissions were enormous back in the day. Right. You're paying what, 3 or 4% probably to buy a bar of gold, and now you can buy it with a click of a button. It's so much easier to transact in these things these days. We've talked about

this a little bit, how I think especially with rates so low, we're going to see a huge boom in alternative assets in the years ahead. And we already are kind of seeing it. There's the Rally Road thing. We've talked to Masterworks about the art market. We've talked about income share agreements. Fundrise. Fundrise in terms of real estate. I think those things are just going to explode in the coming years where you're going to be able to invest in everything. And people are going to make it easier and more cost effective and competition is going to drive down the prices. And if rates continue to stay low for a while, which I think it's possible that they even if they have a short-term spike from inflation, I think you're just going to see these alternative

asset streams just pop up everywhere. Agreed. Eric Balchunis, which we mentioned every week, showed the top 10 flows for ETFs over the past 12 months. Number one, GLDA. Okay. And number two is the Vanguard Total Stock Market Fund. Pretty boring. Again, this is like the other side of the Robin Hood thing.

The big money is going into Vanguard Index Fund still, even though the little money is going into Robin Hood at day trading. Little money. Well, I mean, that's probably what it is, though, right? Yeah. I think you mean the smart money. I think that the smart money is a term that should be retired at this point. There is no such thing, right?

It will never go away. We'll never go away. Well, probably not, but you can't separate the market into that anymore because I know a lot of intelligent investors who are dumb money. They may be intelligent, they may be smart, and they did good on their SAT, but they're still dumb in the way that they invest. How's that sound? So Tracy Alloway shared a chart showing that buybacks have dropped off. Well, announced buybacks. The completed buybacks, they fell off a cliff. Yeah. But is that really what matters? Is the announced buybacks? Because, I mean, of course they fell off a cliff. But the completed buybacks are still working. So in the future, buybacks are going to be lower. That means the stock market is going to crash. Is that what you're saying? It's possible. I think the point that a lot of people are making from this chart is that people have said for years that buybacks are the only thing propping up the market. And that's obviously.

obviously not the case. I'm saying that that was the knee-jerk reaction. This chart isn't showing that, though. Well, because it hasn't updated through the end of Q1 and Q2 yet, because the complete buyback data is still not there. So this is just showing that buybacks going forward are now going to be lower. Has the Fed priced this in yet? This is my new bear case. Buybacks are falling off. I'm going to add it to your list. You could do a blog post. Fifty reasons Michael is bearish. It's Monday. Last week we did, on Friday we did show about the economics of home ownership. And I told the little anecdote about this guy I know who builds deck and ran out a wood mid project. So there's an article in the journal. By the way, sorry,

there were some people who were really fired up over the real estate stuff. I think that there is no, I mean, it's obviously why it's such an emotional asset, but people get really fired up either way in terms of real estate, in terms of loving it or hating it. Don't you think that it's one of the assets that people can agree and disagree on more than anything? Because so many more people have a stake in it. Yeah. Everyone has to live somewhere. So whether you're or renting, it affects everyone. All right. So lumber futures are at a record high. And here's why. Well, obviously, we know about demand, which is skyrocketed through home improvements and that sort of stuff. 40% of North American lumber production was curtailed in March and April. Futures hit a four-year

low, which is amazing. They hit a four-year low and now they're an all-time high. But that's the thing is that supply literally cannot come up with demand. They could have these mills cranking 24 hours a day and it's still not enough. Here's another weird one I didn't realize. I went to the grocery store last week. And I was buying some Diet Pepsi. Did you notice inflation? It is higher. But there was a sign that said, due to an aluminum shortage, these are the only types of pop that we have available. If you're looking for a certain type, we don't have it because of an aluminum shortage. And it could be because I have 26 bags of cans in my garage that I haven't been able to take back yet. I'm surprised you drink soda. That's the only form of caffeine I have is Diet Pop, since I don't drink

coffee. Oh, that's right. I have to have something. Yeah, there's an aluminum shortage too. You're wild. Yeah, I get pretty crazy. Target date funds, diet Coke. Sir, I'm a diet Pepsi drinker. There's a difference. That's right. Obviously, this means it's going to be a little more expensive to build houses in the future then, if you're building new.

Well, certainly today. I think that supply will meet demand. At some point, this will level out. But, yeah, well, they can't evict everybody because what are they going to do? They're just going to have empty homes and stores. And, well, apparently, this is some bad news. Benjamin Appelbaum, who wrote that book that we liked, The Economist Hour, had a piece in the New York Times.

He wrote, in Savannah, Georgia, the sheriff, John Wilcher announced at the start of the month that he would begin moving forward with about 500 pending evictions. He told reporters that he hadn't carried out evictions for the last five months, quote, people after five months should have been able to come up with some kind of deal or something to help them somehow out where they wouldn't be evicted. What a horrible, horrible thing to say. I guess I didn't realize it was up to the sheriff. to evict people? Is that how it works? I had no idea. More than 20% of households said they don't expect

to be able to make their next monthly rent or mortgage payment. So I read a book on this. Let me look this up. Who wrote this book? This book called Evicted, which by Matthew Desmond was an incredibly hard read. It was so goddamn depressing to learn about what these people go through. And there is nothing more destructive to individuals and to society than to have evictions. Doesn't this have to be a game theory thing where people have to think through dealing with the turnover and trying to find new tenants? That's what I'm saying. You'd think it would be easier to give someone a break for a couple months in hopes that

they'll continue to be a long-term tenant and get their stuff together. I mean, that many people being put out on the street is just, even for the landlord, that can't be a positive in the future, a net positive. It's unthinkable to be in a family in this position and just horrible. All right. So Derek Thompson at the Atlantic had a piece where he looked at both sides of the work from home trend and how he thinks even just a small change could have potentially huge impacts on a bunch of different parts of the economy. So he said that when the pandemic is over, according to a survey by Harvard Business School economists, one in six workers is projected to continue working from home or co-working at least two days a week, which sounds low the way some people are talking. But he's saying, even if we get to that point, there's going to be such a huge reshaping.

And if stuff like business travel drops off, there are industries that have been set up completely to serve business travelers in terms of hotels and restaurants and steakhouses and bars that are just going to see even a small shift away from something like that. I can see it already for me. There was stuff in the past where I would come to New York or we would go to a different city that you think about it now. I miss you. Yes. It could be wild until we see each other. But a lot of those trips, it seems like, I don't know, am I going to think twice about doing some of those in the future when we could just do it over Skype?

It seems that way. Maybe that all changes when we post-vaccine world and everything goes back to normal. He made an opposite vision that thought was interesting. This could have political ramifications. If people really start leaving the cities and going to whatever, Austin or wherever they're going, a lot of the margins in these states are not that big on the political side. So I wrote about this a couple months ago when air control. conditioning came into effect, and this is from that how we got to now book by Stephen Johnson

I've mentioned before. When air conditioning came to effect, it moved so many more people to the south that it completely changed the way that some countries and counties and cities voted because there was such a huge influx of population to the south, so it changed. So it sure is possible that work from home. How many Silicon Valley bros have you heard in the last six months say, I'm moving from Silicon Valley and I'm buying a ranch in Austin, Texas? I became an influencer. I got some money. I'm moving to all. Like, those things could totally shift. the way that this happens. Speaking of business travel, I saw a chart, Marriott occupancy, 6.1%, Ritz Carlton, 8%.

The W hotels, 5.8%. These are down 77% year over year, down 80% year over year. Are these places screwed? I mean, maybe there's your eviction thing. Like, charge people $200 a month, isn't it better to get a little something than nothing at all, right, to fill up some of these hotels? I can't imagine. Yeah, it's going to go back very soon. There was a story in Business Insider that said two guys from Princeton are going to be renting out nice hotels and using them as a bubble for college students if they're going to be learning remotely, allowing them to live in the hotel like a bubble like the NBA and having nice amenities in a nice hotel.

I don't know. You'd think that people start getting created with this stuff by now. I don't know. But this is from Goldman. I don't know how much they know more than anyone else, but they say they expect at least one vaccine will be approved by the end of 2020 and will be why. widely distributed by the end of 2021 second quarter. So they're building this in as like their baseline. They're saying that we're going to see this huge GDP growth coming. And they say, I mean, these numbers are silly because they're annualized. 25% in Q3, 8% in Q4, 10% of people. Oh, now you like the annualized.

Yeah. Now it's good on the upside. Annualize on the upside and just make it a quarter on the downside. So did you read this Bill Gates interview with Wired? The creator of the virus? No, I did not. Okay. So he was pretty honest and open about stuff.

And they asked him because he was very pessimistic about a lot of stuff. He can't believe that the CDC wasn't more involved in this. And our testing is so bad. And our son got tested last week because he was throwing up and it took 80 hours, I think, to get a test back. So for four or five days, we were basically in a state of flux and we couldn't do anything, which is just, if the testing tastes that long, it's effectively useless. Because not everyone's going to stay home in quarantine. And anyway, came back negative, which was great. And we kind of thought so, but we just did it just in case.

But he's saying, like, they should offer bounties for, if you get a test done in 24 hours, you get a $100 bonus. If you don't get it done in 48 hours, you don't get paid for it. He's saying that we should start up in the Andy to make these testing by sooner anyway. They asked him, are you optimistic about anything at this point? He said, you have to admit there's been trillions of dollars of economic damage done in a lot of debts, but the innovation pipeline on scaling up diagnostics, on new therapeutics, on vaccine is actually quite impressive. That makes me feel like for the rich world, we should largely be able to end this thing by the end of 2021. for the world at large by the end of 2022. And he's saying basically it's because of the amount of

innovation that's taken place. Now, we both have young kids and are at home all the time anyway. That's his optimistic take that by the end of 2021, this is done. Can people really hold out for another 15 months on this thing? In terms of what? Being responsible? Yeah, just living life in this state of uncertainty and not doing much. People are maybe getting more used to it. We don't have much of a social life anyway, because we have young kids, so it was hard to go out. So for us, yes, there's been a change and there's some stuff we can't do, but if you were in your 20s and you were in your going out phase, how long would you really be able to make it for this?

One week. And not just say, I'm losing like my prime going out years. But speaking of getting used to it, that's just what we do. I heard this morning, Robin had Good Morning America on, and it was something along the lines of 178 MTA workers have died due to the virus. And those words just like stop me in my track. And we've just gotten used to it kind of. But it's like, holy shit. Right. So many people. 178 people that work for the MTA have died from the virus. It just sounds like science fiction, but it's obviously very real. Yeah. It's the old line about one death is a tragedy and what a

million deaths is a statistic or whatever. That's what it feels like. This is probably the most personal year ever because if you don't know anybody, like I don't know anybody. I know of people who have had family members. I don't know anybody personally that passed from this. But if it's a parent, a friend, a relative, whatever, this has a whole different meaning for people that have been directly affected. In early March, you heard these stories from people who said there are probably going to be 200,000 people dead. And I said, if we get to that point, there's going to be sheer anarchy in the country. And we're approaching that. It's about 170 now in five million cases. Yeah. So I don't want to say it's like a shoulder shrug, but... Right. I mean,

the longer this goes on, you wonder, again, I'm one of the people who thinks that when this is all over, that things are mostly going to go back to normal. But do you think the longer this last, that the harder it's going to be for things to go back to normal? Well, normal for who? What do you mean by normal? Like, I don't plan on going back to work five days a week ever. That's what I mean. that I think there are going to be some shift that are here to stay. It's going to be hard to work through those for people. I don't know. Okay, so it sounds like TikTok is being approached by every tech company now. I thought this is the one that made the most sense. The Wall Street Journal had a piece saying that Twitter and TikTok about preliminary talks about a possible combination, but they

still think Microsoft's the frontrunner and Twitter is kind of seen in a long shot. Don't you think that this makes the most sense from, we talked about the monopolies of the tech companies last week. Doesn't this make the most sense? So I looked at Twitter's market cap. It's at roughly 30 billion. And it's been there forever. It went public in late 2013 and immediately hit a $40 billion valuation. It got all the way down to $10 billion in 2016 and now it's basically just treaded water. So it's lower than it was the year that it went public in terms of market cap. Wouldn't it be nice to put these two together and try to give a viable competitor to Facebook or even Instagram? Maybe not Facebook, but Instagram. I look at it. It's like the

Kevin Durant, Golden State analogy, does Microsoft really need TikTok? Do they need to become bigger and stronger and have this unbelievable new social network? Like, okay, here's what we do. Here's my three-way. Twitter, TikTok, and then put Square together since Jack Dorsey runs Twitter and Square. That way you have, if they come up with an advertising thing, Square can be the payment for it. So I think the hardest part about Twitter and the reason it hasn't taken off for it's kind of just treaded water for so long, it's really hard to build up who you're following on there.

So if they could take the algorithm from TikTok that just shows you everything that you're going to like based on the stuff you look at. If they did that to Twitter, couldn't that potentially open up Twitter to tons of new users? You just made it easier for people to follow stuff that they like instead of trying to make them do it on their own. Yeah, Twitter. So I think when you start off an account, it gives you, like, suggested followers. But you should click off what you're interested in and Twitter should assign you 200 following. Yes, fill your feed with stuff about that from all over the place. I think if they did that, it'd be great.

And it sounds like it's a long shot. But I think that makes a lot more sense than Kevin Durant joining Golden State, dot joining Microsoft. I just don't think that makes any sense. Mark Zuckerberg is contrarian. They're buying space in the New York Post Office, the old post office, across the street from Madison Square Garden. 730,000 square feet they just signed a lease for. I guess I was in place before the start, but still, that's pretty wild. So people are still going to go to the office.

I mean, whatever. Now it's probably the time to buy New York real estate, right? Commercial real estate. How about back to the bond money as a smart money with corporate credit? So Google or Alphabet just borrowed $2.25 billion for 10 years with the coupon of 1.1%. Geez. All right, maybe they're not that smart. That's unbelievable.

Yeah. Unbelievable. Right. 1.1%. There's no margin for error. And at this point, if you're a company, why wouldn't you just keep taking on more debt? at these levels. There's got to be something that you can do. That's such a low hurdle rate to beat. Why wouldn't you keep doing that? I mean, are the tech stocks eventually? I mean, Apple's

already done it, but can't they just start barring money and buying back their shares too? Are we getting to that point for them yet? Probably. They can fix your bearish case on stock buybacks. So Facebook, Apple, Amazon, Microsoft, Google are now way bigger as a percentage of the S&P than any five companies in a long, long time. By the way, last week, someone said, this is all you guys talk about anymore. I know. Sorry. It's a huge deal. It's the biggest story. I apologize. So David Chowell shared, in aggregate, these companies grew their EPS by 2% year over year in the second quarter compared with an aggregate decline of 38% for the other 495 companies. Okay, I don't like stats like this because I feel like when you lump those 495 together.

All right, fair. So I looked at this last week. The S&P as of last week is up 3%. And everyone says, well, it's all Facebook, Microsoft, Apple, Google, and Amazon. But there's close to 150 stocks that are up at least 10% or more this year. On the other hand, there's 220 stocks that are down 10% or more this year. The point is, there's always going to be a wide range of outcomes. That's just because it's market cap weighted. That's the only reason. But that doesn't mean other companies aren't doing well. There are plenty of other companies doing well. They're just hidden by the fact that they're much smaller than these companies. That's a good point. CB Insights shared a report of all the bankruptcies this year.

Oh, by the way, before we go there, somebody said, how can you guys never talk about overstock.com? Good point. So this company was $100 million market cap. Now, I'm trying to pick into the lows, so whatever. $100 million at the lows. It's $4 billion today. What in the world is going on?

So now, this stock is the biggest holding in XRT, the retail ETF, which, by the way, is an equal weight basket of stock. So I think most companies start out with like a 1.5% weighting. this thing is now almost 6% of the portfolio. It was really down to 100 million an ounce at 4 billion. That is a crazy thing that two of the hottest stocks in the world right now are overstock and Wayfair. I'm sure there's a story.

Maybe it's just that it's moving with Wayfair, the stay-at-home work-from-home story. I guess maybe it's that simple. I don't know. I suspect there's more to it. I don't know if they're taking advantage of this, but Grand Rapids where I live, it used to be like the furniture capital of the world. There's like four or five huge office manufacturers for office furniture. Hayworth and Steelcase and Herman Miller, some of these places, I mean, are they being taken over

by these small online retail places that just sell you stuff at home? Probably. That's wild. Anyway. So getting back to this, CB Insights, so these are the companies that have filed bankruptcy in 2020. By the way, we spoke about this one maybe a year ago. Do you know Models? No, what's that? So Models is like Dix. It's like a sport retailer in the North East. East. And I walked in last year, and I was like, how is this place still even in business? There's nobody here. Anyway, they went bankrupt. So, Fairway, Pier 1, Dean and DeLuca, True Religion, J. Crew, Gold's Gym, John Varvados, Aldo, Neiman Marcus, J.C. PENny, Hertz, LaPain, quote, I wouldn't even try and pronounce that. Quotidian.

The bakery. Okay. 24-hour fitness, GnC, Chucky Cheese, Lucky Brand, and Brooks Brothers. That's a lot of retailers right there. That's a lot. The thing is, unfortunately, a lot of these. retailers were probably going to go out of business anyway and they would have just taken five or seven years and this thing sped it up, don't you think? That's probably what was going to happen. Yeah, for sure. These companies were not in a good place, obviously, at least most of them. All right, survey of the week. A survey of more than 23,000 investors across 32 locations globally was conducted at the height of the pandemic in April 2020. And it asked the expectations of average

annual total return from their portfolios over the next five years. And the lowest expectations are in Europe where they're expecting 9.4% the highest are in the Americas at 13.2%. Considering that the S&P has done 14% or whatever over the last 10 years to expect 13% a year for the next, five years is, that's an optimistic bunch, especially in April. Yeah, but the stock market was down 25% then. Doesn't this show that people were more optimistic than you'd assume at that point being in a bare market? I never trust these surveys with the return parameters. They always seem wildly inaccurate to me. The numbers are always super high

so you can make fun of the investors but I don't think that they're, I don't know. Well, I would say that there's certainly no signal here. We've been making fun of investor expectations for the last five years and guess what? They were too pessimistic. They've been right, pretty much right? They were expecting 12, then they got 14.

Right. Yeah, so it's been better than people thought. I don't know. But shouldn't your expectations rise a little bit during a bare market? Obviously, there wasn't that much time to do it, but. Theoretically, yeah, but. Yeah.

Even though most of the time they don't. All right, listen to questions. What do we got? Okay. In my brokerage account, I've been buying up ExxonMobil and what's RDSB? Royal Dutch. Okay, some energy companies. My main question is my time horizon to hold is 10 to 30 years. Am I missing something in these oil majors? I assume it's just a tough period in time, which would take care of itself in the next three or five years. These companies are all paying 4 to 8 percent dividends. When oil prices rise, the stock should as well, along with potential restoration and the elite dividend that people love. These all seem safe, but are they? It depends if Elon Musk takes over the world, right? And puts oil out of business? I don't

know. Energy has been a rough place to invest for a long time. It's, what is it, 2% of the S&P now after being as high as 20 or 30? Exxon is doing everything in their power to hold on to that dividend, which they've paid for 37 years. Did you see the story that they're not doing a 401k match anymore? So they decided to scrap their 401k match for employees to keep their dividend, which I'm sure they have plenty of employees who invest in the stock, but that's not a good look. So they do seem pretty committed. So when you say, is it safe? I don't know. I mean, these are stocks. Safe and stocks do not go in the same sentence. Are there dividends safe? Is that what you're looking for? I don't know. Never use the word safe, that's for sure. If you're cutting

employee 4-1K matches, that's getting pretty desperate. On the one hand, you say, oh, they really care about the dividend. On the other hand, it's saying, okay, they're going down some avenues that are highly unorthodox to keep a dividend. Okay, one more. Wade Fow's book Safety First Retirement Planning introduces the concept of replacing the bond portion of your asset allocation with annuities, creating income floor benefiting from risk pooling. What's your take? I don't know enough about an annuities to comment on this. I think there's probably something there. Did you read this book? I did not read the book yet. I just heard him on a podcast. Was it the Morningstar podcast? Anyways, I can't remember what I heard him on,

but he was on the podcast talking about it. He made some compelling arguments to the fact that you can buy annuities and put a floor in. It sounds like it's the kind of thing where especially for people who are worried about their money running out and don't have a ton of retirement assets, it sounds like it's a potential good idea. The problem comes in when the questions that were posed to him was, okay, this makes sense on a spreadsheet, but how do you find people in the annuity game that you can actually trust and that aren't going to take advantage of you and give you high fees and put you to something you don't understand? And he really didn't have an answer for that saying where he could find a trusted source to buy these. So if you don't understand what

you're getting into for these things, it's really easy to get taken advantage of, especially if you don't know what you're doing. I think the idea of annuity in having lifetime annual income for someone who is really worried about their assets, I think it definitely feels like it makes sense. But how you put that into play is much harder than it sounds, I would say. All right. What do you got for recommendations? I watched an American pickle, the new Seth Rogen one on HBO Max. And I did figure out how to go from my laptop and cast it on to one of my Vizio TVs that I have. I've got it on my TV. How? Do you get an app? Well, I have a Samsung. Okay, because I don't want a Samsung. So I figure out how to go for my laptop. I don't know why they

just don't put it on the Amazon and get rid of it. American Pickle was a better idea than a movie. It was about Seth Rogan's great, great grandfather from 1895. He gets basically frozen in a pickle jar. He gets pickled and come back to life and present day. And he realized, is that he meets his great-great-grandson, which is also played by Seth Rogen, and he realizes like he hates him because it's a totally different way of looking at the world. But the movie just didn't really work for me. I liked the idea. And he was actually pretty good playing this guy from 1895, but the movie wasn't that good. And finally, we plowed through basically the first two seasons of Yellowstone. You forgot the best part of the plot. He was stuck in a pickle jar for

a hundred years, came unbrien that became a day trader. Right. Yeah. There you go. Well, I think the future version of him made in apps. So if it was made a little later, it probably would have been. But we're through just about the first two seasons of Yellowstone. We've plowed through it in about two weeks. It's a fantastic show. There are a lot of elements of succession in it. It's a little more over the top at times.

How do you stream it? We bought it on Amazon because we couldn't find it streaming anywhere. But it was worth it because this is one of these shows where when we're done plowing through it, I'm going to be very sad that it's over. And Kevin Costner still has this fastball and has, like, amazing one-liners. and he's probably only like the fifth best character on the show. I got to watch that. I'm totally in.

I like Yellowstone. I think that's all I got. All right. I watched Love Life on HBO Max or was that regular HBO? That was on HBO Max. I watched that too. I haven't mentioned it yet, but I liked it. Were you embarrassed?

I don't know. It's like a rom-com thing, but I liked it. I liked it. My wife loved it, but it was fun. It was watchable. I liked it. It's like, what is it, eight half-hour episodes, and each half-hour feels like its own

mini rom-com, but not too over-the-top. I liked it. It was enjoyable. All right. I watched Top Gun for the first time. 1986. Could you believe how old that movie is? We're going to come to blows on this one. Watch yourself. It's not that great. I mean, let's just be honest. It might be the most 80s movie ever. To take my breath away with TC on the motorcycle was confused the hell to me. That soundtrack holds up. I don't care what you say.

Okay, how about the scene where they're in the bar and he just weirdly starts singing? Okay, listen. And then how about this scene? You've lost it love and feeling? You don't like you've lost at love and feeling? Where they're playing volleyball and it's like slow motion with, I will admit, they had great bodies. Although it's kind of a tough look that Goose couldn't take his shirt off, right? Yeah, I'm Goose.

I feel for him. The best thing about Top Gun is that it made hot shots, which is one of my favorite movies ever. Oh, that's up. This is your worst take ever. I mean, it's probably a lot of his nostalgia for me because I watched it growing up all the time. I've seen that movie dozens and dozens of times. There's a lot of 80s elements to it. But I'm just saying, if you watch it today for the first time, it's fine.

I didn't hate it. I'm sorry. That's one of the greatest action movies ever made. Not even close. It's not even top 50. Oh my God. It's on the top 50. Wow.

This is a freezing cold take. Freezing cold. Not in top 50. And I'm being generous. Wow. I mean, this is peak Tom Cruise. No, it is not. Not even close.

Okay. we can't be friends anymore sorry Top Gun is not Peak Tom Cruise, come on wow all right this is your worst take ever

in a season full of bad takes this is your worst take ever let's move on all right all right I've said all I need to say I don't like Top Gunn

I don't dislike it it's a fine movie it's just not that good okay all right it's going to take me well I think that's all right well I think that's it

I think the show's over okay do you want to plug Morgan book, too? Oh, yes, I do. I finished Morgan's book. Morgan Housel has a book called The Psychology of Money. The reason why that book was so enjoyable is that it didn't drag on like Top Gun. There was 20 chapters in there. There were each 1,000 words. It was so easy to read. Cannot recommend it struggling enough. Yeah, if you like Morgan's blog, you're definitely going to like the book. His blog post, you're going to like the book. Yeah, so I would add this to, it could be read by

anyone, whether you've been investing for 30 years or you just opened up a Robin Hood account. Like there's something in there for everyone. All right. Animal Spiritspot at gmail.com said Michael emails about why he's so wrong about Top Gun and this is his worst take in the history of the show. I'm going to have to talk about this week again. I still can't get over it. You texted me this weekend that you didn't like Top Gun and I said it was blasphemy. No, I didn't. I didn't say I didn't like it. Okay. You said it's not good. All right. Yeah. I did say that. I hope you get roasted for this one. All right. We'll talk to you next week.

Thank you.