Animal Spirits Podcast - The Year of Disappointment (EP.303)

Episode Date: April 12, 2023

On today's show, we discuss corrections during election years, rich boomers, how great AirBNB is, more issues at Twitter, Successions last season, 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. ​​ (Wealthcast Media, an affiliate of Ritholtz Wealth Management, received compensation from the sponsor of this advertisement. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information.) Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. Why Charts created this cool visual for advisors called the top 10 visuals for prospect and client meetings. A lot of the stuff we do and show clients is visual because I think that tells a better story. So they have some really good long-term charts in here of the S&P 500. They have the minus best 10, 20, 30, 40, 50 days that we've seen before, which kind of shows the downside of market timing. they have a reasons to sell chart, which looks familiar, but what is it? What's the biggest form of flattery? I know.

Thank you, Dr. I don't know. I mean, okay. I'm imitation is the biggest form of flattery. That's a really good. So they have 10 charts in here, all visual. We're going to have a link on our show notes page at a wealth of common sense or relevant investor to download this.

All you have to do is give me your email, free download. If you want to sign up for Y charts, tell them animal spirits sent you 20% off that initial 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 Rithold's wealth management

may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Ben, we each in the intro had a bit of a senior moment where we were looking for a word. The word was imitation and it didn't occur to us. This happens to me all the time. That's been happening to me more lately. And another thing that's happened to me lately as I transition into my middle age years is I can't stay awake for anything. I fall asleep every time I'm watching Succession, even though I love the show.

I fell asleep 11 times during the John Wick movie, which I loved. I can't stay up for an hour and watch a show anymore. Wait, so you're falling asleep at the theater? There's more to the story. I'm one of those people who doesn't need a lot of sleep. I'm not like a five hours a night person, but I'm a night person, so I stay up. It's not hard for me to stay up. I'm not a nap person.

I get like nine hours. Well, maybe that's a lot, but I sometimes get nine hours. I can easily sleep from 10.30 to 7. That's a lot. Listen, I've got a big battery. Got to be charging. You're getting old. What do we got here?

I don't know. What are we talking with? Oh, let's start with this. This tweet is from Tom Dunlevy. It shows market corrections during midterm election years. And I don't know that I'm a big believer in this sort of seasonality, but sometimes the data is compelling. Sometimes I don't really need a reason. I just, why does the data look like this? I don't know. It does. So what the idea is that there's big corrections during the midterms. And then once that is taken away and you know who's governing, who's controlling what, then the markets are fine? Yeah, I guess the markets like certainty. But the chart, the chart that we're looking at. I watched long game Polly again

last weekend. So good. He really deserved like an Oscar nomination for that, Philip Seymour Hoffman. Oh, yeah. It was just an amazing performance. A lot of epic scenes. In the boardroom, in the bathroom, with the pizza on the basketball court. I think the funniest one to me that I just died was Alec Baldwin makes some offhanded comment in his wedding speech. And Philip Seymour He's the owner laughs because it's like a really dirty joke. It just, I need to rewatch it. I've seen clips over the years, but I haven't like watched it. I think it's on Netflix right now.

All right. So speak of midterm years, there's been a lot of bare markets. I've never seen this chart before. There's been a lot of bare markets during a midterm election year. And 100% of the time, now listen, take this with a grain of salt. But 100% of the time, market has been higher a year later. in every case, except for one, double digits. I don't have a good explanation for it.

I guess the explanation would be the elections bring uncertainty, and after you pull that uncertainty out, then markets are fine. But I don't know. It's hard to argue with this chart, I guess. There's no opinions here. This is literally just the data. So, I don't know. You tell me.

There's no narrative here, but you can craft a narrative if you want. So here's the bear market update as of this morning. You always give a time stamp where we're at here. Oh. That's your job. Glad you asked. It is Tuesday morning. It's 10.30.

Home for the week. week with the kids and the wife, although I'm pretty much working. Spring break? Yeah. Okay, because you did your spring break for Disney already. No, no, no. You don't really have spring. I mean, the kids are on spring break, right? No, sir, this is spring break right now. February was President's, February was President's Week. That's a national thing. But I'm saying, you took your spring break trip already, essentially. You already took a Florida trip, so now you don't get another one for spring break. There's people quite a bit who do both back to back. God bless them. I guess. I got some vacation thoughts later. Since I did an Airbnb, mine was actually a

vacation more than a trip, which I'll have some thoughts on. Okay, so I did an update this morning. Wait, wait. Let me, the S&P 500 is at 41.11. All right, go ahead. So this is where we are in the drawdowns from the peaks. So the Russell 2000 is now below the NASDAQ. The Russell 2000 is still down 26% from the peak. Nasdaq is down about 20%. This is total return, so it's taking dividends. S&P's down 12 in change and the Dow is only down 6% in change. The Dow is only 6% from its high? Yeah. Old steady. Well, that's the drawout on its end. But yeah, the NASDAQ is still in a bare market and so is the Russell 2000. It is a very boring year, which I guess kind of makes sense to your point about

before how a bad year and a good year, it's kind of like last year was an exciting, crazy year and this year for the markets, it is really kind of boring still. All right, the VIX. Jeffrey Clientap has a good tweet. The next video is. So we've got a busy week coming up. We've got, oh, before we get to this, I know we're all over the place here. But I was thinking about this. So we got the jobs data on Friday. And I believe it was like modest beat, NFPA, some signs of slowing, but nevertheless, above what was expected. The market was closed on Friday and had a decent day yesterday. The market would have reacted a lot different if it was open on Friday, correct? Yes. I don't know how. I don't know in which

direction. I'm just saying it would have been different. If you give somebody three days to digest the news, you know what I mean? Maybe markets should be open. You know how work from home people are working three or four days a week in the office and one or two at home or whatever it is? That should be how the market works too. We should have worked from home hours for the market. What if the market was only open two days a week? Would it be crazier or calmer? I guess I could see both sides. The opens would be way crazier. You'd see these huge gaps up or down, probably. But you're right, maybe it would give people more time to be thoughtful about it and not panic as much. Yeah, it would be interesting. We got a lot of stuff coming. Yeah, next few days. So we've got bank started report earnings on Friday.

We've got US CPI, we've got the Bank of Canada decision. We've got Fed Minutes. I'm sorry, Bank of Canada decision. No offense, my Canadian brethren up there, but I was just reading what he wrote. Yeah, I wouldn't. Okay. But anyway, meanwhile, the VIX is near one year low. This kind of makes sense, though. Periods of high volatility are followed by periods of lower volatility. That's how averages work in the markets. You have a wide range, and then the average is just in the middle and you rarely get to experience the average. I think that's just the way things work. Despite the bank runs, things have calmed down dramatically. There really hasn't been what piece of news has blind side of the market in the past, I don't know, six weeks?

That's true. It would take a lot at scenes. All right. From the Wall Street Journal, this is a short time period, but one in three actively managed large cap mutual funds beat their benchmark for the first three months of the year. Last year, it was 57% that beat their benchmarks. 2020 is the highest number since 2007 when 71% did. So that's kind of surprising to me that last year felt like it would have been the year. If you said we pick high-quality stocks. We're not chasing growth. We're not chasing all the speculation stuff. And still, it was basically a coin flip, barely. Now, they said this year, this is according to Bank of America, Apple Microsoft and NVIDIA drove half of the S&P 500's return in the first quarter.

It says active funds were underweight Apple 40%. An average of 40% underweight accounted for than 20% of the benchmarks return. Positioning. Yeah, we talked about this a little last week, but this just gets back to the idea. I'm sorry. Can you hear that? Yeah, what are you doing? dog sitting this week? I'm housed sitting two dogs. So I've got my boxer. I guess barking is contagious. She's not a barker.

She's barked more. She's got phone-up. So her mentality. They bark, she barks. Anyway, I'm sorry. This stat that you just gave about only X number of stocks driving the market. Isn't it always that way? It seems like it.

This is a cap-weighted index. This is not news. I know it's like jarring numbers, but... You and I have talked about these numbers before that show the number of stocks that have created all the gains throughout history. I can't remember the numbers offhand, but it's a small number of stocks that have created an immense amount of wealth in the stock market. And I sound like a broken record here, but anytime I read stuff like this, it just reminds me that diversification is the only true

risk management in investing. I own some value stocks, I own some growth stocks. I own some index funds. Any meme stocks? No meme stocks. I'm not that diversified. That's why you do it, though, because owning a little bit of everything, it's like you're giving up on the home runs, but also getting rid of the strikeouts. That's always my way of thinking about diversification. It's boring, but it's really the only thing that kind of works if there is such a thing. I hear people actually in you. So let me just preempt that. How can you actually diversification?

No, no. I think what they would say is, well, look at 2022. Yeah, nothing works all the time. Just because you're diversified, it doesn't mean that you're not going to lose money when everything else is losing money. But last year, some of the small cap value funds I had were flat on the year, basically, maybe down one or two percent. And so obviously, you're right, it's never fun. you'd rather outperform in a raging bull market than in a bear market, but there were things last year that did okay and help your portfolio.

But I think that's the opposite, actually. I think most people would rather outperform in a bear market. You think so? Yeah, absolutely, especially professionals. Are you kidding me? At markets up 30, you're up 27, who cares? But if market's down 30 and you're down 26, you're like a hero. I know that sounds dumb, but that's just the way it works.

I think it's the opposite for regular people. Wouldn't you rather brag like markets up 29, I'm up 40 versus the market's down 29 flat? No. I don't know. No. I could see both ways. Okay. No.

We spoke about European stocks and how well. They're doing with our dad. Had a great piece looking at the EBIT growth from 2022 to 2021 of European markets compared to the NASDAQ. The European market grew their earnings before interest in taxes 20%. NASDAQ only 5%. That is a crazy number to me. I never would have expected that. EBIT margins from the European market fell from 12% to 11.7%.

percent. So not so bad. 30 basis point contraction. The NASDAQ, EBIT margin went from 8.7 to 7.7. So 100 basis point. So a lot of it was fundamentals. It actually worked for once. They say over the five years ending 2021, the NASDAQ grew earnings at a 20 percent annualized rate, which is insane. Can we just pause on that? Yeah. Oh, is the Fed easy money? And I'm sure the Fed's easy money policies undoubtedly trickled into earnings per share growth. But it was fundamental growth. So earnings grew 20% a year. Equity grew 25% a year.

Meanwhile, the European market grew earnings at a 10% annualized rate and their equity combined at 11% a year. Cliff Aznes was on with the Bay Area on Masters in Business recently. He talked about the value of growth thing. He's like sometimes growth works, not because people are overpaying for it, but because the fundamentals dictate that.

And that's what happened. He was saying that whole growth outperformance for over five to seven years, a lot of it was really just fundamentals. Like growth stocks, their companies were performing better. For the first time in forever, this is from the J.P. Morgan, what's it called? Is that a frozen line?

Yeah, you like that? I did. Your boys get into that one? Okay. Oh, they love it. Love it. So, for the first time in forever, it's such a tiny thing, but international outperformance on this J.P. Morgan chart that we've talked about forever.

So the U.S. streak ended at 14.2 years. This goes back to 1970, so it's the longest streak ever of U.S. outperformance over international developed stocks. And now 1.3 years of outperformance for international stocks. Way to go. Look at the Japanese stock market bubble. That was insane. I don't know how big Japan was in IFA.

Was it like 80%? I know it was like a gigantic number. Well, it was 45% of global stock markets. So almost as big as the U.S. is today, Japan was by the end of the 80s. That's pretty crazy. God, these dogs are annoying. How long are you dog sitting for all week? It's like Sunday to Thursday.

Is this a family or a friend that asked this? Yeah, it's family. It has to be family for a dog. I feel like it has to be family. The recycling people came at 545 this morning. They're barking their faces off. There was a good explainer on the reverse repo facility at the Fed. There's been a lot of talk about this.

I've never had conversations about the reverse repo market. I'm sorry. Who are you apologizing to? Well, you said there's been a lot of talk about this. I've never talked about this. You're off last week. Oh, that's true. Okay.

So there was a lot of chatter. Yeah, my wife's not asking me about the reverse repo's facility, but there's been talk. So there's a really good graphic talking about how it works and trying to, trying to keep rates where they should be and all that sort of stuff. And it occurred to me, banks are the opposite of venture capitalists. And here's what I mean. So there's a quote, banks are still losing deposits, but it's mostly small potatoes relative to the roughly $17 trillion in total deposits, absent any more bad news or

unforeseen market events, the banking system is stable. Okay. What I mean by that is the VCs in a sort of a prisoner's dilemma game, instead of staying put, they all left and caused a ruin. Banks are sort of in a similar situation where, let's say JPM Morgan decided to say, hey, you know what, we don't want to continue to compete with money market funds. We're worried about money going out the door. We're going to raise our interest that we're paying on savings from, I don't know, 40 basis points, wherever it is. I have no idea.

We're going to go from 40 to 200 basis points. Every other bank would follow. But none of them, collectively, none of them are moving because they really know they don't have. have to. Yeah, that's true. Which kind of stinks, unfortunately, for the consumer. They're not moving. No. Because they've gotten so much in deposits in the last few years, that's what I think, a lot of this money moving from deposits to money markets, it looks like a lot. But a lot of it is just there was so much cash that was stored in those deposits anyway, banks didn't have to compete based on yield. And also, we speak about this all the time. Why would

you leave your money when you can get 4% to risk free, whatever the number is? Most of the country has no idea. Still. Yes. And if they do, nah, screw it. I agree. All right, this is a great myth busting here. I love this kind of stuff. Justina Lee at Bloomberg talked about Universa is the Taylor Risk hedging fund. Remember in March 2020, they said they were up like 3,600% or something. And I think AQRs debunked a lot of this too about Taylor Risk stuff, but they said what happened was they had a $6 billion that they managed. So if that return was real, if that was the actual return, it would have turned into $217 billion. That's not what happened. So what they did was they calculated a return on an insurance policy using one month of premium. That's how she explains

this here. So whenever you have a tail risk strategy, you're paying insurance every single month because that tail event is not going to happen very often. But they calculated that return based on one month of premiums instead of adding up all of the premiums that you'd paid in the previous whatever, five, seven, ten years to calculate that return. They were overstating their returns, basically. They weren't really up 3,600%. That'd be a mind-boggling return. Yeah, I wonder what the footnotes say. That's true. I don't know how that gets through compliant, but this is the kind of stuff that these kind of funds market to get people to give them money. I don't know how many of their clients actually understand how this math works. This stuff is hard.

I was talking to, I had lunch with Chris Cidiel a couple months ago. This is hard. This space is really hard, this tail hedging space, because who would not find this attractive? All right, let me play this out for you. You can pay, I don't know, four to six percent a year. That's what you would bleed. Would you be willing to lose four percent a year when the market is up sideways, whatever, in order to make 25, 50 percent, I don't know what the numbers are, but

directionally, just go with that. In order to make 50 percent when the market. is down 20. Obviously, that's a really attractive versus return profile. It allows you to sleep at night knowing that you're hedged. It allows you to take more risk. The point is a lot of these options and whatever, it's overpriced and it's hard to make money because it's such an attractive strategy. And it is like negative correlation. The problem is people only want to own them after that event has happened. That's when they pile in. And then once things go great again and it's a bull market, then they get out of them. They're doing the opposite of what they should do. You and I are saying

different things, but they're related. So I'm saying that in order to make money in this type of strategy, that promise of 4% bleed and 50% gains is really difficult to achieve. Oh yeah, for sure, yes. And what you're saying is also true is that people especially want that sort of strategy after the tornado takes the roof off the barn. Yes. I wonder in an aggregate how many billions of dollars has been lost in that sort of strategy. That's a good point. So who's making out on that? the banks again, that are facilitating these options trades? All right, from the compound, another survey, is the U.S. currently in a recession? Nearly 3,000 votes.

55% said yes, 45% said no. I don't think they've been watching our shows enough. We are not in a recession right now. Unequivocally, this is not a recession. Oh, really? Okay. I'm not sure. You think it's possible we're in a recession with the labor market numbers that we're

seeing? There's no way we're in a recession. I think the labor market numbers are lagged. I don't know. But that's what everyone always says. Last year, we had like four or five million jobs. Guess what? That was a real thing.

We're still adding jobs this year, hundreds of thousands of jobs. This is not a recession. I was thinking about this the other day. I don't know that you would necessarily anecdotally know that we're in a recession. What I mean by that is you can go to like a place like the mall or the movie theater or the theme park. Oh, this doesn't look like a recession. As if when we are actually in a recession, there's going to be people walking around with signs. This is a recession.

people are still going to live their life during a recession. I guess this is a really bad example, but in 2008 and 2009 and 2010, you could feel the recession. Well, yes. That was an extreme situation. You're right. If it's a mild recession, you might not notice much of a change in people. People might trade down and have substitutions in terms of what they're spending, but it's not going to be breadlines and people just not doing anything. So in 2008, I was working full-time not to break while I was in college.

and I was a waiter, and I was probably working six days a week because I had nothing else to do at an upscale Italian restaurant, and it was empty. People would go there on the weekends, but during the week, there was legitimately six to eight tables. So that was never a waiter before. Did you ever drop any trays? Yes, once. One time? Okay. It was New Year's Eve. I've done a ton of odd jobs, not odd jobs, like manual. Like I was a cabana boy, I was a valet Parker. I was a waiter. Probably since the time I was like 16. I was a boss boy. That was my first. My worst one was bank teller. Bank teller, you're on your feet all day. Please. I pass out of heat stroke from being a command boy one time. Don't talk to me about being on your feet. Okay, okay. You want me to

top you here? I delivered furniture for two summers in a huge truck, sleeper sofas. That's rough. That was hard work. Okay. Credit to you. I was in amazing shape, though. I would lift sleeper sofas and dressers all day, then go to the gym for like two hours afterwards? Not to brag. Historical rapid recovery in the labor market. This is why I think we're not in recession. So this is from Scanda Amernath. Prime Age employment rate is now higher than pre-recession peak, and it did so in record time despite starting from a lower base. I got some good numbers here. Okay, what did you say? Inflation is the price we paid for full recovery. Excuse me, sir. Did you literally just read my line? That was my line. Sorry, I wanted to make sure I didn't take it. I was reading it to give you the

The end, the end. Hey, we're even for the Jeff Bezos thing now. So Erwin Swisher tweeted this and he said, the prime age employment rate is now higher than the pre-recession peak. And it did so in record time, despite starting from a lower base. It's been a historically rapid and complete recovery. It took over 12 years to get back to pre-recession peak following the Great Recession. Okay. So my take on this, thank you, Ben, is that this record recovery that we saw where people

warrant on the streets carrying the, this is a recession sign, the price we paid for that fall and rapid recovery is inflation. Your thoughts? Yeah, it makes sense. And it doesn't seem like inflation, it seems like we've gotten kind of just used to it, the higher prices, because we're going out to eat way more on spring break than we have. We go out to eat occasionally, but it's not that great to go out to eat when you have kids. It's not a great experience. But we want to eat a ton on spring break. And for a family of five, even with kids ordering off the kids menu, I could not get a bill under 100. Obviously. Yeah, it stinks. It's crazy. It's a noticeably higher pay, and I think people have just

kind of gotten used to it. It seems like sentiment-wise, you don't hear as much complaining about it. It seems like people are kind of just resigned to it at this point. And it's like, well, all right, prices are higher, people making more money. It is what it is. It kind of seems like that's the place we're at. Sometimes I'm selectively cheap about food. Robin gets a salad, a quick salad with chicken. It's like $26 or something. I said, that's it. No more. And to chop it, it, it's another dollar. That's obnoxious, no? To charge a dollar to chop a salad. So here's what Robin said. She said, you get more. I said, oh, yeah? Oh, yeah? Watch this. Because I didn't pay for a chopped salad. I got just the regular salad. So I poured her chop

salad into a bowl, poured it back in the tray. Then I chopped my own salad with a pizza slicer, by the way, chopped my own salad, poured it in, poured it back. It was the exact same. Busted a myth. I don't know if that's a myth. But chopping a salad. salad. You don't get more. They just pay you to chop it, which is nonsense. That's fair. What do you think the average price was for Miami Vice for me? I had a lot of them. 14. Yeah, 15 bucks probably. Yeah. It's worth it. That's not even that bad on vacation. I mean, that still seems expensive. I mean... Floaters? Of course. That's some really good floaters. All right. Ben Castleman from New York Times. So much for nobody wants to work anymore.

80.7% of prime age, which is 25 to 54 Americans, we're working in March the highest rate since May 2001. People always say whenever we talk about the labor market, what about labor force participation. And if you look at the population as a whole, that number is going to drop because baby boomers are the biggest demographic, or close to the biggest demographic, not anymore. And they're dropping out of the labor force. So that total number is going to be dropping. But if you look at prime age, which is 25 to 54, that's the people who are in their working years and not closer retirement. That is now at a peak for the first time this century, which is crazy. One more. This is from Joseph Politano, who has a really good subset called Apricitas economics.

I got a subscription to this. Say it again? Apricitas, I think. Did I say that right? I don't know. He was nice enough to give me a free subscription. Very nice. This is one of the perks of being a podcast guy.

This is crazy to me. As of March, prime age employment rates for American women have tied the all-time record high previously said in early 2000. And his point was, this is crazy because remember after the pandemic started, it was women are dropping out of the workforce because they have to take care of the kids. That was a thing. That was a big story. And now it's all the way back at record highs.

That shocks me. So you're right. Was the tradeoff worth it for this? Probably. Yes? What do you mean probably? No, I'm saying the inflation thing. The inflation thing made people very mad, but the alternative was way, way worse. What would you rather inflation that we're dealing with or a 10-year recovery? Again, I'm not saying that the Fed did everything right. In fact, I'm definitely saying they didn't. But nevertheless, again, there's a lot in between. But all right, we're dealing with it. Inflation sucks.

Moving on to the Fed, Nick Bunker said wages continue to slow down. on wage growth is now at 3.2% in a three-month annual basis. Production workers are running at 4.2%. This is from Talsmith at New York Times. And we talked about this one before with what's the guy from J.P. Morgan? David Kelly. Inflation has outstripped wage growth for 22 consecutive months. Powell himself said recently, I don't think wages are the principal story for why prices are going up. This is the thing I don't get in his confuse me the entire time for what the Fed is doing. Why is the Fed so intent on putting people out of jobs if the labor market is not causing the inflation. Wages have not kept up with inflation. So why do we want to put people out of jobs?

Is that just their only lever they think that can stop people from spending money? It doesn't make sense to me that this is what they're targeting when they themselves are saying, wages aren't the story here. There's not a wage price spiral. Interesting. What else are they supposed to target, though? They bombed the housing market and that didn't do anything. Maybe the point is, this should not be the Fed's job to control. No, but here's the thing. They're saying, okay, we need a recession to bring down inflation. Well, a recession happens when people lose their jobs. I think it's as simple as that. Here's what probably would be a better solution that would never happen. The people who have the money, you probably need to raise taxes. If you spend a

much money fiscally, the best way to rein in that spending eventually is to probably raise taxes, which no one would do in a million years. Yeah, it's very popular. Hey, let me ask you a question. Does this hat look weird? I got this hat and it's got like the thing in the, it's like see-through in the back, but I'm bald. So does it look funny? That's all right. Thank you. I wasn't sure. I see what you're saying. No. No, it's just the mesh, right? Just don't get a mesh one all round. That'll look weird. That'd be bizarre. Yeah, that would be bizarre.

This is a good chart from Mike Saccardi. We'll watch you some Bank from America, but he tweeted it. Services spending continues to outpace total spending. So people are still spending on stuff, on experiences. Yeah, so this is travel. So what else? Not physical items. So this is travel, flights, restaurants, theme parks, all that stuff.

Why doesn't the Fed just say, hey, listen, simple solutions? Everyone agree. No vacation for six months. No vacation for six months or we might put you out of work. Are you surprised? Remember, we talked about this. Like there's going to be a vacation boom after the pandemic, stuff opening up. And I was not surprised with that. I am still surprised by how long this boom has lasted. You mentioned people you know. This thing still has legs, it feels like. All right, Bill McBride calculated risk. He talked about the commercial real estate market, which everyone is saying is the next shoot-a-drop. He said, Listen, most of the consumer real estate sectors are fine, besides offices and malls. But he says, of the $11 trillion invested in commercial real estate since 2000, 12% was in offices and 4% is in malls. These are important sectors, yes, but there is more to commercial real estate. He went through some examples. Hotels are back. Look at the hotel occupancy rate from a different

years. So 2020, 2021, 2022. Basically back to where it was pre-pendemic. This is the services thing, I guess. he went through a bunch of other examples saying most other places besides offices, yes, offices are in trouble, but that's a small part of it. His bottom line conclusion, the bottom line is most of commercial real estate is fine, but the office sector will be under pressure. So I think a lot of people think offices are screwed. That means this huge market is going under. And his point is there's a lot more to the commercial real estate sector than just offices.

I tend to agree with it. I don't think this is going to be the big atomic bomb a lot of people think it's going to be. Let me think eventually smart people will come in and say, we're going to turn these offices into apartments or some other space that people can use. Eventually, that's going to happen. I don't know. So Joe and Tracy had another commercial real estate person on the podcast. New York office space is a lot. I don't know what percentages of the overall market, but it's a big number. Do you think New York is going to be like an outlier potentially? How many places are like New York? No, I agree. There's a lot of downsides.

downtown metropolitan areas. And even though New York might be an extreme outlier, it's still the biggest one. And when these companies have to roll their debt, I don't know what happens. It's not going to be pretty. But that's not going to take on the whole commercial real estate market. I think it's his point. I tend to agree. Well, yes, people are lumping in it. I agree. So you mentioned being middle aged. I think one of the things that you do in your, I don't know if this is a middle age thing or a finance brain thing for me. I think it's both. Hang on. Can we define this? Because I'm only slightly kidding. I mean, I definitely feel that I'm getting older. But middle age is, I say, I think middle age is a small window. No. I say 47 to 55.

The average life expectancy in this country is like 78 years. I'm sorry. Middle age, cut that in half. It's middle age. You're there. I'm 38. That hits hard. That it's real hard. Sorry, we're middle age and I'm sorry to break it to you. We are. Technically, I ruined your week. Sorry. No, technically, you might be right, but I'm rejecting this premise. Something you do in middle age, I feel like, is you think about like real estate and housing prices. So I'm in Marco Island. Actually, wait, how's this from middle-aged? You know what my birthday present was this year?

Bobby got me a pillow. Wow. I've been complaining about my pillow. I'm such an idiot. I've been complaining about my pillow for like six months. I've got terrible pillows. They were probably like $20 in bedbath and beyond, and she got tired of hearing me completely about my pillow.

She got me a pillow. You know what I used that I've been using for years now? That is great is the memory foam pillows are amazing. They never go bad. Yeah, you always use a pillow and six months later, it's flat. You get a kink in your neck. All right. So when I was in Marco Island,

Granted, this is a very nice area. It seems like a lot of money there, but I pulled up the housing situation. Look at the Zillow thing here. There's no filters on this whatsoever. This is just houses. I don't think I included condos in here. I put no filters, no price minimum, no price maximum. Look at these numbers.

There is not a single number on here for a house below a million dollars. And look at how many houses are for sale on the island. There's hundreds of them. These are all for sale? What's going on? Are people trying to get out of there because of the last storm? I don't know if that's it or I think real estate has been so hot in that area. I think people are trying to cash in. But here's my big conclusion from this. It's all old

people in Florida for the most part, especially in places like this. The boomers are so freaking rich because it's boomers that are selling these places for millions and they've got huge gains that they're sitting on. But it's other really rich boomers coming in and they're like knocking down these smaller houses and bigging these huge mansions. Boomers are just so loaded. That's my only conclusion I could draw from this is that they congregate to places like this and it's just the concentration of wealth. And boomers are just in such a great financial position. In certain instances. That was my initial conclusion. But look at this Wall Street Journal retirement article. First of all, they say that 2030 more than one in five Americans will be over 65, which is just

something we've never had before. So we've never had a demographic as large as the boomers with as much money and living this long. There's no precedent for this. But look at this median household net worth by age. 65 to 74 is like 266,000. 75 or more is 250,000. 55 to 64 is $21,000. So the median net worth for older people is not that high. Unfortunately, I think it's just a concentration of wealth thing. There are certain boomers, like the top 10% or whatever, 5%. Boomers in Marco Island have a ton of money, obviously. They have to live there. I looked at it again. The Fed has this data, and I know I've seen it before, but it's just kind of mind-blowing. The top 1% has one-third of the wealth in this country. The top 10% has two-thirds of all

wealth in this country. So the bottom 90% has like one-third of all wealth. This is including everything, houses, financial assets, all this stuff. So it's not like all boomers are loaded. It's just like there's such a concentration of wealth in the boomers. And obviously that was a concentration of wealth kind of place. I don't know where I'm going with this. I don't know. It hurts your head to think about that much wealth in one place. And there's all kinds of places like that where like it's just the wealth congregates. Kind of like New York City. $200,000 as an income. How far would that go on Marco? That's worth $56,000 a year if you have to buy a $3 million home?

They only have passive income. For the most part, those people aren't working. Those are retired people. True. I don't know. Someone's got to make the Miami. vices. To have a $2 million home in Marco Island, how much money do you need to have? Think about it. So I think the home ownership rate I found for boomers is like 80%. So let's say most of those people have their houses paid off at this point. A lot of them are probably using some equity. Obviously, it's a lot of rich people who, I don't know, sold businesses or just have a bunch of money and are really wealthy. That's a good question. Like, what is your net worth have to be to have a $2, $3 million home and you feel comfortable owning it? Because I mean, think about the property taxes on it alone. Even if

you're paying for it in cash, the property taxes. I would just throw out a number. Like, at least $10 million to $3 million home? That'd be a good... I don't know. Come up with a good ratio. Like, three to one maybe, what your net worth is versus housing price. There's also another wrinkle. Like, for that to be your primary home is one number, for that to be like a second home is like a much higher number. Yes. To just have like a vacation home in Marco where that's not your primary residence, that's $2 million. I don't know. What do you need for that? 20 million? That'd be a great survey. What is your net worth to housing price? I would love to see that. Oh, one more thing.

This is also from the Wall Street Journal article. They talk about how much Americans get and Social Security benefits, the average benefit is $1,825 a month. Was the Great Depression a good thing? How's that for a take? Because without the Great Depression, we don't get the SEC, we don't get Social Security, we don't get a lot of the stuff that happened back then, a lot of the great stuff we have, some of the best programs we have in this country, were spawned from the Great Depression. Was that a good thing? Without the Great Depression, we probably don't. Could you imagine if Social Security wasn't a thing right now? A lot of people don't like Social Security. I think it's one of the greatest programs we've ever had invented in this country. Without it,

there would be so many people that would be screwed for retirement. You've got the ATM, the blockchain, and Social Security. It's three of the greatest inventions of all time. The funniest thing is, I never use the ATM anymore. We pay our cleaning person in cash. That's the only reason I use the ATM anymore is to get money. Otherwise, I don't use the ATM. I never have cash. But can you imagine the politicians today, if this didn't exist and someone came and said, let's have everyone put it into a pool, of money and we're going to pay people older than 62 or whatever a monthly stipend for retirement. You'd get laughed out of the room. There's no way that this program could be instituted today in today's climate. True. You're that guy. You're the I don't have cash guy. I'm sorry. I don't

always cash. That's always me. I am the credit card guy. But what about when you have to like tip people? Drivers. For travel and stuff I bring. But I mean, Uber, you tip on your phone. That's the way it should be. You're coming to New York next week. I'm going to check your wallet. I expect to see cash. cash. For tipping. What about the people in your hotel room? Do you not tip the people in your hotel room? This is why I want a tip app. There should be a tip app. Also, the hotels are nickel and diamond like crazy these days. I tried to get an early check-in. They tried to charge me a $60 early check-in fee at a hotel a couple months ago. Wow. All right, let's talk about

real estate real quick. So mortgage rates coming down a little bit under six and a half. Oh, the house across the street from me. I've got new neighbors. How exciting is that? I've got new neighbors and their young neighbors, which I like. I'm excited. This is the house that was for sale forever? Yeah. There's no houses in my neighborhood. What about you? For sale? For sale? No, nothing. That's why the stuff in Marco surprised me. There's so many places for sale. There's no inventory anywhere. That seems to be the story. So Redfin had this. The pool of homes available to buyers is shrinking quickly, mainly because new listings are scarce. New listings fell 21.8% from a year earlier nationwide. You and I were

on this one right away saying people with 3% mortgages are just not going to sell anymore. and I think we've been proven pretty right. This is the easiest call that we've ever made. Sellers, we're not going to come down to where buyers are. At least it's not going to happen quickly. But Redfin is saying demand is outstripping because supply is so low, so they're saying buyers are snapping up homes that do hit the market fast. Of the homes that are going under contract, half are doing so within two weeks.

There are people waiting to buy, and if home comes on the market, it's going quick. So this is the worst of all worlds for first-time home buyers because you have no supply to choose from, and you pretty much have no negotiating power because there's such a little supply that people who are selling have multiple bids in again. You're screwed. Jonathan Miller said this is the year of disappointment. The sellers aren't going to get their 2021 prices and buyers aren't going to get a substantial savings on the price.

Everyone is in the same boat. I put a chart of like the median listing price. It's still up year over year. It's barely off its high. There's a house a block away from me. New construction. Very nice house. And it's been on the market for 213 days because they're asking for $1.2 million.

And the mortgage is ludicrous on that. The people who wanted to see houses pricing crash 30% or whatever are not going to see it this time around. I'm sorry. It would take some sort of calamity in the banking system for that to happen. Look at this chart I made of new lists. So I made a chart every year, January, February, March. And they're all 2017 through 2020 or all at least 21 sort of they are fairly tight.

It's not a giant dispersion. 2023 just the bottom fell out. Oof, that's tough. I do feel for people who are looking right now. If you've been thinking about it and waiting and waiting and biting your time, it's got to be such a stressful process. Here's a good one from John Burns. Big investors have virtually disappeared from the market down 80%.

We reviewed 581,000 transactions in the U.S. in the fourth quarter and Q4 of 2022 or 2021 to look over year over year. Investors who own 10 to 999 homes have slowed less. So they're saying the huge institutional buyers who own a thousand homes or more, never everyone thought Black Rock is buying all the houses and those places have pulled back. It's the smaller people who own, I don't know, two, five, ten, a dozen houses and the rent them out. Those are the ones that are still buying. So real estate is just the weirdest market ever where it's technology and financial institutions

have had a hard time wrapping their heads around them. It's still just such a local market and industry that, It seems like it's just the kind of thing that scale is never going to work in the housing market. The big players, they came in and they made a bunch of money because they bought distressed assets when mortgage rates are real. But now that they're higher, they don't want to deal with this. So it's just small investors now. And I think the number we said was, what, two to three percent of all buyers are institutional? It's such a small number. But that's another number that's skewed because there are cities where institutional buyers do

dominate. It's a handful of what is it? Like Charlotte and Phoenix? Or, I mean, it's not many places. I'm just saying the national number makes that data point look a little bit suspect. True, yes. My whole point has always been national real estate numbers don't really matter to a regular person. All that matters is your local market. Obviously, mortgage rates matter, but that's the national macro housing data doesn't really matter to regular people. Okay, I got an Airbnb. So first of all, at the stage of life that we're in with kids, I love Airbnbs.

I think we might have used a VRBO, but I just call it Airbnb because I'm a shareholder in the company and I just like saying that better than VRBO. Do you know what VRBO stands for? I just learned this. Nope. Vacation rental by owner. I never knew that. I'm a big resort guy if I'm on like a trip with my wife,

but with the kids, the resort stuff is not great because there's just no room in the room. It's not relaxing. You have to get up every day to put your towel on your seats and stuff. But we got a house with a pool and in a pretty quiet little neighborhood. The kids, we wanted to take them out to the beach a lot and do stuff. And we did. We went mini golfing all this stuff.

But they just wanted to swim in the pool at the house the whole time because my kids are under 10 years old. So what did you do the whole time? It's so relaxing. What did you do? I played in the pool, a woman, but also just sit out in the sun and read a book or sit on the patio. It's so much more relaxing of a vacation when you have the house, because I could get some work done if I want. I didn't do a lot of work, but I checked emails and whatever, did some stuff.

But let me tell you who did not love the Airbnb experience, our neighbor. I told you we're in kind of a quiet neighborhood. There's a bunch of growth in between the houses and, like, a little fence, and you couldn't really see the neighbors, but I knew they were there. But we were pretty quiet. We were gone half the day doing stuff, and then either half the day would be home. and the kids are in the pool, I don't know, two hours a day. Finally, the very last day we're there. The neighbor comes out, and he cranks his radio as high as it can go,

and he's listened to 70s, like, alt rock all day, like rush. And I was like, oh, that's kind of weird. Kids are in the pool, obviously. To be fair, the kids were in bed every night by 8, 8.30. We're not, like, partying late and being loud. But they were in the pool for a couple hours a day, and of course their kids are going to be kind of loud. But the last day, the guy comes over after his music is blaring.

He's obviously had a few beers. He's kind of, like, slurring his words. Like, probably a 60-year-old guy. and he starts yelling at us about the kids being too loud in the pool and he goes and I thought he was kidding at first but he goes every two weeks another family comes to this house and all I hear is yelling and screaming from the pool I can't take it anymore all I hear is screaming in my head all day and he turns around and walks away so that guy not a fan of Airbnb's wow we were to like shell shocked I don't blame him I don't know that I

would have said something although given my recent history maybe I would have no I wouldn't have said anything. That is unfortunate, to live next to neighbors who Airbnb their house like that. It would be a tough situation. I also think that if you live in Florida in a nice, desirable place, that's probably going to happen occasionally. But I did kind of feel for him. You know what he should do? He should sell it to an ibuyer. They would not channel check. Yeah, he was not a fan. All right, some car stuff. This is nuts from Nicarasi. Wild stat, 17% of people financing a new vehicle purchase are paying over $1,000 a month. In the first quarter of 21, that was only 6%. The average car payment is 7.30 a month. That's nuts, no? Yes, that is

nuts. Credit to you for not being one of those people. So I've resigned the fact that it is what it is. My wife's car is too underwater. We're just going to keep it. That's fine. That's a great car, not a problem. And I was looking forward to getting a towel, but it's too much money. There's no way I'm just paying $8,000 more a year, literally for no reason. I mean, she has a big trunk, so I'm not doing it. So now that my car lease is coming due soon, I'm getting calls from dealerships. talking to my broker, it hit me. I don't know why it took me so long to think about this. Like, oh, wait a minute.

I'm going to get a wrangler. All of a sudden I got so excited because I wanted a wrangler in 2020, but the prices were too high, so I just got a Cherokee. So car dealership guy told us Jeep has enough inventory now. So I started talking to my broker. He told me that there's a hybrid wrangler. So he said, go to the dealership and drive just to make sure that you like it. So I went to the dealership, expecting nothing.

there's an $8,000 rebate from the government because it's a hybrid. Oh, wow. So the MSRP is $65,000, which is a lot of money. But because I've got some positive equity in my Jeep and because of the rebate, I'm putting down around $3,500 and my car payment is going to be like $5.50 a month. This is going to be a lease or a buy? A lease, which I'm super psyched about. It's not bad at all.

And I wanted like for the beach or for the summer and stuff, it's got the top. So the Jeep has like the soft top, which is you have to like unhatch and it just flies back. And it's got the hard top, which you have to like take off and store and whatever. This one, you just press a button and it's electric and the top slides off. Oh, wow. Nice. That's not bad. So I went to the dealership.

They gave me a great quote. I called this guy back. I'm like, hey, I almost signed on the spot. That sounded like really low. He's like, that is low. But they didn't have it. And I didn't negotiate at all. I drove the car.

He told me the price. Thank you. When I walked out. I was talking to another friend of mine. a pro tip that I just learned. If you want to negotiate a dealership and have the salesman know that you're not effing around, that you mean business, here are two questions to ask, what's the residual value and what's the money factor? So listen, so the dealership called me the next day because I told him that I was going to use my broker. And I was like, listen, the prices were good,

but I didn't even ask you what the residual value was. And we didn't even get into the money factor. And I almost started laughing as I said that. But he's like, okay, sir. Anyhow, I'm getting a Wrangler. Today, actually, it's being delivered. My broker is like a local-ish guy. If you're in the tri-state area and you're in the market, it's so great because the car that I was looking for was very specific. So instead of calling a dealership, asking if they have it, and they wouldn't even give

the answer, this person, this broker will find a car for you. And by the way, he's picking up my car, selling it for me and delivering my car. So if you want this guy's number, it's pretty good deal. And you're in the tri-state area. Send us an email and I'll share it. I saw someone tweet the other day. hand up, I have no idea what the tri-state area is. And I'm pretty sure I fall in that same boat, too. That's okay.

Is New York and something, New Jersey? How would you know? It's New York, Connecticut, and New Jersey. Actually, while we're talking about my broker, this is funny. We're talking about it, and he's like, he sent me like the window sticker. And he said, let me see if this is available. And he said, it's unavailable. And I sent him this gift, the happy Gilmore gift. Well, better luck next year. And he didn't respond for like four hours. So I said, damn, not a happy Gilmore guy? And his answer killed me.

His response was, I am a former golf pro. Of course I am. That's pretty good. I won't rewatch that one in a while. Here's the thing. Do you know what the residual value means or the money factor? No. Okay.

I just check. We got an email. Nice intersection of today's topics, credit card rewards, and overpriced coffee. Capital One has a Capital One cafes that serves Pete's Coffee. If you have Capital One card, it's half off all coffees. That's pretty good. Not a bad deal. How about that?

So there you go. You're welcome. If you've got Capital One, thank you from this person for emailing. You get half off of Pete's coffee. That's great. While you were away, did you hear what Elon did to Substack? Yeah, I heard. So Elon Musk nukes Substack because they're building a product that looks sort of like Twitter.

So Timothy B. Lee, who we've used this stuff in the past, he tweeted. let's test something out. Can you retweet this? Twitter appears to be blocking retweets and replies for tweets that mention understandingAI.substack.com, but not understandingaI.org, which points the same website. This is days after subsec announced that we're building a Twitter competitor. This is blatantly anti-competitive. And then when you click on it, it says, warning, this link may be unsafe. Unfreaking believable. Didn't he buy this platform for free speech purposes? I guess you buy a platform like this for $44 billion. You can do whatever you want with it, I suppose. I'm shocked that he's not falling through what he said.

Shocked, I tell you. All right. From the compound, another one, if you had to pick one of the following, who would you put in charge? Shiv, Roman, Kendall, Greg, I don't watch Succession. Almost 60% of our people who answer this don't watch Succession. There really is no good answer here. I think I would put Shiv. Here's the thing.

I don't care. I love this show so much that I don't even really care how it ends. It's so good. I finally watched the newest episode, and I'm really, really mad at all the... We didn't get to watch a Sunday night because we got back from the trip. we were unpacking and just didn't have enough time to watch it. I watched it the next day. All these news outlets tweeted, what happened?

I'm not going to spoil it. It was spoiled for me. That really sucks. I don't really care, but not cool, but this show, they have to see how they land the plane, but I think this is already one of my favorite shows of all time. I think it's the best written show ever in terms of merging drama and comedy, and I think this is the most rewatchable show ever.

I've already rewatched every season, at least once, and some episodes multiple times. I've never done another show before. I love this show. It is so freaking good. Phenomenal. I don't even care how it ends. There's not one thing I'm rooting for over another.

Their finale's been so good. Prior to the spoiler, I was falling asleep. And I said to myself, like, God, what is wrong with me? I can't even hang for a one-hour show. You're an old man. All right, I did read a book on my vacation, Stormwatch by C.J. Box. I think it's his 23rd or 24th one in the series that I've read. All right.

Just stop. It just stop it. Excellent. My Wyoming Game Warden. It's like another world for me. I love it. I think that's all I got. Do you watch Dave? I do watch Dave. I haven't started the new season. I like the first two. Okay. Dave is basically curb your enthusiasm, except it's about a rapper, not a comedian.

That's fair. He's very Larry David-esque. Is the new season good? Ego's by LD. That's not the coincidence. What do you think? I haven't watched the new season yet. You asked me if it's good, and I said, of course it's good. That's what I meant. Okay. All right. Yeah, that's what I meant. All right. So I went to see John Wick four. Let me set the scene here. It was nine o'clock. I took a little bit of an edible. Now, I have a very low tolerance, as Ben knows. Yes. So I did 2.5 milligrams, which is very light. But the movie started at 9 o'clock, and it's in a small theater.

And I'm like, oh, damn it. Like, this is a big screen theater. So it was a very small screen, which I was not too pleased with. And the lights were on for the entire coming attractions. And I was like, this is weird. Is somebody going to say anything? And eventually they went down and people started clapping. But then underneath the screen.

there's a door, a door frame. And a light kept going on and off every 10 minutes. And when the light went on, you could sort of see through the screen. Oh, how annoying. It was such an awful movie-going experience. It stunk. You talked to the manager? No, what am I going to say? Hey, the light was on that stunk. So the movie was two hours, 45 minutes. And I did like one of these. I briefly fell asleep probably 47 times because it was late in the edibles. But, all right, the movie itself was definitely too long. There's no doubt about that, at least in my opinion. It was like as long as the Titanic.

However, that being said, absolutely the best action movie in terms of they were able to pull off I've ever seen. I know this is obvious. I don't know how they did it. I don't want an answer, but like it was just what a feat. Some of the scenes that they were able to pull off, just insane. That is a theater movie movie. I've never gone beyond John Wick won.

Okay, I love him. I liked it. The next day, I took the boys to see Mario, and the screen was five times the size, and it got me mad about the night before. This is where I should have seen John Wick. Mario was perfect. 90 minutes long, you're in, you're out. Great for the kids, good enough for the parents. My kids can't wait to see it.

It was just tremendous. Well, if you think about it, for millennial parents, we grew up playing these games, so I can see why this movie made someone funny. Also, they made a Super Mario's in the late. 90s with John Leguizama. That was the worst movie of all time. Oh, I forgot about that. It was a live action one. It was so bad.

It didn't even make its money back. Who was in this? Hold on. Supermov is something. Oh, it was 97. I think I saw this in the theater. The guy from Hook. Hook's right-hand man.

And Hook, he's the guy. Bob Haskins. Oh, Dennis Hopper was King Cooper. That's right. This movie was a travesty. Absolute trash. So anyway, the new one was great. It had the biggest global debut ever for an animated film.

them, $377 million. Wow. Crazy. Biggest five-day opening ever. Just smashing, smashing success. If you are a parent of young kids, I mean, I don't even tell you this because you've probably seen it already, but definitely worth it. I think my kids are growing this weekend.

Phenomenal. Ben, is it good to be back? Yes, it's good to be back. It was nice taking a vacation and relaxing, but yes, I was ready to come back to routine. All right. Well, I don't know what to say. Good to see your face. Animal Spiritspod at gmail.com.

We'll see you next time. Thank you.