Animal Spirits Podcast - This is a Bubble (EP.155)

Episode Date: July 15, 2020

On this week's show we discuss the bubble behavior in Tesla, Elon Musk becoming richer than Warren Buffett, Robert De Niro is going broke, simple > complex, the home renovation boom, wealth inequality's impact on gambling, Hulu is better than Amazon Prime 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

Last week on the show, we talked about how 90% of all developed government bonds are yielding under 1%. Cash accounts aren't any better. You're lucky to scrape anything over 1%. Money has to go somewhere, and bonds, other than providing a hedge, don't provide much else. If you're looking to diversify outside the market into an asset class that has historically generated 10 to 25% annual returns, then take a look at Masterworks. They make it possible to invest in the world's most valuable paintings from artists like Monet, Banksy, and Basquiat. Art is a $1.7 trillion dollar asset class that has outperformed the SMP since 2000, according to Citibank, with almost no correlation to the stock market. We interviewed MasterWork's CEO, Scott Lynn from a few weeks

ago. So if you haven't already, scroll back and give it that a listen, it was a really fascinating episode. So if you're already investing in your 401k every two weeks and looking for an alternative asset class, head to Masterworks.io, tell them Animal Spirits sent you and you could skip their 15,000 person wait list today. 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 Rit Holt's wealth management. This podcast is for

informational purposes only and should not be relied upon for investment decisions. Clients of Ritt Holt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. We're going to start off today's show with a listener question. I'm 40 years old and one year ago, my retirement portfolio looked like this, 10% Tesla, 10% other individual stocks, 80% Vanguard Index Fund. Over the last few months, Tesla has grown to be about 25% of my retirement portfolio due to New York Rise. I'm nervous having one company make up such a large part of my portfolio, but also believe in the company's long-term future. What would you do? Let it ride or rebalance.

I mean, after today, it's probably more like 35% of this person's portfolio. There was a quote. I don't know when it was. said, I don't know who it was said by, but that stocks discount the future, but sometimes they discount the hereafter. And I feel like even if Tesla goes on to be the most successful auto manufacturer of all time, even if they are the most successful battery maker of all time, how is that not all and then some already in the price of the stock? So here's some quick stats that I ran today. It started on. off the year of the market cap was $75 billion. Which, hold on, $75 billion at the time seemed

ludicrous. Yes, people were calling it ridiculously overvalued then. By mid-February, it shot up to 170 billion. Five weeks later, it was back down to 66 billion by mid-March. Now today, it's almost $330 billion, making it the 10th, it was in the index, it would be the 10th largest company in the S&P 500. This was a great tweet and chart from Nicarasi. Tesla would be among the most valuable companies ever added to the SEP 500, larger than 95% of indexes existing companies. You see this one? Yeah. So last week, you said, is this a case of short covering? I think at this point, if there's anyone covering left, there's no way this much run can be all short covering. That would be insane. And so one of the theories that I had posited to me in my DMs today was, okay, if Tesla just

earns a profit in the coming quarter, they will be added to the S&P. And so this crazy run up lately is people front running knowing that all these index funds and ETFs will have to add Tesla, which kind of makes sense to me. But either way, you wrote a piece last week about how the returns in the dot-com bubble of the late 90s were just magnitude times bigger than what they are the last five years or so. And I came back to you and said, yes, that's true. But even though the returns aren't as big today, the market cap gains are so much larger. I think when you see something like this, to me, this Tesla story, putting aside everything else, this is super bubbly. Agreed. I'm not one of those people that's going to say, this is a zero and a fraud because those people at this point, I don't even know

what they can say anymore. But the move we've seen in this company is redonculus. Last week, Amazon and Apple added $200 billion in market cap. The numbers are started to get absolutely silly. We've got a few charts later in the show from Sintimate Trader on what's going on. So Tesla is up 320% year to date. There's one, two other NASDAQ 100 stocks up triple digits, Zoom and DocuSign, and DXCM is also up triple digits. I don't even know what that is. DXCM is Dexcom. Okay. Never heard of it. Back to the original question here about what would you do. I looked back, so it's only been a public company since 2011-ish, 2012. Actually, it's kind of crazy. The worst drawdown ever was in March. It was 60%. So Tesla's worst drawdown ever was this year, a year when it's going just

bananas. It was down 50% a year earlier. It's been down 40% a couple times, 30%. So even with a huge run-up and prices, this thing will see a drawdown eventually. It's going to get hammered again at some point. I mean, maybe if you really believe in this and you're going to say, I'm going to ride the momentum, I don't know, increase your weight a little bit. But at a certain point, if something is this volatile, you have to eventually rebalance it back and have it be something so it's not half of your portfolio. Yeah, there's obviously tremendous risk. I think the problem is any advice that we give today we would have given and been completely wrong in the past, right? So Josh Brown asked us last week, he said, what would it look like if you would have put some

trend following rules on Tesla? And he said, what if you did the 200-day moving average and stop trying to guess? And data extraordinaire, our colleague Nick McJulie ran the numbers on this. And actually, you would have done way, way worse having a risk management tool like that because the thing is so volatile. And he even went down to like a 20-day moving average, which is really quick so you'd be jumping in and out all the time. That work. Even that didn't do good as a buy and hold. So some companies, they move so fast that any sort of trying to manage risk on them is probably not going to work. So honestly, I think the taking some chips off the table once in a while having an upper band is probably the right way to do it. So maybe you could say, I'm going to

have this be 15% of my portfolio. But if it's skyrocketing higher, I'll let it go as high as 20 or 22 or something like that before I trim. So I think you could give yourself some rules there where you give yourself a little wiggle room. Or you could put a trailing stop on and say, this is going vertical. Why would I sell it now? So you could put a trailing stop at a percent, at a dollar amount, at a price level, whatever it is. But this thing, it went from 1,000 to 1,700 in seven or eight sessions. So congratulations, if you are long, if you're a new shareholder here or a new trader, I don't want to say shame on you, but for goodness sakes, be careful. But if you are a long-term shareholder here, congratulations, huge congratulations. You won. Take a

some chips off the table. Yes, but again, what is that? What does that mean? The whole thing, a piece of it. Yeah, I think you eventually have to figure out what. If it's 30% of your portfolio, if it went from 10 to 30 or whatever it is, who cares what the precise number is? Just take it down. So on top of this craziness, now Elon Musk is richer than Warren Buffett. So this one came across Friday. I think Bloomberg had this story. This is really, this is just incredible. He's now worth 70 billion, which today is probably closer to, I don't know. 75 or 80, and most of it is from Tesla. He also has holding in SpaceX. Granted, I think Buffett now, they said, has given away $30 billion or so of his fortune to charity. So his is getting

smaller, too, because he's giving it away. But don't you think this is an anecdote for a book someday of saying, this is when Elon Musk passed Warren Buffett? And I still don't know if that anecdote is a call for a top or he's on his way to Mars or whatever it is. I don't know. But it's a crazy anecdote. Just the fact that people can do it so much quicker these days. So Zuckerberg did it, I don't know, he was a billionaire by what, age 30, Musk is 49. How long did it take Buffett to become a billionaire? He had like $4 billion by age 60. You've seen those stats, 95% of it came after age 60. I think especially founding a tech company has shown it's so much easier to become a billionaire these days, isn't it? At a really young age. If you're an entrepreneur in a tech company

and start a widely successful tech company. So let's just talk about the sentiment trader charts now. So I said that there's four NASDAQ 100 stocks that are up triple digits on the year. Sentiment trader is to you as Derek Thompson is to me. Okay. He's got some good stuff. So what was it in 99? How many stocks were up triple digits?

Probably a ton. MSCI World Growth Index, Fear and Greed. The fear is at its highest level ever. And this one is really incredible. I showed some stuff last week comparing this to the document. cum bubble. Not to say that this isn't ludicrous because the NASDAQ 100 is up 28% year to date, which given the surrounding seems incredible, but only to point out, which I guess potato potato, only to point out truly the NASDAQ bubble was insane, compounding at 60% a year for five years

into the peak. Here's the counter to that. It's cherry picking. Since the bottom in March, NASDAQ has up 1,000%. That's 30% a year, basically. Yeah, but that is wild cherry picking. That's over a longer time period, but it's still getting to insane levels, I think. It is insane. It's just not even close to as insane. In 99 at the peak or in 2000 at the peak, the NASDAQ was 60% above its 200-day moving average. Right now, it feels extended, and it certainly is. It's as high as it got since the snapback in 2009. Right now, the NASDAQ 100 is about 24% above its 200-day moving average. Well, I mean, the easy reason for that is because it felt 30% in March. The most impressive thing is just how easy.

easy some of these companies and the overall market as a whole has been able to just shake off that whole March thing and like, okay, we fell 30, 35%. Whatever. Moving along. The point is it's not the market as a whole. It's these tech stocks. If you look at the equal weight or anything like that, breadth is not very good. Most stocks are not in a bold market. So this chart is the coup de grace. Did I use it right? I don't know. I'm going to let you have that one. Hold on. I got to Google this. No, I think coup de grace is like putting something out of its misery. Yes. Okay. Okay. All right. So is this the opposite? All right. Either way. It's exactly what I meant, but the opposite. The anti-cudegra, the difference in percent of NASDAQ stocks above their 200 day

versus the S&P stocks above their 200 day is as wide as it has ever been way wider than in the dot-com bubble. Actually, I'm sorry, this only goes back to 01. But here's exactly what's going on. It's taking. So let's say that 70% of NASDAQ stocks, I'm making that up, are above their 200-day moving average, and only 40% of the S&P, that difference, that 30% difference is as high as it's been in the 21st century. The difference between now and the dot-com bubble, this is more of a relative bubble instead of an episode. Because back then the S&P was going crazy too. You had Coca-Cola and GE trading for 50 times earnings, too. It wasn't just tech stocks were having the biggest bang for your buck back then, but it was other stocks too. And now it's just tech.

So that's the thing. I agree. The relative difference is the best. biggest thing now. It does seem like euphoria. I don't know what else to call it. Right now it seems like euphoria. And good luck using that as a timing indicator, right? Oh, yeah. I mean, you could say that and still be massively wrong about what happens next because stuff is so impossible to predict. If you think that this feels euphoric, go back and look at the NASDAQ in 1995, slowly, scroll back, and then look at it in 1996, and then in 97, and then a 98, and then a 99. Greenspan used

Irrational exuberance in 1996. The market was up like 100% from there. Exactly. All right. So, Musk is richer than Buffett. This one seems equally insane. Robert De Niro is broke. So, De Niro is an investor in Nobu. This is one of the anecdotes from the article. He's an investor in Nobu. Obviously, they're getting killed. And so he personally was on the hook for $500,000 to investors. I don't know. This came out of the divorce proceedings. I don't know who he was what to. But he needed to borrow the cash because he didn't have it. Bobby D. broke. I thought this is the reason he did Rocky and Bullwinkle back in the day because that was a paycheck movie. Shouldn't he have banked those paycheck movies? Because he did a lot of crappy movies. I remember I heard on a podcast one time Michael Douglas saying, yeah, I did it for paycheck. We were laughing about it, I believe. These people, their lifestyle is so expensive that they need

to work. So this is a quote from his business man. He's one of the most successful actors of all time. How does he not have more money save? The best case for Mr. De Niro, if everything starts to turn around this year, he is going to be lucky if he makes $7.5 million a year, which is a hilarious quote. Yeah, anybody in the world would be very lucky to make that much. But this is another quote. These people, in spite of the robust earnings, have always spent more than he has earned. So the 76-year-old robust man, why are they calling him robust? That's weird. Couldn't retire even if you wanted to because he can't afford to keep up with his lifestyle expense. So point. So he's using the 95% spending rule.

So Bobby D. Zero, fire 100? Yeah. What, he's 76 now? Wow. That's surprising enough. surprising, I guess, would be the way to look at it. I think the lesson for regular people is it's easy to scoff and say this is irresponsible and insane. And of course, it is all of those things. But it is lifestyle creep, which you've spoken about numerous times is very real and very, very difficult to keep in check. The next move here, though, is to sue your management team and say that they took you for

some money. Oh, fact. That's pretty sure only play. Well, meet the little fuckers as a layup, right? He's going to have to do a Zoom movie, isn't he? I don't know. That's pretty wild. All right. We're going to talk about some investing stuff. There was a lot of rich source material this week. Institutional investor wrote an article about Low Val. When the cases were first announced to sometime at the end of March, the S&P 500 lost 17% while Invesco and Ishares lost 20% and 18% respectively. So this is one's low-val, one's Min-Val. The difference is that Low-Val targets the least volatile

stocks where Min-Val targets the least volatile portfolio possible. But I thought this was interesting. Ben, look at the second chart. For whatever reason, they have relatively similar returns. Like I said, the I-share's one performed actually fairly significantly better. But money flowed out of Invesco hard and didn't necessarily leave the I-Shows product. Do you see this one? Yeah. But it looks like these Min-Vol and Low-Val products. this was like throwing the baby out of the bathwater. They did the same thing as the market basically in the downturn. And I guess that was one of the big allures was theoretically these stocks that were less volatile than the market. However, they're constructed, should buffer

the downside. And that didn't necessarily happen this time at all. Which makes sense in that sort of selling environment, I think, though. I mean, it was a handful of stocks that protected you. I'm sure and everything else just got crushed. So your takeaway here is that people have said I'm out of low vol and I'm into minvall. I just wonder if the I Shows product is stickier, if that's more advisor driven where the Investco one is retail driven. Yeah, it could be. Obviously, the retail stuff is pushing crazy things around, but do you think the retail are people are really trading a lot of ETFs these days when stocks are so much more exciting? I don't know. That's a good question. Okay. So the other one this week was from Bloomberg and they talked about

long short hedge funds and how they are facing an existential crisis, which honestly, I don't know how this crisis hasn't happened sooner because it just seems like a strategy that especially the majority of the ones that I've had contact with and worked with back in the day, they were almost all long value short expensive or long cheap, short expensive. And obviously that trade has not worked. I'm sure many of them have pivoted in recent years to maybe higher quality or momentum or something. I'm sure they've changed their stripes a little bit. But it sounds like this isn't going as well. And they compared it to the HFRI Equity Hedge data, which is a benchmark of the long, short universe. And I always have a hard time buying these indexes because it's self-reporting and there's a lot of bias in them.

You take it for what it's worth. But the collective whole of these shows that they've just been pretty awful investments for a long time. I don't know how the endowment community has stuck with them for as long as they have. So modest proposal tweeted, people eagerly retweeted the existential crisis. in the long short hedge fund article. I will reiterate my estimate that on a dollar weighted basis, the industry is likely outperforming the S&P 500 by the most in any year post-GFC, ignore HFRI. So that could just mean that some of the best biggest funds are doing really well this year, which I don't know, you would hope that in a volatile year that they would finally shine through a little bit,

but you'd have to be pretty tactical in your book in terms of going from long and short with the way the market has changed this year's. But I don't know. I wouldn't doubt that. They also talked about Bloomberg, how this lands down partners, which is a really well-known fund shut down this week. And that was actually a fund that my old endowment had invested in. And they had an unbelievable track record. I don't know what the strategy is, but they were down 13% in March. And then through the first half of the year, they're down 23%. So I'm sure there's a lot of shifting of the book in terms of how much these places have in terms of gross and net exposure in terms of their fund. So I'm sure that the hedge funds have been moving things around a lot. And it's possible that in

March, you thought, okay, the thing they're going to get way worse, let's really up our short book, and then you got destroyed in the other way, too. So I'm sure a lot of funds have gone through that as well. What's that on your shirt? You got a shirt with a boat on it. It says rusty jib. What is that? Is that local? It's just a restaurant one. Ah, you know. Your arm's looking good, by the way. Thanks. A couple weeks ago, you said I was lacking in that department. Kudos to you. That was my kudegra right there. Thanks. There was an article in the Walsh Journal on Market Neutral, and what even is it, and how different the returns can be. So you wouldn't expect market neutral to do very well in a year like

this. Or maybe you would. You would expect the shorts to offset the longs, but it can go against you severely as it has for a lot of these products. You can be wrong in two ways. Right, exactly. Yeah, when you're market neutral, you're long, something the same amount, you're short something. The thought is theoretically, in a band market, market neutral should do relatively well because at least you have the shorts to offset the longs. However, in a year like this, you're totally pulling out market beta and just going for fundamental value. Yeah, if you went into a market neutral that was, again, long, cheap, short expense, if you've gotten destroyed on both ends this year. Right. Here's the thing, though, I keep coming back to this. Simple has beat complex again this

year. If you were just a buy and hold investor, that was painful for a little bit, but you've come out of this thing pretty good, right? Yes. If you just had simple, low cost stuff and you bought and hold or you're diversified- Did not have to go that way, but yes, it did go that way. Of course it didn't, but you came out pretty well. And that's my take. take away seven months into the year. How's that sound? Fair. So one of the things that has come up as it does every time after there's a blow up is tail fund's or tail risk strategies. And AQR did a piece on this. And I've said in the past that I am all for this if there is a way for you to lose a reasonable amount of money, call it two to three percent a year to have

that double digit. Two to three percent of years a lot. Okay. Okay. But for me, it would have to be, I don't know, 50 basis points a year. Okay. But the point is. is it's even way more than that. It's not 2 to 3 percent. It's way more than that because obviously everybody wants this. And so if you think about an insurance premium that you're paying, well, at least theoretically, you know this is going to be there when you need it. If the premiums are too expensive, then it doesn't make sense. And that's really what's going on here. So AQR said many investors fear sharp market declines. So it is not surprising that option-based protection against such events has a very high cost. This is the quote. For put or any

strategies that try to hedge large equity market losses, the very risk many investors dislike, it is not hard to explain why the risk premium should be negative. At the heart of virtually all asset pricing models is the idea that investors require and earn positive long-term returns for investments that deliver bad returns in bad times. Conversely, investors should accept low or even negative long-term returns for safe haven assets and for strategies that provide good performance in bad times, just as insurance buyers are willing to pay an extra premium for avoiding the worst outcomes. This is an intuitive concept. Long out of the money puts are expensive because they provide a useful insurance service for typical portfolios, end

quote. So I listen to Corey Hofstein is out with his third season of flirting with models of the podcast. And Ben Eifford, who is an expert in this sort of stuff, spoke a lot about this, that it's not necessarily, and not at all, a set it and forget it strategy. There is a ton of nuance involved in what goes on here. You can't really have an index tail strategy. Well, if you do it, it's a money loser. Right. So this chart they show in here kind of says it all. So they went back to 1985 and looked at this put strategy. You see a few hiccups up during the crashes, but not nearly you have to make up for the losses. So you've lost, what, six and a half percent per year, even though during a crash you had an uptick, which helped. So that's why these have to be more

dynamically used. Someone has to know what they're doing and understand how the prices change when volatility characteristics change and such, right? You can't just have a set it and forget it. It's all about what you're paying for the insurance is really what it comes down to. And then this is clean vanilla. They used 5% out of the money. Then they show 10%, 20% and obviously the more out of the money you go, the more it pays off when the event happens. But the bleed on the portfolio is just way more than most investors can bear. And so bringing this full circle for all of these different strategies, there was an article in investment magazine called Alternatives is a Loser's Game. Did you read this one? No, I didn't read it.

Damn it, Ben. This is the bow. I looked at your notes and I get it. This is from an institutional consulting firm who obviously doesn't use them. I mean, I've been saying this for years that the only institutions that should be using alternatives are the ones who have the resources and the expertise and the time and energy to understand them because that is the problem, is that just so many of them don't understand how they work and how to allocate to them correctly.

and you can't implement an alternative strategy like an index fund. It doesn't work that way. Because if you get the average returns of hedge funds in private equity, you're not going to feel very good about those returns because you have to, if you're not in the top quartile of those managers, you're probably out of luck. I don't think that you could say alternatives are good or bad. Obviously, I think the most important point is, what do they cost? What are you trying to accomplish? How do they fit inside of your portfolio and working concert with the other strategies you're implementing? because something can be additive, even if it doesn't necessarily outperform an index. Obviously, we know that.

But the problem is he said, public pension funds now have 28% of their assets and alternative assets, while large educational endowments have 58%. So it's not these alternatives working in concert with other asset classes. It's the reverse. These are now the biggest piece of their pie. Here's my take on this. There are too many alternative managers out there. You need to cut half of them out and maybe do better.

But obviously, the incentives are there because the, fee structures are so well-paying to the managers. So people flock to them. So it makes sense. But I just think there's too many managers and it's not nearly as inefficient of a market as it was way before. And that makes it harder to outperform there. All right. Two-bit idiot tweeted. Great chart from Wisenthal this morning. What was that Twitter handle you just said? What did I say? Is it two-bit idiot? Is that just two-bit idiot? Okay. Is that his handle? That is his handle. Ryan Selkis. It's a chart showing percent of permanent job losses in 0.1, 07, and 2020 recessions. And he wrote, the PPP was designed to prevent temporary and permanent layoffs and it succeeded.

We simply botched the containment efforts. How do you measure permanent job losses this quickly into something? I mean, that's got to be survey data, I guess. Don't know. Okay. We haven't seen any follow-ups to how the European model has worked. The government was going to pay people 80% of their salary. You don't hear about it as much, I guess.

but doesn't it seem like maybe this is just because of the stuff that we pay attention to, but it seems like all of these arguments are happening in America only. So many of the arguments from the crisis are happening here about people complaining about wearing masks or people complaining about stuff opening up. It seems like you don't hear in other countries. It's just here that we have these back and forth debates on this stuff. That's whatever, the tradeoff for being the kind of country we are, but it seems like we're the only place that really is having as many issues as we are with this stuff.

Lumber futures are up 85% since April. So there's an article in the Washington Journal. Prices for forest products and plywood have soared because of booming demand for home builders, a DIY explosion sparked by state-home orders, and a race among restaurants and bars to install outdoor seating areas. So, okay, that makes sense that lumber prices are skyrocketing because of all of that. But what about copper? What do we make of that? Copper is now doing the same thing.

Copper is going vertical. I don't know, man. My joke was because copper switched from being a doctor to an epidemiologist, but I said early on in this thing, I said in one of our March podcasts that I should have bought Home Depot and Lowe's because that was like a layup, right? Lowe's is at an ultimate high. Home Depot is right behind. That was a layup that people were going to want to redo their stuff. I can't imagine how busy it is as a contractor right now.

They must be turning away work left and right. I'm sure that everyone wants to redo their house right now. That makes sense. I don't know. Maybe people are buying those little copper mugs for the new bars. for the Moscow mules are the copper, right? So that makes sense. People have been saying since the bottom, this market doesn't make sense.

And easy to feel that way. Certainly I've been in that camp. But Oswald de Motrin had a really great post showing that. Now, actually, a lot of what's going on in the market makes perfect sense. For instance, and again, we'll put all this in the show notes. He said companies with higher gross margins have done better than companies with lower gross margins. Okay, that makes sense. He looked at net debt to EBIDA and said if net debt as a percent of cash flows is the driver of financial flexibility, then we could see how financial

flexibility has played out in this crisis by breaking companies down into deciles based upon net debt as a multiple of EBITDA. And again, it's linear. Lowest amount of debt I performed best, highest at the worst. Lastly, this is interesting talking about financial flexibility, dividend payers. Highest dividend payers have done the worst. I don't know if that's necessarily a story of capital efficiency and them needed to pay out their cash. Maybe that's more just like the top dividend payers tend to be of the value bent, whereas no dividends paid. I don't know why that part makes sense. That might just be the growth thing. Maybe just because you have more flexibility without having the dividend. I think the real story is there is just growth versus value. Growth stocks don't pay

dividend. But speaking of dividends, Howard Silverblatt from S&P tweeted, for the second quarter, the U.S. dividend rate declined $42.5 billion, which was the worst quarterly declined since 2009. I guess that was coming, right? That had to be the case. And the market still doesn't care, obviously. You know what we haven't heard about recently an update on Disney cut their dividend, right? We were saying how they're furlowing a lot of employees but raising their dividend and they're paying out their dividend. I believe that cut their dividend. We haven't heard much about that recently. What about companies doing that still? About companies paying out their dividend despite furlowing workers, so we're not cutting their dividend. I think a lot

of people just moved on. There's so much more to worry, but I guess. So New York Times had a piece about going to cash and what happens when you think about it. And so they interviewed Rick Edelman, who's a really well-known RIA, kind of a pioneer in the, in RIA space. And he talked about, okay, let's say you were one of these people who in March went to cash. And what do you do? And I think there is no right or wrong answer. But he says, if you panicked and sold, do not second guess that response. If you go back into the market, then the next downturn will panic you again. He's saying effectively like, okay, you did it. Now you need to go back to a way more defensive allocation, which, I mean, I don't know what I would tell someone to do in that situation right now.

I mean, what do you say? You're screwed. Sorry. Good luck. It's tough. It's really tough because he's absolutely right. If you already sold, let's say you buy it today and the market's down 2% tomorrow. You're like, up, just my lock them out. That's going to happen again. I think either you leg back in and or you probably do this both, you get much more defensive. So if you were 60, 40, and let's say you rip the entire band that off and went to cash, maybe. you get back in with a 40-60 portfolio or a 30-70 portfolio and you do so over the next six to eight months, whatever. And if you want to work back up to 60-40 and think, okay, that was a dumb move that I got out. I'm sticking it now. You could move back in in chunks over time and slowly

get back up there. What's happened is like if you went to cash now, the market has gone vertical. It's so hard to get back in. His advice of, he said, consider stay out of the market until the majority of the markets have been true with any yet-to-be-discovered vaccine. It sounds silly, but the market has gone so far vertical that it's really hard to get back in. I don't agree with the idea that you should base your investing in the months or years ahead on when a vaccine hits. I just don't see how you can, you don't think the market will have that price in by then. Let's say that we see the vaccine coming as telegraph, the market's up another 20%. Are you going to say, okay, now I'm going to get back again because the vaccine's here.

The longer you stay in cash, the harder it is to get back in. Yes, it's addicting. Even if the market does fall, if it falls 10%, you go, well, I'm just going to wait until it falls 20%. If it falls 20, you're saying I'm going to wait to falls 30. So yeah, it's hard. And I think that's why you just, you almost have to do a dollar cost average in and just don't even think about it and do it on the first of the month every month, something like that, something really simple.

Or you get back in and you also short Tesla alongside it, just so you have a hedge in place. By the way, Tesla's up 14% this morning. Didn't you short it in like 2012? I never shorted Tesla. Okay. Okay. I can't even imagine, I guess no one wants to short anyway. It's still probably got to be expensive to short too.

I'm sure the people who were shorting it paid a huge rebate in short rebate, just to have the fortuitous timing of getting their face ripped off. Okay, another Robin Hood story. This one from the New York Times. There was a few of them this week. They're everywhere. Do you think that this is all publicity is good publicity, that they just get so much, so many people talking about them that they probably end up getting more clients because of it? They talked to this guy who said, he's 32 years old and he liked Robin Hood and he funded his account with $15,000 in credit card advances, which is not right. recommended, I would say. So he lost money. As he was losing money, he took out $230,000 home

equity loan so he could buy and sell more speculative stocks and options, hoping to pay off his debts. And at one point, his account value shot up to above $1 million and all but disappeared as it's now down to $7,000. I'm guessing he was trading options. Do you think that $1 million thing is correct there? Or do you think that was one of the things where they gave him the wrong value? Is that possible? Anyway, his wife said he's got three children at home. She says when he's doing is trading, he won't eat, he has nightmares. It's tough because I don't think a lot of the technology people, and Robin Hood was founded by two young Stanford guys, I think kind of like Facebook and some of these other technology firms, when they create these, they don't really think about what

the unintended consequences are on the ramifications. And Robin Hood is kind of gamifying this stuff. Well, they totally are because of the notifications that you get and the green and the red and like everything that you do inside of the app is encouraging you to trade. Yeah, it's like a game. the colors are bright and they've done that well. And I got to say the technology is great. But where do you fall between having some personal responsibility for the people who are trading and then having it on the company to educate their people? Because obviously, they've got to do a better job of educating people. But at a certain point, I mean, are people just going to gamble anyway? I'm more in that camp. I'm obviously very sympathetic to the horrible stories that have come out.

I don't know all of the details. So I don't want to speculate exactly on how much of it is on Robin Hood versus the users. But people have to be responsible. And if it's not Robin Hood, it's going to be something else. They certainly have some responsibility. For example, in the first three months of 2020, Robbenhood users traded nine times as many shares as e-trade customers and 40 times as as many shares as Schwab customers per dollar in the average customer account. So they are actively encouraging their clients to turn their portfolio over. However, you also have to understand that these are smaller accounts. It's younger people. They're not going to be buying hold investors. Of course, they're going to be more active than Schwab

accounts. Right. Here's the other thing in this story from New York Times. They installed bulletproof glass at their front entrance because they're worried about people coming in complaining about lost money. I don't know. Not a good sign. But here's another theory. So I found a bunch of stats about how poor people play the lottery more than rich people when I was doing research from my last book. And is it possible that wealth inequality exacerbates some of the gambling mentality or some of these, because a lot of these people Vox did a story on this and they talked to this 31-year-old. And some of the people they talked to in this report, they didn't read like 15 people who are trading stocks for places of Robin Hood. And this guy says, it's boring watching stocks. It's not exciting. They're not making any these crazy prices. You don't get a rush throwing money at Berkshire Hathaway and waiting for 15 years. Again, this is people who are unemployed who are now trading? Isn't it a case where like, okay, I have nothing else to lose? What's the point? How are index funds going to help me when I could do something like this and put a crazy speculative play on and make money? And that would be life changing for me. So isn't it possible? These people have just nothing left to lose and why not?

Camble. Nailed it. That's exactly what's going on. Obviously, there's a lot of other reasons for it, but I think that could be part of it, too, where it's just people, what else do they have to lose? All right. So there was a tweet last week, United Airlines Town Hall with employees today was sobering. Employees were warned the airline does not believe enough people have taken exit packages to avoid layoffs on our furloughs. And we are looking at this point at layoffs in the tens of thousands. Tens of thousands for United alone. I mean, didn't everyone kind of feel like this was coming? They made it to their point where they got the money and then after that, people were going to be laid off. It wasn't that kind of inevitable, unfortunately?

I was driving yesterday and I passed at Barnes & Noble. How is that place still in business? How is this not taking them under? Especially since the only reason people are going was for coffee, right? So according to Bloomberg, there have been 110 companies declaring bankruptcy this year. Well-known ones that people have heard of, Hertz, Golds, Jim. J.C. Penny, 24-hour fitness, Neiman Marcus, J-C, G&C, Chesapeake Energy, True Religion. You're a big true religion, gene guy. I know that about you.

No big stitches on the jeans for me. I mean, remember people said there's all these zombie companies running around? That's a lot of companies that have gone out of business this year and some pretty big, well-known names. So people who are saying everything is a corporate bailout and all these companies are being propped up and it's zombie companies, that's not necessarily the case. There obviously are companies, that's a big number. Brooks Brothers. Yeah, Brooks Brothers won out of business. You're a big Brooks Brothers guy, right? That regular V-Nex front?

Brooks Brothers has been around for more than 200 years. I didn't know that. All right, there's a new Amazon Prime competitor. It took 15 years, but Walmart is finally doing something similar. Not knowing any of the particulars, other than when the article said, I'm very bullish on this for Walmart. My prediction, within five years, we're all going to have 177 subscriptions. We're just going to be subscribed to everything. 12 different TV formats, all these different.

bundles and rundals are whatever they're called. 98 bucks a year, you're getting same-day delivery of groceries, general merchandise, discounts on gas stations, which sounds pretty great. More than half of its top spending families now have Amazon Prime Memberships. That's Walmart customers. I don't know where that data came from, but I feel like they could take some customers or at least get some new ones. I mean, the grocery thing alone seems like...

It's huge. Yeah, that's probably worth it just for that, I think. We talked about how expensive. We got rid of Instacart because it was too expensive. It's too much. So if they can do it for cheaper and probably have a better system of doing it, I would trust them to do that. It makes sense.

By the way, Walmart's a top 10 company. At this pace, in about four hours, Tesla's going to be bigger than Walmart. I looked this morning. I think Walmart is $350 billion, $360 billion. And Tesla is $3.20. Oh, my God. Walmart is the next in line. They're within stone's throw of passing Walmart.

This is the type of thing where you, you say, okay, this has to be a bubble, this micro thing. The shares of Tesla have to be in a bubble. There is no economic explanation for how this can possibly ever be worth $320 billion, maybe 20 years in the future. You want me to write your newsletter story for you? This is detached from reality. This is the canary in the coal mine. Right? I mean, this is madness. Now, again, good luck profit. I'm going to write your Michael Bettnick blog post for you. Just do the Walmart sales numbers and the Tesla sales numbers right next to each other. It'll go viral. Good luck profiting from this, but this is a bubble.

Right. This individual company, it could be cut in half and it would still be huge, especially from what it was before. It's wild. Yeah, I don't know. Okay. So Peloton says that they're going to offer a cheaper treadmill. Here's what I didn't realize. Do you know what much of their treadmill costs?

Nope. This is the company that's up 130% this year, right place, right time. But I think they're putting the pedal of the metal, $4,300 for one of their treadmills. They said they're going to offer a cheaper one. That's pretty expensive. and they might do a rolling machine, I mean, I feel like if I was them, I would be doing as much as I can, and I would be putting out video series for workouts, and I would be ramping up. I'm sure they are, obviously.

They don't need my help on this, but I think gyms are in big, big trouble. You know what Pelton does need your help on? So somebody I know said, hey, I'm getting a Peloton. Do you want to, like, refer me so you get $100 worth of free gear? So I was like, oh, sure, thank you. So I tried to get shorts, which, by the way, are like $90. It's absurd. And everything is sold out.

There's no shorts. come on spandex or shorts just regular shorts the only thing they have is like smaller extra large okay everyone's using it i cannot buy a single pair of shorts okay you're gonna be like the guy who drives a Porsche with all the Porsche gear out but instead it's a Peloton well that's why I want to get shorts I didn't want a shirt that says peloton across it right but yes when you see guys wearing a Porsche hat or something like that terrible all right so news last week SEC proposes amendment to update Form 13F for institutional investment managers from the article. In 1978, when Form 13F was adopted, the threshold for filing the form was set at $100 million.

Since then, the overall value of U.S. equities has grown over 30 times, and the relative significance of managing $100 million has declined considerably. So the new proposal, they want to raise the reporting threshold to $3.5 billion, which would still cover 90% of the dollars. Obviously, the smaller managers would drop off. But I listened to another Corey Hofstein podcast with Casey Hammond, I believe his name was, who does some 13F scraping and it's like a big part of his strategy. What about people that use that as a strategy? They're going to have to get bigger, I guess, in the market caps. Don't you think the days of having secrecy behind your holdings and not wanting people to know, like, everything's out there? Isn't it just useless, though?

I don't know. I mean, I don't know what the rationale is behind this. Is it maybe to save some money? I'm sure there's just a lot of investment managers that complain about it and say that it's burdensome on their business in terms of time and energy they have to spend for it. Okay, listen to your questions. Hypothesize what data points future investors will misinterpret looking back at this time based on current data prints versus what you think and know living through it. I thought this was pretty good. That's like people in 20 years saying, oh, Carl Malone is one of the best basketball players of all time. And you're like, no, I saw him play.

Yes. We'll do revisionist history for them right now. Oh, that's a really good question. I honestly think right now it would be easy to look back and say, oh, that March buying opportunity was so easy. lay up. Because how many people were, there was a lot of people who were planning on 40, 50, 60 percent. You and I. We were waiting to back up the proverbial truck. Morgan Housel says that every past crash looks like an opportunity and every something, something looks like a risk. Every past looks like an opportunity. Every future drawdown looks like a risk. So true.

And even from now, I could see so many different scenarios where we get a vaccine in three or four months by the end of the year, beginning of the next year. And this thing is, God, that was crazy. or this drags out for another 18, 24 months, and it's this huge, huge thing that just alters life for a long time for people. I wouldn't be surprised either way. And I think looking back, people are going to say, either they worried too much or they worried too little about the risk from that pandemic. So there's going to be a lot of that.

And the shutdown stuff is going to be second-guessed forever. I think there's going to be a lot of stuff that, and maybe it'll depend if we ever have another pandemic in our lifetime, like how the response is then. But I think there's going to be so much second-guessing on all of this stuff. And even now, it's tough to say. All in one ETFs, can you guys discuss? I think what this person means by that is like a target date fund, which in that case,

I'm all for it. Talk about simplicity, like Ben was talking about earlier. If you are the type of person who doesn't want to trade, you don't really want to open your statement, you just want a wealth accumulating vehicle, I think you can do a lot worse than a simple target date fund. Right. I mean, it takes the rebalancing and stuff out of your hands. You don't have the individual look through.

But I think in terms of behavior for people who want to take care of their stuff and probably do little too much. I think Target Day funds are probably one of the better inventions that have been made in the retirement industry in a long time. The only thing that you lose is excitement, which is probably a good thing that you don't want to have in investing anyway, unless you are a Tesla stock buyer. All right, recommendations. What do you got? What percentage of your Target Day fund is in Tesla now? One percent. All right. Palm Springs on Hulu. Never heard of it. Andy Sandberg, a movie just came out. I really liked it. It was the perfect kind of movie that should be released to a streaming platform and not go to the theaters.

There's also a Tom Hanks movie that came out on Apple this weekend. We'll probably watch it next weekend. I love looking forward to a new movie on Friday coming out on a streaming service. Palm Springs was Andy Sandberg is reliving the same day a la Groundhog Day. You already ruined it. I'm not ruining. I'm just, I'm telling the premise. But this time, it's more than one person reliving the same day. That's the premise. And it was just weird enough where it was kind of like, oh, this is kind of weird and funny. But they didn't go too overline for weird, so I really liked it. I thought it was funny. I think Hulu is better than Amazon Prime now. I think they have more high quality programs now. They had normal people this year. They have

this. Handmaiden's Tales, one of the best shows no one talks about. I think they have better material than Prime. Okay. I'm putting that down. Okay. Read the deficit myth by Stephanie Kelton, which is the MMT book, and I think it is just perfectly time to release this book now because of all the government spending that is going on. And I can't tell whether this book is going to be so far ahead if it's time, that it's going to lay out how things are going to work, or it's going to be like panned because we get this nasty inflation. Or this is the Dow 36,000 book. You and I should do an episode on this.

We may do an entire episode on this because there's so much to cover from it. I think it's worth talking about because I did a post on this weekend. This type of economics just brings out people on both of the extremes that get really fired up about it. So I think we might do, we could do like a 20-minute show just on the deficit myth. And I think we might do that in the coming week or two. Yes. This is a very good book. I read it on your recommendation. Whatever your feelings are on this stuff, I think it'll change some of your views on the way you look at government spending in debt, even if you don't agree with everything. I think it's definitely worth reading. I learned a lot. This is very good. All right. I don't know what took me so long. I think when this movie came out, I was 15, so probably a little bit young to see this in the theaters. I wouldn't have appreciated it. I saw almost famous for the first time. Really? Yeah. Oh, wow. Yeah. That's good. Amazing cast.

It's a great movie. Philip Seymour Hoppin was probably in 2% of the movie, but was incredible. He might be the best character actor of all time. As far as small roles coming in, yeah, he was good. Jason Lee was great. I mean, it was a very good movie. By the way, there is a podcast right now called Origins that's going through almost famous. Did you know this?

Oh. It just came out last week by James Andrew Miller, who did the ESPN book a few years ago. Oh, okay. All right. I found this on Amazon Prime. Oh, no. was it showtime? I can't remember. I think it was Amazon Prime. Come to Daddy with Elijah Wood came out recently. And this is one of those movies. So I watch a lot of these movies and this is one of the very good ones where it's horror but also comedy and you have no idea where it's going. And it starts at one direction and completely does a 180. So it's gory. It's funny. It's silly. If that appeals to you and I'm guessing it doesn't. But if you are one of the people like that sort of comedy. Yes. With a horror twist. kind of, or thriller. It was very, very fun. He's been in some pretty good indie movies over the years, actually.

It was very fun. Lastly, did you watch Unsolved Murder? No, what's that? Do you like those sort of stuff, the true crime stuff? Remind me which one that was. So this is, or Unsolved Murders, it's on Netflix. Instead of having like an eight-part series, like the staircase or something like that, did you ever watch the staircase? No. After the guy in Milwaukee, Wisconsin, I kind of gave up on these. But here's the thing. It's only 50 minutes. Okay, so it's just one episode per Pete. Yeah, instead of dragging it on. Are you talking about Unsolved Mysteries? Yes, I said mystery.

I'm sorry. Did I? I'm sorry. All right. Totally off. All right. Unsolved mysteries. Yes, which used to be a show back in the day, yes.

And now they've re-upped it on Netflix. Okay, so yeah, no, I didn't get into it. It's only 50 minutes. Okay. Sounds like some of my mom would watch it Friday nights, but yes. She would, and she would be a smart woman for doing so. All right. Thanks again to our sponsor Masterworks.

Again, sign up at masterworks.io and see the disclaimer at masterworks.io slash disclaimer. Email us at Animal Spiritspod at gmail.com. Thank you for listening. We'll see you next time.