Animal Spirits Podcast - Too Young, Too Dumb and Too Inexperienced (EP.146)

Episode Date: May 15, 2020

We discuss inequality among corporations, differences in the unemployed by education, the best new restaurant in the country just went out of business, why housing prices are rising during the crisis, millennials fleeing big cities, you are not Stanley Druckenmiller and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position. and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. Disney is attempting to raise $11 billion at different maturities. The yield curve looks like something that comes from the Treasury Department. It's really remarkable. They're borrowing $2 billion over the next 20 years. They're paying 3.5%. So this graph that you show here shows 3.8% going out 40 years, which is pretty wild. The demand for credit right now is insane.

And this is one of the reasons we've been talking about, these mega cap companies getting stronger in this crisis, because Disney has the ability to borrow like this, whereas a lot of other smaller and mid-sized businesses just don't. Especially when you think about Disney is a company that is in peril right now. Their theme parks, they open the one in Shanghai, but everywhere else are closed. They don't have their cruises open. They're losing money. They stop their dividend. They're letting people go. And they still have the ability to raise a ton of money at an extremely low interest rate.

I mean, I'm sure if you told people 10, 15, 20 years ago, a company could borrow like this. That's not the U.S. government. They would have balked. This is corporate credit. This is crazy. Imagine a year ago, you were told Disney World, Disney theme parks are going to be closed all across the world. They're going to be suspending their dividends and the need to borrow money in order to fund operations. What interest do you think that they would be paying?

I don't think anybody would be saying 2.2%. Yeah. And honestly, this is one of the reasons why I don't understand why people are getting mad at the Fed, and maybe people don't realize that a lot of the stuff they're doing is giving loans. So the Fed is giving a huge number of loans to small and mid-sized businesses. And that's because these companies can't tap the credit markets like a company like Disney can. So Disney has this fortress balance sheet and they're doing much better, whereas a lot of these littler companies just don't have the ability to do this. So they need a lifeline and they need a loan from somewhere else.

Yeah. So this is the whole income inequality, bleeding over to corporate inequality, the big getting bigger. Yes. Corporate inequality is one of the things that people probably don't think enough about. And maybe that's one of the big divergences in this whole thing is that we're getting this corporate inequality. There was a good article in the New York Times about online trends. And there's a chart showing the change in sales for the e-commerce giants. Target up 400% year-over-year. Walmart up 250. Amazon up, I don't know, 75%. And you say, wow, target of Walmart are really catching up. And then you look at the relative share of online sales in January, and Amazon is at 96%. Wild. We've used Target as like a backup when a delivery date for Amazon is too far out

or something is sold out. And we've been able to find it at Target, mostly stuff for the kids, but that's kind of turned into a backup now. And then Walmart, we've had a hard time getting the curbside pickup there just to find a time. So we haven't really used much of them, but I can see it makes sense that this is happening. But I was surprised that Target was one of the places we've turn two. Last week we spoke about things that appeared so obvious, oh man, I can't believe I didn't buy Peloton. I can't believe I didn't buy biotech. I can't believe I didn't buy Teledoc and Zoom and things like that. And something that could potentially fall into that bucket is company like GameStop, where you think with everybody staying home, video game sales are going to skyrocket.

And in fact, that's exactly what happened. GameStop sales are up around 1400% year over year. So you could have nailed this, and then you look at the chart, and GameStop is down 30% year to date. Wow. They're down 50% over the last year. So they're seeing a huge uptick in business, but not an uptick in stock price. I don't, I mean. So what's the disconnect there? Is the market looking forward to the fact that this is a very temporary blip, and this company's future is still very much going down? It could be. That's interesting because it feels like a lot of other companies that that's not the case. you talk about something like Uber that we talked about in the last show, and they've seen such a big drop off. And now it turns out they're going to potentially try to buy Grubhubhub, which do they

change the name to Gruber Eats then? Is that how it works? Phil Huber had a good tweet. He said McDonald should buy Uber and Grubhubhub and name it McGrubber. Ah, that's not, okay, there you go. So we continue to get economic data that is breaking the charts. U.S. inflation dropped quite a bit. Core inflation had declined by the most on record. And core is just taking out food have you been to the grocery store lately? Actually, grocery stores prices are way up. We'll get to that in a little bit. But I mean, this had to be the case, right? That inflation dropped into deflationary level. I mean, there was no other option, right? Well, given that spending crashed, yeah, this makes sense. Len Kiefer broke it down. There's 12 major categories. What stands out

to you here? Commodities, of course, getting crushed again. That makes sense. Apparel is down 6%. That also makes sense. Food and beverage is up. I don't know how education and communication is I don't know what that means. Medical care is obviously up. I guess recreation isn't down as much as I thought it would be. Again, I don't know how they, are you going into like shadow stats territory yet since you're a Fed truther at this point? And you don't believe any of these numbers? Okay. Bill McBride posted an incredible chart showing the percent job losses and their recovery. So for instance, in 2007, it took approximately 75 months to get back to even with the percent of job losses. So this was around 6 percent. And if you look at our current situation, again, another thing that is off the charts, it just went vertical in the wrong direction. I can't wait until we see the upswing on these charts. They going down is just awful and it just goes down in a straight line. I want to be nice when we see, even if it doesn't go all the way back to zero, just get the upside as well, whenever that happens. Well, this is like the big debate, right?

The V recovery, are we going to see it? I don't know. I don't see. Well, I guess there's different variations of V. Like, yes, we are going to see a V. now is the V going to close? Like, are we going to go back to where we were? People are going to be rehired. When stuff opens up, that's going to happen. It's just what percentage of the people that were laid off are going to be rehired. Yeah. So the snapback, we will see the snapback,

but how long is it going to take to get to pre-COVID levels? Who knows? So a lot of the data from the last week or so has shown that not only we were seeing this corporate inequality, but the inequality in terms of losses as well. So Bloomberg broke down the US unemployment rate by education level. And less than a high school degree, it's over 21%. If you have a high school graduate and nothing further, it's over 17%. A bachelor's degree in higher, it's 8.4%. So a huge, obviously, disconnect there in divergence between the education levels where the lower your education level, the higher your rate of unemployment. And so this stuff has really hit people on the low end of the income scale. And Washington Post had one showing that the job loss is earnings level.

and it goes, they break them into fifths, and they show that the lowest 20% of income workers have lost, it's like 35% of those people have lost their job, where the highest 20% is less than 10%. And it kind of follows that path as well. Where did this 40% stat come from? I know Miles tweeted it. Do you know where that came from? This was from Jerome Powell's talk the other day.

So he gave a press conference. He said among people who are working in February, almost 40% of those in households making less than $40,000 a year had lost a job in March. 40% of people making less than $40,000. They said like the hospitality industry is that unemployment rate of like 47% now. So obviously a lot of that is people who are waiters and waitresses in the restaurant industry that it's just gotten hammered. But obviously it's across the board that this is just hurting the people on the low end

way more than people on the high end. And again, this is going to make things so much worse because it just has to set you back, not only financially, and obviously the unemployment benefits can help people a little bit in the checks, but it's just got to be a psychological barrier for people that lose their jobs. That's just got to be tough thing to get over, even if it's not your fault. And again, this is no one's fault, but that's got to be tough to get over, just losing your job and having to go through the process of trying to find it back someday if you're not hired by that same employer. Yeah, it's awful. There's nothing good here. There's no way to spin this into anything other than just absolute

tragedy. This morning on my way in, I was listening to the Dave Chang show, who is a chef and he's on the ringer network. And he interviewed three restaurant owners who had recently closed their restaurants. It's just heartbreaking to listen to how much blood, sweat, and tears these people put in. And these are some of the nicest best restaurants in Los Angeles. And the one guy had talked about how on Monday, GQ named his restaurant, the best new restaurant in the country last year. and that same week that that happened, he closed it down. So he was named the best new restaurant, and that's like, I can't imagine the flood of people he would have had after being in a national publication like that.

And yet he had to close it down. And so it's not only the workers, but I can't imagine how stressful it is for the people who own those restaurants. When you think about an entrepreneur, you don't really think about someone who starts to own restaurant, but those people are entrepreneurs and they have to get investors and they have to start things and they have to hire people and they have to make decisions. And for a lot of them, they just said they went through with their CPAs and even getting the PPP loan would have done them no good because the math just doesn't make sense for them being an entity going forward. And they just decided to close instead of even taking a loan at this point.

It's really sad. Imagine the people who are employed by Airbnb, for example, who thought their life was going in one incredible direction, that they had equity in a company that was going to be preparing for a monstrous IPA. and six months later, they're out of a job. What does that do to your psyche? This event, if you call it that, or virus or whatever, it is like a sliding doors moment for people where their life was going in one direction and now this stake in the ground happens and then it goes a completely other direction that they never would have planned on or thought of.

And it's, yeah, right, there really are no silver linings here. Indeed, posted a chart. The percentage of the population with a full-time job just crashed from about 50% down to 44%. I guess I wouldn't know what this was before. So at the highest level, it was 54% in 2000. And it got down to, what, 47% in the last crisis. So it's well below those numbers now. Again, it is hard to believe that we see an economic calamity like this so close to the 2008 crisis that I honestly never would have expected. And it's just, yeah, it's wild. And again, being disproportionately hit to the people on the bottom, Brian Chappata tweeted,

your skewed stat of the day, average hourly earnings are up 7.9% year over year. In case there was any doubt, the signals job losses are coming primarily among those earning lower incomes. Right. If you lap off that lower end, the average has to go higher because the lower end is skewing anymore. Well, the Cullen thing is actually a silver lining. The chart that Cullen tweeted. So this is from Goldman Sachs. And he said that Golden Sacks says disposable income in Q2 and Q3 will be slightly positive, which the reason this is is because unemployment and insurance and payments to individuals and tax relief. So the government has helped this and people will actually have some more income in a lot of ways. And again, that's because a lot of people

on that lower end of the income scale are now making more. So the thing is, again, the government has to continue to help these people or, I mean, there's going to be a revolt. I mean, they're already starting to see some of this, but if they don't continue to extend these unemployment benefits or potentially give people more money, this stuff is going to be really short-lived. So we've been talking a lot about the housing market, what's going to change going forward. What's interesting right now is that the median home price rose actually 8% year over year, even though sales fell 8.5%. So what's going on is somebody said, demand absolutely just got a kick in the gut,

but at the same exact time, so did supply. Only about 4% of sellers cut their prices, according to Realtor.com, which makes sense. This is not really an economic event where you're going to fire sell your house. Right. And it's the kind of thing. It's not like you all of a sudden change your price and lower it. Like people have their house on the market for three, six months in normal times before they cut the price. So it's not like they're going to say, okay, I'm automatically going to cut the price just to. And honestly, with the problems with supply, it makes sense that this is happening. And I'm sure people just decided to stop. So I looked at the numbers from the Great Depression. And this surprised me. I wrote a piece about this, like why housing could potentially be fine going through this in terms of prices. And during the Great Depression, this is from the Case Schiller Index. Housing fell 7% on a real basis from 1929 to 1932. Now, that's inflation adjusted. So that means deflation gave a little bit of a tailwind of there. But that was really surprising to me because it fell like 25% during the Great Recession. Do you believe that data?

That was one of the things that I said, I don't know how great that date is and how well people. But my guess would be maybe it's the kind of thing where just there weren't a lot of transactions going on and people weren't buying and selling houses back then as much. But yeah, it's hard to know how good that date is. This shocked me. Barron said in an article over the weekend. Since 1997, excluding the Great Recession, which I guess was a huge outlier event for homes, there have been 1,039 instances of state recessions in a given month. So a pretty big sample size. home value appreciation occurred 81% of that time. Right.

And honestly, is it almost like the endowment effect where people are just so stubborn about the prices that they're willing to let go of their houses on that does that keep prices inflated during something like this? I think so. Is that possible? I think so. And I think the other thing is that the article said that buyers tend to focus less on the price of the house and more on the monthly payments, which makes sense.

And the good news now is that mortgage rates are around 3.3%. This is an interesting chart. 30-year loans could drift below 3% for the first time ever if the 10-year treasury rate remains near their current levels of 0.6%. And actually, it looks like the spread between the 30-year and the fixed rate mortgage is... It blew out. About as high as it's... Yeah. So does that mean that it's got to catch down?

Hopefully. But does that happen from rising in treasuries? Because it looks like it blows out at the worst time. it did in 2000, it did in 2008. And you wonder if that's just, you have this flight to safety and treasuries and banks are a little more, they're a little slower to offer credit and they want that bigger spread during times of panic like this. It kind of makes sense. There's 72 million millennials. So this person, Bill Smith is a CIO of a company called Smith Capital Management said, we are massively underbuilt for the size of the adult population.

We think that what comes after the coronavirus resembles what we saw after. World War II. Meaning we're going to see a bunch of people go to the suburbs and try to settle down, that sort of thing? Well, the data corroborates this. I know this is so short term, so it's hard to say, but New York Times also hit on this. Between March 15th and April 28th, moves from New York City to Connecticut, increased 74%, moves to New Jersey, jumped 38% while Long Island saw a 48% jump. So is this going to accelerate the trend of people moving to the suburbs? This is going to have huge ramifications if so. So Twitter just announced this week that going forward, employees for all time now

can work at home if they want. So if you were in like the New York office, why announce that? Maybe it'll open them up to a bigger pool of people to work for them and they'll get a greater talent. But I mean, if you lived in San Francisco or New York and you're paying a huge standard of living and you work for one of those offices in Twitter, what's to stop you from moving to Denver or the middle of the country or somewhere that's cheaper and you have a lower standard of living, that certainly could be the case. And maybe we do see people overreact and get out of the

cities. I think I saw either a tweet or a headline or something that there are groups of people, there's a group of people from New York, a group of friends that are all moving to Austin, Texas. They just decided. I mean, it makes sense. It's probably an overreaction to say like, oh, the moving to cities is done because there's been such a huge wave of people going into cities. maybe you're just seeing some of that reverse a little bit because that's been the trend that so many more people live in cities now. But it could certainly stop that trend in its tracks. The mortgage market never got fixed after 2008. Now it's breaking again. This from the Wall Street Journal. About 7.5% of borrowers had obtained forbearance as of April 26th, which means that 3.8 million

homeowners are skipping their monthly payment. This is troublesome. Mortgage servicers, both banks and non-banks were on the hook for about $4.5 billion a month in servicing advances on government-backed loans because of forbearances as of Thursday. That is roughly 25 times more than they were on the hook for at the end of February. So why aren't the banks in more trouble yet? They are. Or are they? If you look at the stocks, like Wells Fargo is at a 52-week low, J.P. Morgan is getting crushed. It's 40% off its highs. They're not doing so well. Is the Fed going to force a Bear Stearns J.P. Morgan marriage again, where we have some of these financial institutions that potentially team up and say, let's do this together.

I would not be shocked. That would seem to make sense in a lot of ways. So yeah, Goldman is down 26% this year. Don't you think some of the stronger ones like Goldman or J.P. Morgan? So J.P. Morgan actually is down 40%. Goldman's not in that line of business. But if you think about like these giant banks that make mortgages, what's Bank of America doing? I'm sure they're getting crushed.

City. Yeah. Yeah, that's true. Eventually it rolls up to them. And again, this is when the Fed. steps in and has their back, though, and people are going to get angry again, right? It all rolls down to the banks eventually. Bank of America is down 42%, cities down 50, Wells is down 59%. Again, it's May. Yeah. Again, in July, if and when this unemployment stuff rolls off the books and they don't re-up

that, you're just going to see another wave of economic numbers that are just awful and it's going to get worse then. Well, that's what Druck and Miller and David Tepper are suggesting. Okay. not one to question Teper ever, but do you think he's mad he missed the rally? No. I mean, I don't know. Because he said he's 10 or 15% net long in the market right now. So he did miss it. So don't you think him saying that this market is overvalued is talking his book a little bit? Not saying he's wrong, but he said he's only 10 or 15% net long. So David Teper is one of the probably the best performing hedge fund managers of the last 10, 15, 20 years.

He's been right more than most hedge fund managers. And I guess on in late March, he said, well, we're nibbling a little bit here, and then the market took off, and he said he's only been 10 or 15% long. I don't know. Isn't it funny, though, that can't really attribute all of markets' losses for the last couple days to hedge fund managers, but they say something that everyone else has been thinking for four weeks now or five weeks, that this seems crazy, the economic numbers are awful, and all it takes as a billionaire to say something, and then the market kind of falls out of bed?

I don't view it that way. I thought that the market was stalling out, and this was pretty good timing for them. to come on TV and say something like that. Were you reading the tea leaves? Is that why you thought the market was stalling out? Listen, sorry that I'm not a target date guy, okay? I actually look at the market, and it was stalling out. Stanley Junk Miller, one of the absolute best track records ever, probably like top two, I guess, right?

Like him and Buffett. The funny thing is, is that he does have an amazing track record, but for the last 10 years, everything he said in public has been wrong. Pretty much all his stuff about the Fed has just not been right, but it's like, he's like, one of these total, watch what they do, not what they say guys, right? He said, you're pulling demand forward today. This is not some permanent boost. You're borrowing from the future. The tickets will come home to roost. I can see myself getting very bearish. I can't see myself getting bullish. Okay, Drunken Miller said this in 2015. And I think that you

would have to be an absolute fool to use Drucken Miller as your contra, right? Yes. I wrote a piece about him saying you are not Stanley Drucker Miller because in any time people use the confirmation bias thing with billionaires, just throw that out the window, whether it's someone who's optimistic or pessimistic because guess what, they're going to be fine either way. Using a billionaire's market calls for your 401k or IRA or brokerage account, guess what? They're not going to tell you when they change their mind. And these people change their mind a lot. So that's a thing. And Drucken Miller, one of the reasons why he is arguably the best investor trader ever is because he can change his mind on a dime. He can go all in tomorrow and he's not going to tell you.

So he said in 2015, he was at the Irosone conference and he said the conference wants a specific recommendation from me. I guess get out of the stock market isn't clear enough. And then not that long afterwards, this is after the election. And he was saying buy gold instead of stocks. He said on election night, he sold all of his gold and that he was getting optimistic. And so this guy, he changes his mind really quickly, and he's a trader. So if you're not a trader and you don't understand like what the risk profile of some of these billioners are, like trying to use their market calls as a way to understand your optimism or pessimism about the market, it's just never going to work. Well, okay, so that's on the one hand. On the other hand, Buffett is not a trader. And Buffett is continuing to sell. He just sold, I forget which bank he was selling. Is Uncle Warren getting margin called?

So he sold U.S. bank, but supposedly. every time his ownership stake gets over 10%, he trims it. So that was one of these ones that was a story that wasn't really a story. But he's still not buying. So people are using that as a way to say he's pessimistic. So on the other side are younger investors who are, there's an article in CNBC, younger investors are piling into stocks. It's not just younger investors. So Schwab, Schwab had 27 of the 30 highest volume days ever last quarter. Robin Hood saw three, million new accounts. That's wild. That's a huge number. Jason Gepford from sentiment trader who was putting out a ton of amazing content. I feel like we mentioned them every week. Showed a chart. The total

E-trade and TD Amerit trade. I don't know what DART exactly stands for. Daily average retail traders, maybe has skyrocketed. Did you just pull that out of your butt? That was pretty good. I'm good with acronyms. Oh, that could be wrong. So I'm saying it might not necessarily be that they're bullish, I mean, or anything like that. It's a combination of the fact that, A, commissions are free, and B, they're staying home. And this is a pretty fun activity to keep you occupied. It is something to. And honestly, the generational buying moment that was here for like a day, I guess. Maybe they'll get another one. But people love to dunk on young people who open these Robin Hood accounts. Isn't this what they're supposed to do? When you're young and you're buying stocks when

they're down, even if you don't nail the bottom and if stocks fall further, so what? If you stay invested and obviously a lot of these people are traders and that's not what's happening they're gambling which is fine yeah but you don't know exactly yeah i do yes i do but you think all these people who are opening new accounts are just gambling yes i do all of them 85 percent okay and again you started your career gambling as well and you turned into a more long-term investor so what if that happens of these people and they learn their lesson i'm not saying this is bad at all i think this is great i think that everybody aside from you gets into the market with the idea that they're going to make a killing. And then they learned that that's not how it works. That happened to me too. I thought I was

going to pick stocks like Warren Buffett until I realized that picking stocks and businesses is not something I'm well suited for. So anything to accelerate that process is a good thing. By the way, just one more thing on the Tepper thing. Tepper said that stocks are the second most overvalued he's ever seen in his life. That's a bold call. Yeah. And I just think using valuations right now, I think is impossible. We don't know what earnings are going to be. Completely flying blind. interest rates are gone, and the Fed just threw a bunch of money at the market. The fiscal stimulus, we've got trillions piling in. I don't see how you could ever use valuation as a signal right now one way or the other. I don't see how it ever makes sense.

Oh, so let me quote myself for a second. So I was looking through, I forget what exactly what I was looking for, but I found this post last night. So there's a book called 10 Years in Wall Street, which was published in 1870, okay? 1870, which is, a heck of a long time ago. Where did you find this book? That's 150 years. I don't remember. I never finished it.

An actual hard copy of it? No. No. I have a hard copy of a book, a stock book that I found in a bookstore in Portland. Remember when we went to go see Joey? That book from like whatever, that's super old. But anyway, again, this is from 1870. Wall Street operators commence their careers as bulls and finish it as bears.

And I think the simplest explanation for this is this. I said, it's easy to be optimistic when you're young because you have your whole life ahead of you. And it's normal for people that are several decades past their prime not to understand the world around them and therefore be less optimistic. Yeah, it's the get off my lawn theory, right? Eventually you get older, you turn pessimistic and I can see that. I think that's permanent. And actually, Druck and Miller should know this better than anybody because when he first started in the industry, he like immediately was named managing director or was like a boss early on. I think he was probably in his young 20s, and people are like, why him? What's going on?

And his boss said to them that everybody around, I think this was 1982 or 81, everybody else had been scarred for the past 15 years. And they needed somebody who was too young and stupid to not know not to charge into a bull market. You also wonder if that works to some investors' favor because maybe they don't take as much risk in their old age and they diversify their portfolios and hold more cash and bonds when they need to. So you wonder if part of it, actually does work out for some people. Okay. This is the quote, the drunk and brother thing that I was talking about. When he asked why he was promoted above the others around him, his boss said, for the same reason, they send 18-year-olds to war. You're too dumb, too young, and too

inexperienced, not to know to charge. We around here have been in a bare market since 1968. This was 1978. I think a big secular bull market's coming. We've all got scars. We're not going to be able to pull the trigger. So I need a young, inexperienced guy to go in there and lead the charge. That was actually a really forward-thinking manager. Yeah, that was an amazing call. Even if he called, there's a bull market coming and there was to know these experienced traders are not going to be the ones who are going to be able to handle it because we've just witnessed this 15-year period of markets just sucking.

Exactly. So the value is dead thing is at an all-time high right now. Cliff Asniss wrote a great piece last week that everyone's been talking about called his systematic value investing dead. And this was just a great piece of research because he went through every caveat that there is in the book in terms of why are growth stocks outperforming value stocks? And is it just because of tech stocks? No. Is it just because of mega caps? No. He went through every sort of counterargument you could make. Takeaway was just people are paying more for growth stocks now and less for value

stocks. Was that the general takeaway? Pretty much that's period. End of story. That's the TLDR. It's so bizarre to me. Who would have ever thought that we'd see dot com level valuation spreads during a bare market? That's not when you would have expected to see it, right? You would expect to see this during a year period of a bull market, of a blowoff top and things going crazy. That's just what makes this bear market probably so different than the other ones and so challenging is that nothing has changed. It's only gotten worse. So Wes Gray from Alpha Architect did a follow up on this. And he basically, said, this is not exactly great news. Value looks cheap on a relative basis, but doesn't scream

totally cheap on an absolute basis. So maybe a better time to be in the long short camp than long only, but I guess we'll say. Yeah, this is a tough period if you're a quantitative investor. And hopefully you have something else on the other side of it, either low volatility or quality or momentum to offset that value. Investors are getting sick and tired. Robin Wigglesworth did a piece on this. And it looks like investors have been dumping value focused equity funds for a while now. How many of these investors, so this is talking all about systematic quantitative stuff, how many fundamental value investors do you think have left and haven't just thrown in the towel

and bought the tech stocks? You don't hear as much about the Bruce Berkowitz and those type of people, the Tweedy Brown or whatever, the Dying the Wool value investors that, I mean, even whatever, Berkshire owns Apple now and those types of things. So you think a lot of those people have just thrown the towel in and said, we're not just going to buy low price to earnings or price to book or price to cash flow stocks anymore. The thing that I asked, and I don't know that I believe this, but I think it's a fair question to at least think about, is there literally no information there anymore? In other words,

if you just take the cheapest based on PE, price to book, whatever you're using, is there just no information there anymore? Have investors gotten collectively really, really good at valuing really, really bad companies? So I don't think that investors will ever not overpay for growth. I think that's almost a permanent feature. The thing is that the growth, companies, the biggest growth companies have delivered. So that's what makes this time different. It's it possible that we've just gotten really good at valuing companies that just suck. And all of these companies that are trading at 11 times earnings or six times forward earnings, they just will never get a re-rating higher because they're just in secular decline. Is that possible?

Maybe. But to the other side of that coin, does that mean that investors are getting better at valuing growth stocks too? Why? I don't think those are contradictory statements. I guess what might be contradictory is, if momentum is a thing, how could value not just be the same thing in reverse? Like, how could that ever go away? Yeah. No, I agree. It'd be stupid to say it's completely gone forever. I would take the other side of that bed every day. So someone sent this to me the other day, and because it feels like text are actually the only things that are winning right now, someone sent this to me today. I wrote this in 2014. I did like a sector quilt of, so I wrote this and I looked at all the sectors, GICS sectors, so financials,

consumer discretioning, health care, materials, whatever, energy. And this is as of, let's see, I wrote this in May of 2014, and here was one of the lines I wrote. The energy sector has outperformed the S&P 500 by nearly 7% per year with nearly the same standard deviation. So the best performing sector in 2014 for the previous 10 years was energy, which is now just the complete opposite and has just gotten slaughtered. So it feels right now like this will never end for tech and mega caps, and it's the only thing that's working. and history tells us that's just not going to be the case forever. It just can't. To your point about the poster world last week, about the growth rates, unless it really eats

the market, it's impossible. So eventually, this is going to go away. The thing is, there's never much of a catalyst for these changes, though. Yeah. I think it's possible that we live in a world where these companies continue to dominate by the multiple contracts only because it's gotten so crazy, not necessarily that these stocks have gotten so expensive. That's the thing, though.

These stocks aren't bubbles. are backing up what's going on. It's not just multiple expansion. I guess Apple actually, in 2019, Apple was 100% multiple expansion. But by and large, the fundamentals have supported the expansion. Right. And you can never really look at the fundamentals of Amazon because they're trying not to earn a profit. So trying to use like a ratio for a company like that doesn't really make sense. Well, you know what trend would say. You have to look at free cash flow. Yeah, but these companies really could continue to just kill and become these huge monopolies. but investors have embedded such expectations in them that they can't hope to live up to them. And that's where the stock prices could underperform as just the expectations get so overboard. And that's typically what happens.

The stocks can underperform the business, which is a weird thing to potentially see. But another chart from Settlement trader, S&P growth versus value ratio, just going vertical at an all-time high, past the dot-com bubble, 100-day rate of change, highest ever. So just wild stuff there. Super Mugatu, Dan McMurtry, wrote an interesting piece. advocate on the bull case. And I thought that this particular piece made me think, investors as a whole remain extremely bearish to the extent that even entertaining a bullish view induces fairly violent responses. But these people are already out of the market. Their views do not impact prices unless they are forced to capitulate, in which case they drive the market up.

So that would almost be like the only way that they matter anymore is if they do some short covering or. So these people that are bears that aren't in the market could scream all they want. It doesn't matter. They're not involved in the market. Right, because their money is not moving things. Exactly. So I thought that was a good piece. That's true. So maybe this is like the opposite of what has happened in active investing. So one of the reasons that we've talked about in recent years about why active investing has been harder to outperform is because there are fewer suckers at the table. Maybe this market, there are more suckers at the table right now because a lot of the professionals have backed away and said, I'm not going to participate right now. Is that

possible? Yeah. For using the Robin Hood analogy of three million new accounts, is now the time where you better outperform because there are more suckers at the table. People are over-trading. What do you think? Yeah, that's possible. As I was looking last night through trying to find something. I found something that I wrote in 2019. So Mobeson was on a podcast with Patrick O'Shaughnessy.

And in terms of is a systematic value stuff dead, he said, if you're buying, who is selling and why? I'll tell you who. It's people who have moved 3,000 miles past the price to earnings ratio. The goal is to find patterns on the fuzzy edge of observability in financial markets so faint that they haven't already been exploited by other quants. That's pretty deep. That's like poetic, right?

That's really good. Yeah. I mean, honestly, this is one of the reasons that I love the game of investing because no one is immune to just getting kicked in the pants. You could have the smartest, best quantitative strategy ever. You've looked at everything, every back test in history. You've scrubbed the numbers. it shows you that value investing works or buying high quality businesses or whatever, and the market

still says, I don't care. There's no one who is immune to just feeling like an idiot in the market. And that's one of the reasons that I think it is so great because it's impossible not to go through a dry spell every single investor has and every single good investor as well. This was a story. AT&T CEO is retiring with a pension of $274,000 a month for life. Did this person invent the telephone? That's not a great look, huh? They said the pension would be worth a staggering $64 million if you backed it out and did the net present value of it. Unbelievable.

Does that make you a little angry? Yeah. Especially at a time like this. Again, this is, I love capitalism. I love billionaires. I love Jeff Bezos for what he's done, for what he's given us. This person is not that. Would you know him on the street or know his name?

No, this person ran a company. Right. That's egregious, obviously. So the Michael Lewis podcast that you turned me on to, although I listened to the first season, I didn't know the second one was out. It's out. And it's about coaching this time instead of the referees. Yeah, it's good so far. And the first one was all about finances and credit cards. And we've been talking about this. So he said, he talked about the number we said there was $34 billion in overdraft fees for banks last year. And he said between late fees and interest charges, these financial companies make $100 billion a year or the number last year from credit card charges. And he had a good way to look at this. He said how a lot of these credit card companies are using behavioral finance against people to keep them in debt. And so the way that they set up their statements and the way that they do the minimum payments and how they show the font size, they are trying to nudge people to make the minimum payment, which sounds so evil when you think about it that way. And he talked about this company called Talley, which I never heard of where this entrepreneur, younger guy started it.

and he'd grown up in a family that was very frugal and wanted to help people. And they basically take all of your credit card bills, they paid off and they set up a payment plan for you at a lower interest rate and also help you figure out like a financial plan and a savings plan. It sounds like a really cool program. So this is the first episode of Season 2, what's called Against the Rules. It was very good, but it does give you a kind of a crappy feeling about the financial industry in terms of they show how the people who have the least amount of knowledge or resources are being taken advantage of by these credit card companies. Last week, we spoke about South Korea and what's going on with their markets.

Matthew Klein wrote a really good piece in Bairns about how Taiwan never needed to shut down their economy, but it's stalling anyway. And this is sort of obvious when you read it, although I didn't think about it. He said the most obvious problem for Taiwan is that many of its business sell to customers in other countries. Right. It's a globalized world, and that's the same thing that's happened a lot. Yeah, so I had to look through all these countries to see if having a better response led to better stock. But it was basically a wash where it didn't really matter. And that's, again, because things are so interconnected now that doesn't really matter how you're handing things on the local front. So maybe better for your

citizens, not better for your stock. So trying to find a signal to that noise is difficult. Have you noticed the prices of beef going up? So we spoke about this last week. I mean, I'm not paying attention to the prices of anything because we're just ordering stuff online, I guess, where my wife is doing it. So does that mean like, the prices that McDonald's are going to rise in Wendy's and Burger King, or does it not flowed through there yet? It has to. Beef and pork production is down 20% year for year. And wholesale beef prices were $2 in March. It looks like now they're up to almost five bucks. Massive increase. And this is opening the window for alternative meat products

beyond and stuff like that. They said grocery store sales are fresh alternative meat products rose by 264% in the nine weeks ending May 2nd, which is a $25.7 million increase. Fresh meat sales also on the rise, 45%. So BYND is up 75% this year. So that's another one that is your, that's another Peterlin stock where you go, why did I not buy it? And this thing was down really this year. So I said it's up 74% year to date.

It was down, it was 58% off all-time highs in March. So you wrote a piece the other day about Chipotle that just got cut in half. and now it's at all-time highs again, the repricing that we've seen, this is the trying to become a fundamental investor in a market like this. Like, how could you ever even hope to to think like that when it's just these wild snapbacks that we're seeing in like repricings are just happening so fast. It's really remarkable. I was talking to Robin about shopping and stuff and what is that going to look like going forward when things open up again. What about dressing rooms? Is anybody ever going to go to a dressing room ever again? I know Ever's a lot.

a long time, but call it the next year or two. I mean, a lot of these places now, you buy it online and you can send it back and you can try it for a week before you want it or something, maybe that we're just going to continue to see this push to online purchases. And before this happened, I hadn't been shopping at like a mall or a department store in a long, long time. And that trend for a lot of people are probably just going to be pushed forward again. A few weeks ago, you mentioned how come there's not a category for a comedy at the Oscars.

and during the Groundhug Day rewatchables, Simmons said that William Goldman, who wrote Princess Bride and other things, often asked, like, how come comedies get the shaft? Like, for instance, something about Mary. Yes. Oscar worthy, no? I love that movie. So Princess Bride is now on Disney Plus, and I introduced my kids to that. They loved it. Top 10. Easily. Yes. Any wrecks for this week. I was talking to Josh about this, and this might sound crazy, but billions is it better been, than Sopranos. And I'm not saying that it's a better show, but the Sopranos was built for a world

with one a week watching. And I guess Billions comes out once a week also. It's just the pace of Sopranos, it's just, it's a grind. I can't watch three episodes in a row. My defending Jacob show on Apple has kind of taken a turn for the worst after the first three episodes.

I think that's the kind of show that would have been better to just binge all the way through and get it. but now they've gone from, they did the first three, and then they've done one a week, and now it's kind of trailing off for me, whereas I think if they would have reached the whole season, if there was a slow episode or two in the middle, I wouldn't have noticed as much. So I agree that there are, maybe they need to start doing test audiences to figure out which ones

need to be binged and which ones need to be dribbled out in drips and drabs. For example, Joe Exotic, I mean, not a great show to begin with, entertaining, mindless, dumb. If that was once a week, it would have been, it would have been unwatchable. Yeah, you had to, like, watchable. all the way through or you'd lose interest. That's what I did at least. Yeah. So I needed to read another one about the 1918 flu pandemic just to understand what went on back then. And so I started reading this book called Pale Rider by Laura Spinney. It just came out a couple years ago. And the great influenza one by John Barry that I read before was more about like the medical side of this and

how it changed from a scientific perspective. This book is more about how did society change because of this. And even though there wasn't a lot written back then, she looks at it from that. So I started this this week. I've just gotten into it. And it's an interesting angle because that's, I think, some of those pressing questions to me about this whole crisis is how does this change behavior and society. And she tackles that in this from the 1918 flu perspective. Wasn't society in 1818 more changed by the war than the flu? Yes. But she's going to make the case that the flu had a lot to do with it as well. And it's just not as well known. Interesting. We'll see how that goes. But it's pretty interesting so far. All right. So we were back on Friday. We'll see what next week

brings, it will be news dependent. If the dock gets too full, we'll go for two. If not, we'll stick with one.