Animal Spirits Podcast - The Worst Time To Buy a Home (EP.205)

Episode Date: May 26, 2021

On today's show we discuss Tesla vs. Ford, the Robinhood effect, why 24/7 markets make volatility worse, trying to explain what DeFi is, the Frankenstein economy, why this is the worst time ever to be a home buyer, the greatest of Joe Pesci and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. One of my favorite simple tools to use on Y charts is just a comparison under the key stats heading to other companies. So if you type in Tesla, TSLA, you pull it up and you can do a key stats comparison to all of their competitors, so GM Ford, all these things. And I think this is interesting because Ford just announced last week they're doing this electric vehicle F-150. We've talked about how F-150s could be ruining people's retirement in the past. That's one of my theories. It's been the most popular car truck sold for like the last 15 years. And what was the number?

You put this story here. How many were? 556,000 F-150s were sold in 2020. Okay. And then there was, I don't know, 50,000 people on the wait list right away to get this thing. It's going to be priced for like $40,000, pretty cheap. What are you talking about is the F-150 Lightning? Yes, Lightning, which is then Ford's CEO is on a podcast I heard last week.

It sounds pretty interesting. So I did a quick comparison on Y charts. Now, throw this out the window because you could have done this before. I'm throwing it out there. Ford versus Tesla. Tesla, market cap, 585 billion. P.E. ratio, 608. Price to sales, 19. Price to book 25. Price to free cash flow, $2,0.0.3. Trilling, 12-month sales, $36. Now we look at Ford, who's got, again, the lightning coming out. Market cap is $52 billion, P13, price to sales, 0.4, price to cash flow of $2.2. Trilling, 12-month sales, $139 billion. You know what Ford doesn't have, though, on their balance sheet? Elon Musk's tweets? Bitcoin.

That's true. I'm throwing it out there. Hold on. You keep saying I'm throwing it out there. Say something. Do you think Ford is a better investment than Tesla going forward from here with Tesla at such a large market cap? I think that's a pretty good, with them getting into the electric vehicle space, I looked on Y charts for the market cap. Tesla didn't pass forward until late 2019, mid to late 2019, and then now it just dwarfs it in terms of market gap. I'm just saying with all these other companies getting into it, maybe the whole TAM thing people are throwing at Tesla is the competition is going to suck up a lot of the air in the room for them and something like Ford is better. I'm just saying,

so if you want to do these kind of comparisons, go to Y charts, tell them Animal Spirit send you and get 20% off for subscription. 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 Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Ben, this is my flu game. Why is that what happened? Well, I have an endoscopy at 1 o'clock, so I can't eat or drink. The eating part is no big deal, but the drinking part, I got no coffee in my system. My throat is dry from screaming in the next game the other night. I can't have water. I can't lubricate my throat. but I'm powering through. Do you think anything would really happen if you drank some water right now?

I've always wondered that. Like, I mean, is that really true? That's a great point you raised, because I certainly had the same thought. What was he to turn me away? Right, yeah, right. He's going to look at something with us, ah, this asshole had water. Told him not to it. All right, we'll reschedule.

I thought maybe you're just trying to get a six-pack. So you're like getting rid of your water weight, night eating, intermittent fasting. Six pack of abdominals? Yes. Ben, that ship has sailed a long time ago. Okay. I got an email yesterday. Dear Ben, starting today, you have the opportunity to buy shares of public companies at their IPO price before trading in public exchanges. With IPO access, you can now participate in upcoming IPOs with no account minimums. This is from Robin Hood, which I'm a customer. They put out a blog last week and said that they're democratizing IPOs. We talked about this a few weeks ago. I think this is a pretty good idea. In the past, you would have had to go to your broker at Morgan Stanley at Goldman Sachs and say, hey,

this company is coming public. Facebook is coming public. I want shares. And you had to have that relationship with the past. You couldn't have done that at a low cost broker. Now Robin Hood is long as you do that. Now, it sounds like you put your name in the hat for these IPOs and you say how much you want. And I think it's kind of this random drawing, whether you get it or not and how many shares. But still, them saying they're democratizing stuff, I think this is actually following through on what they're saying. I think this is something that they probably can and should have done. I think it's pretty cool. This is cool. We spoke about SOFI doing this a few weeks ago. This is leveling the playing field even more of what it was in the past where, again, you had to have a lot of money and a relationship to be able to get into stuff like this. I'm going to be flipping so many IPOs. Just wait. When Robin Hood comes public, I'm going to flip their IPO on Robin Hood. How's that? What do you think?

Cool. Big one day, first day gain? Is there going to be a Papa Robin Hood on the first day? I don't know. I mean, that's the idea is that the majority of gains historically for IPOs have come on that very first day if you could get at an IPO price. Obviously, if it's a direct listing like Coinbase, it doesn't always work like that. But that's historically how things have worked. All right. So I went there to see what's going on. The only one that they have on the platform right now is a company called Figgs, which is a direct to consumer healthcare apparel and lifestyle brand. Yeah, I had never heard of it either. But they're going to have a list of them and a wait list. I don't know. This is another thing. Do people need to be trading IPOs?

Probably not. But is it something that only rich people should have access to? I don't think so. It is leveling the playing field. Every time you say, do people need or does somebody need, I have that damn patches of hula hand quote in my head from Dodgeball. Is that his name? I think it is.

Yeah. You're the biggest dodgeball fan in the world. I swear. All right. This is from the Wall Street Journal. This is about Fidelity. 1.6 new young investors opened accounts at Fidelity in the first quarter of 2021. That's up from 495 investors under the age of 35 in the first three months of 2020.

I guess this is the good part about the retail investing, trading, boom. Young people are coming into the market. So this is the Robin Hood effect. This is where I think this is undoubtedly a positive, even if it's not all positive. I think it's a net positive. more brokerage accounts, more access to investing, more saving money instead of spending it, just getting the feel for it. I think on balance, that's only a good thing. So what do you think about the fact that Fidelity said they're going to issue debit cards

and investing in savings accounts to 13 to 17 year old whose parents or guardians also invest with a firm? So it'll basically let teens buy and sell stocks. On the one hand, you could look at this and say it's a sign of the times. This is late bull market behavior. I don't like it. It puts my antennas up. will not end well. And I believe me, I get that. But again, I think more people learning about not just the market, but their own ability to handle risk, learning about personal finance, learning about making decisions without complete information. Like, I think this is all good for developments of young people. I actually think this is a good thing. I don't think this is bad

as some people would have you believe. And I don't know, yeah, are some kids going to potentially blow themselves up? But maybe that's a good thing. And I still get back to the fact. that the fact that you can't open a Roth IRA in your kid's name yet, like from birth, hopefully this is a step in that direction where the government will get involved to and make that easier because that's ridiculous to me. Like your kid has to have earned income. I'm sure there's some advisors who will always email us and tell us the backdoor way you can do that. And my back doorway of doing that was opening an account for my kids' names and liftoff, our betterment platform. But I see no problem with this if kids want to learn about this stuff. Now, if I was 16

and my parents said I'll open you a Fidelity brokerage account, I would have said, I don't care, but some kids do. You would have been in the 2105 target date fund right now. What was I going to say? Oh, in terms of you mentioned if kids blow themselves up, big deal. Yeah, I would agree with that. And also, I highly doubt, in fact, I'd almost guarantee that they're not going to be able to use margin, which obviously they shouldn't. And what does blow themselves up mean? How much is a parent realistically going to put into a child's account? 500 bucks. Yeah. Like so if they blow that up, all right, good. Less and less. learned. I mean, big freaking deal. Also, speaking of the Robin effect, Morning Brew did a story, I guess two weeks ago. Sixty three percent of black Americans under the age of 40 are now

participating in the stock market. Now, this is a survey. That sounds like an extraordinarily high number. Race aside, under 40, 63 percent? Could it be that high? Because they also say that's the same share as white Americans. I don't, again, 63 percent of people under 40 participate in the stock market? I guess it's possible. Anywho, be that as it may. Newby investors were responsible for closing what was once a wide gap. This is the coup de grace. 29% of young black Americans became first-time investors in 2020. That's a direct result of Robin Hood. And probably stimulus payments. Sure, of course. I think that's part of it too. People actually finally had a little money to put to work. But yes, I agree that this whole.

thing. And yeah, this is a good thing. Here's one more stat. So it said 61% of white families own stocks in 2019 compared to 34% of black families. So obviously a gigantic gap. And it seems to be that at least in 2020, that gap shrank. And I think this is also a case of technology making it easier for people. I think the fact that you have the ability to do this on your phone, even though that also gives you the ability to blow yourself up like that, just making it easier for people. They don't have to go into some brick and mortar building. fill out a bunch of paperwork and then write a check, it's much easier these days to get your money into the market.

True. The barriers to entry are much lower. I don't think that can be overstated how important it is that you can take out a phone, download this app, instead of going into Schwab for so many people, which would be so intimidating. Did you go into a Schwab as a young person? There's like wood desks and it's just completely intimidating. Many leather bound books, that sort of thing?

Yeah, yeah, seriously. All right, here's some more Robin Hood effects stats. This is kind of pre-Robin hood, I guess. But, well, first of all, 3.3 new accounts in total open at Fidelity. 3.2 at Schwab. Fidelity now has $10 trillion in client assets. And Schwab, after they merged with TD Ameritrade, has $7 trillion. We've been paying a lot of attention to cryptocurrency and stuff lately because it's new and fun and exciting and crazy stuff going on.

But people keep paying attention to that stuff, yet these traditional finance companies just continue to get, hugeer and huger. If you had these two with BlackRock and Vanguard, that's a ton of money that these places control now. And so many of them, I think, are going to want and need and desire new financial services. And I think this stuff is not going to end in terms of them expanding what they do for people. I was just thinking, this can't be possible just given the size of Vanguard. But how big would Robin Hood need to get to do more revenue than Vanguard? No, honestly, they probably need to be a tenth of the size because they make so much more money on... I was going to say way lower than that.

Yeah, I'm saying it's a small number because they make so much more money and Vanguard charges such small fees. I legitimately would guess that Robin Hood could be 100th the size of Vanguard and pass them in revenue. Probably. I mean, a lot of actively managed mutual funds that are much tinier than Vanguard because they charge higher fees make way more in revenue. I think the stat from a couple weeks ago before the crypto crash was that gray scale Bitcoin trust and gray scale, they have the Ethereum trust and some of these other ones. They make more money than Vanguard now because they charge 2 to 3% on their funds. And Vanguard charges a very small amount on theirs.

It's actually possible that Robin Hood is 100th the size of Vanguard right now. If Robin Hood is, what's on the platform, $60 billion? I didn't make that up. I think it's actually lower than that, but I don't know. Anyhow. So, yeah, Robin Hood has obviously left their mark on the market for sure. All right. This is a tweet from Dan Price.

weird how $300 a week in unemployment is a handout, but $1.9 trillion in tax cuts, $800 billion in PPP and trillions to prop up the stock market of stimulus. Do you think he sent that going, here comes some engagement? Nailed it. Yeah. Yeah. I see what he's saying. You and I talked about it, I think, last week, but I've been hearing more grumbling from people

about bad service at fast food places, and I can't get an Uber when I want to go out. And we talked about the fact that maybe you shouldn't expect people to take and accept low wages for jobs that are really hard and potentially putting them at risk, especially in the last year. And even though we're going through like a transition period for this, I still think that's probably not a bad thing. That it's harder to fill jobs that are low paying and hard, hard work. I went to Chipotle yesterday, was in and out an under minute. You know how much my chicken bowl was? $8.85. sense. Not bad, right? The pickup at Chipotle is great. Because it's all pickup now at mine,

I have to go 10 minutes later because I know it's never going to be ready on time. Guess what? Credit to me, I can handle that. 10 minutes. Wait, hold on. I need something done from my house and the service person, he's an electrician, was giving me like this very long preamble about what the cost was going to be. And I'm like, think like, holy shit, how much is this going to be? So he told me it'll be like a thousand bucks. And I was like, dude, like you just like scaring me. Like, okay, that's more than I thought it was going to be, but that's not so bad. And he called me back yesterday and said, hey, parts, supplies, I know this is an unexpected expense, but it's going to be $2,000. And this is for something like that should not be $2,000, but I need to have it done. This is not a luxury.

I have no choice. So he's creating his own price inflation because he's in demand. Is that it? No, no, no, no, no, no, no. It's a supply. I think. Oh, the parts are more expensive? Oh, okay. Yes, yes, yes. The materials that he needs, he can get them, but they're extraordinarily expensive relative to what they were six months ago. We've talked a lot about should you buy a house now or build in those questions, but I think should you renovate now, that's probably something where if you really, really want to do it, you should probably think about putting it in the back burner. Don't you think that that kind of eventually people will say, uh-uh, I'm tapping out, I'm going to wait.

I think that's the kind of thing where putting off a renovation or some house project that you don't need done is probably a decent idea right now. All right now, there's nine minutes left in the second quarter and I'm four for 11. Not bad. Speaking of which, hold on, before we get to this, maybe I should say this for later, but it just popped up to my brain. I was outside the garden waiting to meet up with my dad and my brother. For the next game.

For the next game. And there's police, of course, in front, like SWAT police. and dogs and stuff, as there are. And there was a dude smoking a joint in front of the garden 10 feet away from the police. It's legal now. On the streets of New York, that is a thing that can be done. It's pretty bizarre, huh? It just sort of blew my mind.

That is one of those things, like, rewind 10 years and think about that happening. Just remember when people used to smoke in restaurants? I told you I watched that waiting movie, it was from 2005, and people in the movie are smoking in the restaurant. Remember that just used to be a thing? People would smoke in the restaurant, how gross that was. I remember going to the diner and probably went to that stop. I'm going to guess in the early 90s.

But I remember smoking or non-smoking sections. You used to smoke on planes. Yes, all this stuff that changes. It's kind of wild to watch to go through it. Stop. Do you know how fast you were going? I'm going to have to write you a ticket to my new movie, The Naked Gun. Liam Nissan.

Buy your tickets now. I get a free chili dog. Chilly Dog, not included. The Naked God. Tickets on sale now. August 1. All right. Crypto crash again, do you think I'm hypothesizing here? I think the 24-7 nature of crypto that people think is like the greatest thing ever.

Like, crypto never closes and we're open at all times. And I think that makes things worse in a crash because I think especially now that it's becoming more institutionalized, you're not going to have institutions that are trading this thing at three in the morning. And I think when you get into off hours, it seems like that's when it's crashing. It crashes from like midnight to 6 a.m. or on the weekend. That seems like it's when these crashes are happening. Don't you think if the stock market was open 24-7 in March of 2020, it could have fallen 50 or 60% because it would have just kept cascading and cascading and you wouldn't have that any people step in. I think sometimes in a crash, you need a moment to catch your breath and clear your head. And then that's why you have these days where it's like the stock market was down 8,000,

But then the next day, it's up 9%. I don't think being open at all hours of the day, I think that just exacerbates the volatility in these assets and makes it way, way worse than it would be otherwise. The 24-7 nature certainly has an impact. It's hard to quantify. But if we were going to close the Bitcoin market, what hour should we use? Because obviously, people in China are using Bitcoin, people in Australia, people in the United States, like it's global and you can't close it.

Okay. Bitcoin gets 9.30 to 4. Ethereum gets 4 to 8. I don't know. We'll put it on a whiteboard. I do think it's interesting, though. The stock market does not care about this. Crypto went up a ton, came down a ton. Stock market hasn't blinked. Nope. I think that's a good thing. Maybe... I'm getting David's job. Do we talk about this last week? You and I talked about this yesterday with each other. Okay. Got it. Yeah. We talked on the phone a little bit. I think one of the most brilliant and dumb things to come out of Bitcoin was... was the Satoshi idea staying anonymous because it was brilliant because it had this like mythology around it. But it was also dumb because you opened yourself up to Elon Musk and Michael Sailor just pushing themselves in and taking over this asset class for a while. And these two seemingly have decided like we're going to just be the CEO of Bitcoin. And whatever we say is going to move the market. Well, Saylor's not moving yet. Musk certainly is. Well, this is what we discussed. What's weird to me is I understand how Musk can cause selling pressure, how I don't know what alga's are looking for. Some people are selling, obviously, and then I guess computers take over

and can exacerbate on the downside. You see all the leverage coming out of the system. What's that site, Jim Bianco, linked to in B.BT.com slash liquidation data. So you could see all the longs and the shorts getting blown out. You could isolate it by time, by currency. So it looks like there's about been $10 billion in Bitcoin liquidations since this event started. Yeah, so there's obviously a lot of margin leverage in this space, which I can't imagine, for an asset that is so volatile already, I just can't imagine adding a bunch of margin on top of it. Yeah, it's crazy. What I can't figure out, though, is how Elon Musk tweets, when he tweets something favorable about Bitcoin, how does that move the price up? That I don't understand. Like, really people are buying? I kind of understand selling and the de-leveraging happening. I can't understand how a positive tweet from Elon Musk causes the prices to spike. That just seems so dumb. It happened again yesterday. He said, we're taping this on Tuesday. He said, I met with the Bitcoin. miners, which I don't know. He's probably making that up. Who knows? Do you think he really met with

some Bitcoin? I mean... I'm not fact-checking him. I don't think anyone is, but it is wild that he's moving it so much still at this size. And again, I think that's a bad thing for crypto. I think they should want to wash their hands of him and just have him move on to the next thing. Hopefully he can move on to the cyber truck, whatever it's called, competing with the Ford Lightning F-150 and not worry about Bitcoin as much anymore. Sentiment trader tweeted optimism and Bitcoin plunged to one of its lowest levels in five years yesterday. Less than a day later, it has already surpassed its average three-month returned. Oh, just how fast it's moving? Yes. It's just wild. Did you read Packy's post on Ethereum?

Yes, he made the bold case for Ethereum. And I think that's actually the bull case and the bear case. Because Ethereum is used for all these other coins that are being used in the defy space, when you have a sell-off, it's like a cascading effect. And that's almost like more leverage in the system, right? It's like coins all the way down. Yeah, I listened to his podcast and I read it again. I read it this morning and it's just very hard to wrap your head around if you're not really in this world. I understand what I read, but I still don't really understand the application. Maybe that's one of the things is like there's so much volume going on. So Bianco wrote this piece saying that centralized finance shops like Coinbase and Robinita going down while Uniswap didn't. Don't know

the centralized exchange is actually very bullish. So Uniswap did six point three. billion dollars worth of trades on Wednesday. But as far as I can tell, it almost seems like these transactions are just swapping tokens for one another to like either stake or earn interest on it. What are the actual applications? Because we keep hearing about how you can build into it, smart contracts. And I don't mean this like maybe I'm missing it. I'm sure I am missing it. But what are people actually doing other than transacting for the sake of transacting to make more money? So far, that seems like that's it. Here's how the conversation goes. This is me talking with a crypto person. Okay, crypto person. Defi is going to rewrite the financial system.

Me. Okay. How? Cryptoperson. It just is. That's kind of like you're betting on them creating this whole pool of liquidity and loans and savings account yields and all this stuff. And that's what they're hoping. And then I guess the hope would be that you build applications on top of that for fun. I don't know. Maybe they are built in. We're not on the inside, obviously. And maybe it does come to pass one day. But you invest and I invested a tiny bit of money that index coop, the D. Defy stuff, which is maybe that's what people are saying is going to be like the next disrupting financial intermediaries. Who knows? And it got just obliterated. Was that index down 50% in a day or a week? I can't remember, but it got torched. And I'm sure it's coming back, but my goodness. Yeah. So Bianco is saying this is bullish because this stuff crashed, the DeFi stuff didn't fall. The prices were down, but the market kept functioning. And that's what he's saying is that like you still have liquidity. But yeah, the fact that you're seeing so much leverage.

and there's no rules in this stuff. There's no regulations. You can do whatever you want, basically, it seems like. But yeah, so I guess the fact that, and if you get a margin call, it's just like you're liquidated, you're a forced seller. And that's part of it is like, let's say this stuff does all come to fruition. I guess it doesn't really matter if you're over leveraged and constantly getting knocked out at the bottom. Can you imagine like if you were an over levered trader and you got knocked out at Bitcoin 30,000 when it bottomed? Brutal. Brutal. And I'm sure that happened to a lot of people. So because we've been talking about this stuff a lot. We've obviously got a lot of questions, like, how do you as a wealth

management firm view crypto? And I think our stance has generally been, it's actually easier for a retail investor to get involved in this space than it is for an institution or wealth manager because of things like custody and portfolio management and fitting this in a financial plan. We don't tell clients, like, you should invest in this stuff. We think if you want to have fun with this and being crypto, that's fine. But it's very hard to do so, I think, until you get an ETF in terms of like overall portfolio management. But I think there are so many people with money in the space now that you have to at least figure out how to view crypto holdings in your entire comprehensive financial plan, if that's something you have, especially if you have younger clientele. So we've been talking

for a while to Tyrone Ross and his team at OnRamp. And it sounds like they're going to make the first push at making this a reality for our financial advisors. So we've had some calls with them. Michael and I and some other people at Ridholtz are going to be actual investors in this. Correct. So they're launching this week. And basically it's a solution that will allow financial advisors to view crypto holdings within the other financial holdings, but you can't really do now in most places. Well, it's similar with like real estate, for example. Certainly that is part of a financial plan. And if you've got a significant part of your net worth in crypto, well, then it should be viewed within the context of your financial plan. So on ramp is allowing advisors to do two things.

One, report on crypto. They're not integrated with all of the financial planning software yet, but hopefully they will be soon. Another thing that advisors can do if they want to is they're going to be able to actually transact on their client's behalf. So if you wanted to rebalance or sell some or whatever, and so I think this is probably a good first step in terms of getting wealth management closer to be able to do more in this space because there are a lot of people who I'm sure clients saying, listen, I have

my traditional assets, I have mutual funds and ETFs and stocks and bonds. I also have this crypto over here. What can I do with it? I own it at Coinbase or Blackfire or wherever. Help me with this. And this is a way to do this. So even if you don't feel qualified to necessarily give advice on the price of Bitcoin, and let's be honest, I don't feel comfortably giving you advice on the price of Bitcoin going forward. But that doesn't mean that you can't report on it. And you should report on it within the context of a financial plan. And that's what advisors do. So if you're looking to learn more, you could visit onrampinvest.com. All right, Gavin Baker did a piece on the secular growth stock sell-off.

What he was basically saying, he showed this kick-ass chart saying that even though they did have earning surprises, it wasn't enough relative to the expectations and there were bigger surprises elsewhere. For example, energy stocks, although I guess they already ran up into the releases, but consumer discretionary, industrial, staples. So we spoke about this months ago. The analogy I think we gave was, I probably stole this from somebody on Twitter, you don't need to go to Mars for earnings growth if you could get some earnings growth right here at Earth.

Yeah, so it was an expectations game. He's saying also it's not necessarily interest rates rising and inflation. This is a totally different story in terms of companies and investors preparing for higher economic growth, which again is something that investors just haven't had to deal with for 20 plus years, 25 years maybe, dealing with an environment of higher than average economic growth. So I think that's a lot of what you've been seeing. He's also saying he thinks the growth selling is probably overdone and they're looking more attractive now. Yeah. Who knows? But yeah, it was an interesting take. And then on top of that, because tech stocks have sort of stalled out, oh, that reminds me. I didn't put this in the dock, but Michael Sembalist had a chart showing the fan mag stocks valuations

relative to the rest of the tech world. And they have come in big time. I don't know what that means. I just thought it was kind of interesting. Meaning the fan mag stock evaluations are coming lower and the other ones are coming higher? Yeah, I don't know what's moving. If it's a the numerator denominator thing, but their valuation has been relatively high versus the rest of the group. Okay. And it has come in recently. So because growth stocks have not done very well relative to certainly value and reopening plays, there is going to be a massive, massive shift inside, I think the biggest momentum ETF. It's got to be. Yeah, M-T-U-M. I don't know what sort of assets there are in here. Let me guess. $30 billion. Are you looking it up on?

Looking it up for you. Way off. How much? 14. Okay. All right. So, I mean... That's why I actually think this stuff, this reorg in terms of momentum is probably

not as big of a deal because momentum funds are still smaller. In terms of flows over pros type of thing, I agree. This is not going to move the needle. But nevertheless, it's interesting. So financials were 1%, now that it's going to be 33%. So if you're buying M-TUM of 30-year assets are going to be in financials, which I'm not saying that's good or bad, it just is. technology was 40%. Now it's going down to 17%. Where's energy at? Energy's still tiny. That's

interesting. From zero to two. But isn't it, I think this 2021 is just a good reminder. I did a short piece on comparing markets last year versus this year. And last year, tech stocks were up 46% or something and energy stocks are down 30. Now energy stocks are up 40 and tech stocks are basically flat. It always seems like whatever's happening. It always seems like it's going to continue to happen forever. And it's impossible to figure out what the catalyst is and what's going to change this. but things change. Markets aren't static. I know it's obvious, like no shit, Captain Sherlock, but things change.

Yes. I didn't know Sherlock was a captain. What did I say, Captain Sherlock? Captain obvious. No, I got that. That's all right. You got your. Oh, no, you say no shit Sherlock.

Yes. And what did I say? No shit, Captain Sherlock. Close enough. He might have been comfortable. I don't know. I'm telling you, man, dude, this is now we're in the third quarter and I'm four for 19. That's true.

you're going to finish strong. David Schaul tweeted this from Bloomberg. The world's top 50 companies added $4.5 trillion of market cap the last year, taking their combined worth to about 28% of global GDP. Three decades ago, that was less than 5%. I wonder if that's more a combination of markets growing faster than the economy or back then companies weren't quite as big relatively and there was more evenly distributed, probably a little bit of both.

I think it's got to be the former. Probably. Think about the growth of Apple and Amazon and the giant names in our market compared to the economy. That's interesting. All right. So if you were to show this chart, it would be another one of those charts like bubble, whatever. No. The stock market can grow faster than the economy because the stock market is not the entire economy.

Yes. And this last year plus has been a good reminder of that. Okay. Here's a good one on inflation. We've been talking about this trying to figure out. And I think this is a good reason why sometimes historical data is not useless, but it needs a lot of context. So this is from this firm called Data Trek, and it shows 1974 data for inflation versus today, like what constitutes inflation. So in December 1974, food and clothing were combined 33.4% of

CPI. And inflation was running for those items at over 12% and 8% respectively. Today, food and clothing are half the weighting at like 17%. And their respective inflation rates are 2.4 and 1.9%. So just the composition of what comprise savings, and then they do this thing about rent too. So rent and household services less rent were 20% of CPI back in the day. And rent was 5% inflation. And then this housing services less rent was 15% inflation because mortgage rates has gone up from 7 to 10% in two years. Now it's actually higher 33%, 6% higher than the 1974 rate. But inflation here is only 1.8 and 2% respectively because, again, rates have fallen. The whole composition underlying it, it's kind of like the stock market going from more industrial and financial companies to more technology. You have to take that into account when you're looking at this data. It's not all just here's this one number, here's this other number. Let's compare them and make our decision based on these two numbers. Why just survive back to school when you can thrive by creating a space that does it all for you, no matter the size. Whether you're taking over your parents' basement or moving to campus,

IKEA has hundreds of design ideas and affordable options to complement any budget. After all, you're in your small space era. It's time to own it. Shop now at IKEA.ca.ca. So last week we spoke about the Frankenstein economy, and Michael Semblest showed this chart inflation and U.S. equity valuations. This went back to 2000. And we are at this weird place where we've got a high multiple and high inflation expectations looking at 10-year tips. So Sembalist said very high multiples have generally coincided with periods of very low inflation expectations. Today's dot is an exception to this rule. So there's just a lot of weird cross-currents going on in the- If you're on financial television right now, you say, listen, something's got to give

here, right? Something's got to give. And I don't know what, like, would it shock you if two years from now, inflation is under 2% again? And we go, man, this is the mother of all head fakes. George Perks showed this chart a few years ago just because who cares about expectations? They're not always right. It's like one of those charts that shows the, the expectations of Fed funds rate or 10-year treasury every year. People predict them to go up and every year since they've fallen. So I agree. Okay, here's a good one from Zillow. In April, 47% of all homes on the market in the U.S. were on the market for less than a week before they were pending for sale. More than three quarters, 76% were on the market for less than a month.

Can you imagine if you were in that 24%? I mean, that's got to be ultra high-end homes that just don't have a big market for them. They show this cool chart that shows going back to June 2018 the number of homes under contract and they show up by less than a week, one to two weeks, two to four, more than 26, eight to 26. And the one week number, less than a week, is just rising astronomically. If you're selling a house right now, your life has been pretty easy. This is not bad. What point do you think buyers finally balk and go, you know what, I'm not going to give you all these concessions? I'm not going to not do an inspection. I'm not going to pay all cash or whatever. Like at what point do we finally get there? When does that happen? Is the summer going to be enough for that where people finally say, I'm waiting. I don't know, man. I don't think it's going to happen quickly. And the reason why is because there was an article in the journal and somebody said, they highlighted a buyer and she said there were days that I came home crying. And this is how the article ends. Thank you for your offer. We had 14 offers and my sellers chose one that worked the best for them. Best of luck to your buyers. Imagine being in that position, like literally having made 20 offers. It is emotionally exhausting.

And I really, really feel for people that are in this situation that this is no fault of their own, could have been doing the right thing and saving for a house. And all of a sudden, here comes this pandemic and just this perfect storm of interest rates and demographics and people not moving and housing supply. And now they're just in a world of hurt. The story was a tough read. So it profiled a few different couples who are young people looking to buy and it followed them on their journey of open houses. They show a picture here of a open house, and it's people waiting in line to get into this open house. And honestly, at this point, I would probably throw my hands up and say, I'm going to wait. I mean, it's a stressful enough decision as it is.

My friend is in that exact situation. He's just waiting because he's just like, well, he's fine. He's in a fine place. And he's like, I'm not going to do it. I just, I can't do it. So from the article, buyers feel pressure to make snap decisions and some forego routine home inspections for fear of losing to another bidder. And you know that's going to lead to all sorts of problems. when people feel like they won the house, but they're actually going to lose by buying a lemon.

Because the thing is, during the last housing boom, it wasn't like that. I mean, houses were going like crazy, but people were flipping. Like, I think this is probably the worst market ever for a home buyer. Well, a vice president of DLP, here was a quote that stood out to me in the article, if you're a buyer, this is the most frustrating time. You're not just competing against other buyers. This surprised me. So to your point, like, when are people going to throw their hands in the air? I don't know. I don't know how that changes. Apparently, investors comprise about a fifth of annual home sales nationally. So they spoke about online platforms like bigger pockets and fund advice who we found a bunch of times. Is it a fifth of a fifth? That's high. I thought another Wall Street Journal

article said in some markets, it's a fifth, not overall. There's no way that it's that big. Private investors are that much of the home because this is a huge market still. Somebody sent us this tweet and said, I'm calling the Top for Real Estate. So did this video, I can't remember what it showed, but it was ridiculous. Did it show a buyer buying a house and then also buying the house for the seller that they're buying? Yeah, I don't know. We heard a story recently about a fan. Did you watch this video? Do you know what I'm talking about or no? Yeah, no, I didn't watch it. Sorry. Oh, okay. Hang on a sec. Listen to this. There was a home that came on the market. It was $460,000.

Our client said, hey, here's what we'll do. We'll buy this house. We will buy the seller's next house. So they get in the mid-700s on the home and they offered to buy the sellers next to me. Was it accepted? It was accepted. Come on. That's one hell of an anecdote.

But the thing is, forget about the subprime market. Generally, house prices don't move the way the stock market does. there's not going to be a rug pole in the real estate market. Not like that, yeah. Do you think it's kind of like when you go to Wendy's and someone pays in line in front of you

and you have to give it back and buy them? Like, is that other person going to have to buy someone else's house too? But yeah, we heard people who finished a house they put it under construction before all this stuff got crazy with lumber and someone, as their house was being finished, came up to them and said,

we'll give you 40% more than you paid for it. Because they had a house that was done already. It's just, it's wild. I just... But this is another thing why. So you and I have written stuff like this multiple times. A lot of financial bloggers have about how over the long term real estate is not a great investment when we take in terms of all the costs and stuff. But it certainly can be. There's times when if you bought even a few years ago and you put a 10 or 20 percent down payment now, even if your house is up 10, 20, 30 percent, you're sitting on a huge gain based on the amount of money you put into that. Obviously, it's not always like that. But this is another one of those things where like the long term averages are kind of useless in the short term because real estate can be a very good investment depending on your timing. It can be, yes. Even though most of the time it's not. Matthew Klein did it a post where we've

been talking nonstop about housing prices because they've just been on such a tear. But how many people own a home? 65% of the country. Yeah, it's like two thirds, basically. So the other third, rents have not gone up nearly as much. I mean, rents are more or less flat depending on the city. And I don't see how people always say housing prices going up is a sign that inflation is underestimated. If you own a home, housing prices going up is a good thing. Your costs are not rising. Your mortgage is fixed. Actually, that's a good thing. That's like deflationary for you. If inflation picks up and you own a home, that's a good thing. You're hedged against inflation. That's why inflation is such a tricky concept because for guess what? For two-thirds of the country,

housing prices going up is a good thing. It means their assets are rising. Their costs are not rising. Survey of the Week, the National Association of Business Economics found that its panel expects the economy to expand 6.5% this year. That would be the sharpest increase since 1984. So the only thing I think that would cause this not to happen is all these supply shortages and people just can't fill their orders. The demand is not met with supply. That would be the reason this would be underwhelming. All right. Survey number two, almost half of parents, 45% who plan to pay for summer child care will incur credit card debt from the expenses according to a survey released by bank

rate. What's more, 56% of parents with children underage 18 said they are their spouse or partner altered their work schedule, stopped working to care for children during the pandemic. This one seems legit to me, these numbers. I would not doubt this at all. I was about to say, what about this is surprising? And you and I have been talking about the cost of child care for a long time. That's an inflationary pressure on young people that's real. Okay. This is why I think this child tax credit is probably being underreported. This is from a fortune, around 39 million American households are set to get their first monthly payment from expanded $3,000 child tax credit on July 15th. So this is not just you do your tax

returns and you get a bigger credit. This is actually people are going to get payments from the government. So starting July 15th, eligible families who receive $300 per month for each child under six or $250 for each child, six to 17. The cutoff is $75,000 in modified gross adjusted income for a single and 112,500 or year or less for couples. I think you can make. up to 150 grand a year to get the entire credit. And then it goes down by like $50 for every thousand dollars you make. But for people on the lower end of the income scale, this is going to be like a life-changing amount of money for some people. Yeah, I'm all for this. And because of these costs, it makes a lot of sense. I'm sure there's a ton of people who had to quit to take care of kids

because their school is remote or whatever. I see no problem with this at all. Nick Majuli did this kick-ass article. We've spoken about this chart many times that shows the percentage of financial assets held by millennials, baby booners at different points in their life. And it makes it look like millennials and Gen X are just getting killed. And actually, that's not really the case. So we're going to link to this. If you read one thing this week, make it this. Yes.

The big takeaway here that people always complain. He's basically saying on a per capita basis, millennials are right where Gen X and baby boomers were in terms of wealth and net worth. It's just the bottom 10% has seen a huge decrease in wealth. And probably those are the people who took on huge. student loan debt and it hasn't paid off for them. So he's just saying it's kind of a selection bias where there's just one cohort and everyone else is doing just as well as their parents did. So it seems like the AR has come out of the top shot bubble. This chart, boy, oh boy. Good grief.

There are so many charts like this where you see this insane spike high and then the immediate other side is just a cliff, downward cliff, off a cliff. So it sounds like it's not just top shot. It's also cardboard cards. By the way, this theme of everything is oversubscribed, maybe it couldn't last forever. Darren Vell tweeted a 1986 Flair Michael Jordan rookie in a gem mint 10 sold for 300 grand. That's the lowest price paid at auction for this card in 2021. Do you think the reopening is a good excuse for crypto selling off too, where you don't have as much time to sit in front of a computer and look at shit coins all day? No, for this stuff I do. Okay. I don't necessarily think for Bitcoin.

I think the Jordan card was up to like 7,800 grand and now it's down to 300. I don't think this collectible stuff is going away, but the prices coming in probably makes a lot of sense. Two more things. Aspiring finance people, somebody sent this to me. We'll link to this in the show notes. If you want to get to wealth management, new planner recruiting.com. Lastly, there's always plenty of reasons to be pessimistic. There is a lot of really scary shit in the world. We've spoken about how headlines capture all of the attention. Good news. Progress is very slow. It often gets overlooked. But human progress tweeted this. Farmers around the world, are becoming more efficient, producing more food with less land. It's showing cereal yields.

I don't know what cereal yields means. Is this lucky charms? I don't know. But look at this chart. I mean, look at this progress. You talked about people smoking pot in front of cops being a crazy change in your lifetime. Don't you think, I don't know what the timetable is, 20, 30 years or whatever. So much of this stuff will just be genetically farmed. It'll be made in a lab. Our meat, our vegetables, all that stuff. Doesn't that seem like one day that's where we're going? Well, talk about progress, and I know this is such a drop in the bucket, but I don't know how old the guy was, but it was called a 30-year-old black guy, smoking a joint, 10 feet in front of the cops. There are, I don't know what the numbers are, millions of young black men that were put in jail

for fucking marijuana, unbelievable. So I know this is like hardly consolation, but still, it was pretty eye-opening in a good way. All right, one more story before we get to questions and some recommendations. This one surprised me. This is from Bloomberg. Less than 14% of the country's restaurants closed last year, like 90,000 permanently. I remember when this started, people were saying, and people in the restaurant industry were saying probably 60 to 70% of restaurants aren't going to make it. How did this happen? How did this many restaurants make it? This number shocks me. This had to be...

Well, PPP. Maybe that's the thing, that PPP was way more successful than we even imagined because if you would have told me 40% of restaurants were going out of business from this, I would have been shocked by that because that had to be the hardest hit industry of anyone. And do you think a lot of it is the unemployment because so much of the service sector was able to collect unemployment so they're able to lay off all this stuff? I don't know. I think if this is because of government intervention, this is a huge, huge win for government bailouts and stimulus, correct? like if you were able to keep an entire industry more or less afloat through something like this that basically shut them down. And even when they could open, it was at 50% capacity or whatever it was. This number, if you would have told me this 15 months ago, I would have said, no way, you're lying.

There's no way that's possible. All right. Let's skip listener questions because it's getting late and we did an entire episode that'll be coming out on Friday on listener questions. Yeah, all listener question mailbag on Friday. Okay. On Saturday morning, I was sitting in the car dealership, getting an oil change, and I decided to pop on Goodfellas, on HBO Max, per your recommendation. Scorsese, remember you called me off saying, what, you know him? He said, hi, I'm Martin Scorsese. Did he catch that? Oh, I missed it, sorry. Okay. So in the introduction to Goodfellas, so I watched the first hour of Goodfellas. And, man, I mean, to say that it holds up is like a ridiculous understatement. So my wife and I watched it this weekend, too. Oh, you did?

Yes. It's probably been 10 years since I watched it. The only problem is obviously the first half. The second half is a mega bummer. It's tough to watch. Yeah, I think if you know it's coming, it's a little easier. But yes, his first 10 minutes where he described it and his mom is in the movie and how him and Pesci and Deere are just buddies. Yeah, it was excellent.

All right. So I saw Midnight Run. It's been on my list for a while. Late 80s, I guess, early 90s, Charles Groden and Bobby Dee. You ever see that one? I just watched it, too, because Charles Groton passed away last week. Oh, you did? Okay.

It was on my list. I'd never seen it. Interesting. Me too. Okay. So I know Charles Groden. I know him as a grumpy guy, but I know him from Beethoven as a dad in Beethoven. So here's my thought on the movie.

I'm curious to hear if this is how you saw it. It felt like a romantic comedy. A little. Yeah, it did. I thought it held up pretty well. Yeah, it was pretty good. I thought it was like a seven-two, but it felt like a romantic comedy between the two of them. And I feel like in lesser actors' hands, that would have been a terrible movie.

Yeah. Yeah, I agree. But De Niro was so good and Groton was great. And the two of them made the cheesy 80s music like that goes from scene to scene. Yeah, the music was over the top. I mean, that's just classic 80s. So what did your wife think of the movie? Of Goodfellas?

No. Oh, I watched that one alone. Yeah. By the way, anytime I'm looking now that you need to find an old movie, it's on HBO Max. Yeah, it's the best. Every time. They have everything on there. So I'm caught up on Mayor of East Town.

last night, wow, I'm dying to know. So it's been my favorite binge in a long time. I love it. I think it's on the same level as True Detective. I think it's that good. That season one of True Detective, I think it's there. Yeah, it's excellent. And here's the weird thing about Mare.

Kate Winslet is so good. Oh, my gosh. She's amazing. What's weird is that the story is so incredibly dark. But it's juxtaposed by weird moments of silliness. Yeah. The grandma, and like, some of the music, feels like seventh heaven sometimes, and it's confusing because it's wrapped up in the context of

a really, really dark show. And I love the fact that it's only seven episodes, and I can't wait to see how it ends. I'm really excited for the finale. So I've been on a little bit of a Joe Peshy kick lately. Rewatched Goodfellas last weekend. What else? A couple weeks ago, I watched Lethal Weapon 2, it was on rewatchables. I never saw the first two lethal weapons. For some reason, I saw the one with Chris Rock. Joe Pesci is just the funniest, most annoying character in that. And then I went right from Goodfellas into Casino. I'm like, I was on the kick. I went, I mean, it's basically the same movie. I think Casino is like pretty much just as good as Goodfellas. I really do. They basically play the same characters. But I mean, he is like the Barry Sanders of actors.

He had this run where he still had in his prime some stuff left to do. And then all of a sudden in like the late 90s, early 2000s, he just left for like 20 years. My cousin Vinny. Yes. Well, he did my cousin Vinny and Home Alone in the same year. Oh, no, no, no. He did Home Alone and Goodfellows in the same year or something like that. Yeah, Home Alone and and Goodfellows. I hadn't watched Casino or Goodfellas in a while. And I mean, again, he plays like the same character with a different accent. But my daughter loves Home Alone, so around Christmas we watch it like seven times.

That's my only Joe Pesci I've gotten in recent years. But here's the other sports analogy, besides him being the Barry Sanders and leaving in his prime, he was pippin to De Niro's Jordan. Yeah. The fact that those two were in so many together, I'm sure that one has been done before.

But yes, this is a Joe Pesci appreciation recommendation for me. Love it. Love it all. All right, Animal Spiritspot at gmail.com. We'll see you on Friday. Thank you.