Animal Spirits Podcast - Trading the Election (EP.175)

Episode Date: November 4, 2020

On this week's show we discuss how to think about your portfolio in relation to the presidential election, how markets tend to react during the post-election period, is it finally time for value to outperform growth, the resistance of the U.S. economy, the best new show of 2020 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

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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 Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Last week, the stock market was down 6% or so, I guess. And you put out a post that, actually, I agree with your title, you said, who cares? Basically, this happens. This is the stock market. Get used to it. The reason behind it doesn't matter that much.

Our stock's up today, because stocks are down on Friday ostensibly on, I don't know, pre, election jitters? Are they up today on jitters? I don't know. Reverse jitters. I think that headlines for a while now are just going to say stocks are up on pandemic slash election. Stocks are down on pandemic slash election. But my thought process is your who cares line of thinking, which most of the time will serve you well as an investor. I think that will serve you well as an investor when you're thinking about the presidential election too. You can care about it in other aspects of your life, but not your portfolio. Shouldn't that be the main line of thinking here. Yes. And the thing, who cares? My target for this post was just regular people,

not financial professionals, people that contribute to a 401k and are thinking about doing something to their portfolio. Let's say the market goes down 10% this week and it's a really bad week. And I don't mean to be so like such a tough guy who cares. I understand that there's anxiety involved. But my point is, if you're investing in a 401k for the future, then who cares what happens in the next week? And it's not even about being tough about it. It's about just sometimes letting go of hoping to have control over it. And I think that's what people want with the election. That's why I'm writing a post right now about when is like the siren sound of market timing the loudest. I think it's certainly during bear markets, people are panicking all the time

and wanting to make something happen, maybe a little during bull markets because people get FOMO. But it seems like every four years now, and this seems to build up even more now with the information age, is that people want to do something because they want to feel like they're taking control and they're grabbing the steering wheel and they're going to do something to make something happen. And they are. Yes. And so you shared this. This is from the Wall Street Journal. They did a study and it said, this is from a survey, take it for what it's worth. Roughly 63% of investors have tweaked their holdings in some way ahead of the elections according to UBS. Now, this is a UBS survey, 1,000 investors with at least a million dollars in investable assets. The biggest

things they've done is increase their cash, adjusted their allocations to sectors, and added protection and hedging. What do you think about this survey? Do you think it's legit? Yeah, kind of. Well, Are their clients representative of the entire population? Let's just say that it's close enough. How about that? Could you say it's close enough? I think some people like to sound sophisticated. I don't know who you're trying to impress in a survey.

But don't you think it sounds smarter to say, yeah, I know volatility is increasing going into the election, so I hedged a little bit. And even if you didn't do anything, it's watch what they do and not what they say kind of thing. Possible. So one of my takes is like, I don't think this is that big of a deal, assuming that you do it within reasons. So let's say that, I don't know, you raise 5% cash because it makes you feel.

better. Or in your case, Ben, you went from the 2050 target date fund to the 2030. If you want to get a little bit more conservative without doing something completely rash, sort of no harm, no foul. And if it's you, you're trading election like it's an earnings report. This is the Netflix of election, right? You're trading it like that. Regardless, whoever wins, I looked at this, Robert Schiller has data going back to 1871 on his website, which, what do you think the cutoff is in terms of when that data is completely useless? Pre-19-something, yeah. I think this stuff in the 30s is instructive just because it shows how crazy things can get. But I mean, the markets were, I don't know, were they more or less dead between the Depression and World War II? Yes. Post-World War II is probably

modern. You've said that things are so much different today than I guess anything before 2016 to you is ancient. Yeah, maybe. Well, that's kind of how it always is. But anyway, I looked at this data going back to 1881, because that's when the CAPE ratio starts. The Chester A. Arthur administration. And I went through the term of everyone, and I looked at the starting interest rates and the starting CAP ratios, just for, I don't know, whatever, no real reason to, just because it was something to do. But this is the second highest valuations that a president has ever seen in by far the lowest interest rates over the last 140 years of this. Whoever takes over, it's going to be tough regardless. In terms of stock forward stock returns?

In terms of the market, yeah. And of course, stock market could always keep rising. It was kind of interesting because when Trump took over in 2017, the Cape was 28, now it's 31 in change. And stocks have done 12.5% per year since then, it's like 55% total return for the S&P 500. That's actually surprising to me that valuations didn't increase a little bit more than that. That kind of shows that fundamentals actually kept up more or less than most people would assume. A lot of people think it's all Fed manipulation and a mirage. No, mostly, only mostly fed manipulation. But that's the kind of thing that you could see going a little higher as valuations keep rising if interest rates stay low. But, I mean, my point of this whole thing was presidents get more blame than they should when things go poorly and more credit when things go well. If you look at Clinton, the CAP ratio from his eight years went from 20 to almost 40 through the dot-com stuff. Bush reversed all that and went from 37 to 15. So much of this is just out of their hands, is my whole point, that a lot of it is just timing on cycles and when they take over. and it's not like it's there really controlling anything or pulling the levers like some people assume. That's the kind of mindset you have to get out of.

Also in this survey, so they asked, what will happen if the election's results are contested? In this case, 50% of people said market decline, 30% is in no change, 19% said market upswing. Why would the market go up if there's a contested result? Is that like the ultimate contrarian answer? Nobody actually believes that. That makes no sense. I'm trying to figure out what the second and third level contrarians are because now it doesn't it seemed like consensus that the election is going to take a while to figure out, just because of the

nature of everyone voting so many people voting ahead of time and counting the ballots and that stuff. That seems like consensus at this point. So people trying to claim that that's a contrarian view, isn't the contrarian view at this point that the election night will be over on Tuesday and we'll pretty much know who won? Yes, that is. Over the weekend, the UK said they're going back into lockdown or mostly, I don't know the exact details. And so you would think that maybe, not maybe, that's not going to be great for the economy. I guess I just expect. Europe to be read on Monday morning. The Futsi 100 is up 1.5%. Is this the type of thing where, to your point about the market being forward looking and maybe thinking more long term,

I don't really buy that, but that actually shutting down is going to be long term, a net positive, even though it's going to be short term detriment. So the market is actually up on this news. Okay. Almost like people have learned. They're thinking two steps ahead instead of one step like the first time around. Yeah, it's like, listen, if we don't shut it down, we're just going to muddle through and this thing's never going to go away. If we shut down, yeah, it's going to be really bad for the economy. It's going to hurt a lot of people. But in six months, we'll be out of this thing. I mean, and here's the other take. Isn't it possible we see, since we don't have a new stimulus yet that we never got for God knows what reason? I can't

believe we haven't got another one yet. Isn't it possible? We see like a four-month recession here, four or five-month recession, and then back to recovery when the vaccine hits, whenever that is, or the next stimulus bill hits. Do we think that, assuming that there is some sort of resolution, whether it's Trump or Biden, there will be stimulus very quickly. I would assume, yes. January or February, we're going to get something, you would imagine. From now to then, we could have like a little minor hiccup. But by the time we see it in the data, it'll be old. Anyway, maybe the real lesson is stop listening to the stock market.

Stop taking your cues from the stock market. Like I just said, oh, maybe it's not so bad because the market is up. It's one day. And the market was getting killed on Friday. People are trying to figure out what's happening. The market is up today. People are trying to figure out what happening. I think about 2016.

The market fell, what, 7% overnight future? in the next day, didn't finish positive? People were extrapolating from overnight futures traders what's going to happen in the next four years. I'm guilty of sort of being short-term in terms of my thinking, what does market say? Who cares? I think that's the right way to think about this. And not only who cares, but no one knows.

That's the truth. No one has any clue. That's the right on this. Nick Majuli did some data analysis on what happens going into the election. What did he find? He did a deep dive and he looked at what happens running up to the election. and he found that presidential elections do have a noticeable impact on markets, but the size and duration of that impact seems to be limited. He basically said that most of the volatility happens before, and then it kind of all unwinds after the fact.

So there's a pressure release after. Side note, how do you define, where's the line between just a dive and a deep dive? I don't know. Is it the number of charts? Like, this is chart heavy, so Nick has like four charts in here. I'd say that's deep dive. That's pretty deep. I mean, you do like a post with one chart and like 300 words, that's a pencil dive.

I was a big pencil guy. I can see that. So what else did he find? Because there's a lot of charts. Is that basically it? All the charts said the same thing. It was also just for some reason, this weird seasonality thing, there's a lot of outliers. There's weird things that happen in the fall.

So he found that in the fall, volatility has actually increased overtime a lot. And you have to take out some of the outlier events like 1987. and I can understand though why people get worked up going into an election and then it's over and people breathe the side of relief and then move on to their life, which has kind of happened last time. I think Santoli was talking about this. The Vix Futures curve was heavily elevated going into November. Like everybody is buying protection. And so assuming the worst doesn't come to pass, you could easily see the pressure release and everybody go, ah, and then the market just rips. Right. That wouldn't surprise me. It is the intelligent thing to say is that we assume

volatility increase going into the election and coming out of it. But again, who knows? All right. So we were talking about this. I wish we spoke about this earlier because now it's going to look like I'm just reacting to the market. But I think we were talking on Tuesday or Wednesday. And I was saying that I think value might be in for a good 2021. I know that sounds ridiculous, but just hear me out. The bottom is in. You're calling it? Hear me out. George Parks showed a chart of GDP. GDP is 3.5% below Q4-2019 peak, 4.9% below where it would have been currently at a 2% annualized growth trend off that peak. And we're not going to see another sequential like we just got.

So in other words, as bad as things were with the economic shutdown, not that, that, that bad GDP? No, yeah. Before you get into your value stuff, this is amazing. A 3.5% GDP drop is actually a pretty decent size fall historically. From where we were getting back to that level almost, I think that is kind of amazing that we're there. What do you think about that 33% annualized GDP growth? You like annualizing those numbers on the way up? As a lot of people reminded us on Twitter, you know, a 33% loss and then a 33% gain does not make you whole. I bet you didn't know that. I forgot about that. Yeah, I know. Okay. So assuming that the economy is going to be healing into 2021, which I believe it will, just shows the resilience of our economy. Props to America.

Imagine betting against the American economy. After seeing charts like this, that's my takeaway, that we're almost back on trend. even though we're still a little below. So a lot of these beaten up names, the cyclicals, the value stocks did get crushed and they did see multiple compression to pour salt in the wound. Think about what the comps are going to be like coming into next year. They're going to look hilarious. Honeywell beats by 280 percent. I'm making up a name. You know what I mean? Maybe Honeywell is a bad example, but you get the point. On the other hand, you've got growth stocks and the reason why I wish we had this conversation last week is because it looks like I'm reacting to the news, I'm not. Ben, can you corroborate? We had this conversation before the growth

names started to puke a little bit. You're getting close to pounding the table here. I'm not pounding the table. Just back me up. Yes, you were talking about this before it happened. Thank you. John Ehrlichman tweeted, Amazon's third quarter revenue, 2017 to today, 43 billion, 56 billion, 56 billion, 70 to 96. Huge beat. What do the stock do? Looks terrible right now. Stock got smushed. And technically speaking, Ben, I got to tell you, doesn't look great. I'm seeing a neckline at 2980. Is it a V-neck line like you?

I am wearing a V-neck. Teledoc. Lee Drogan tweeted, Teledoc crushed today after doing 109% year-over-year revenue growth. 109%. And the stock, I think, fell 12%. Teledoc is now 24% off its highs. and think about the comps that these growth names are going to have year over year. They pulled so much forward that it's going to be harder for them to beat expectations or let

alone what they've done this year. That's exactly right. So there was an article or an annual letter about David Einhorn, which we'll get into in a minute. The value people are always accused of being backwards looking, of using metrics that don't account for the current economic landscape, of not understanding intangibles. It's hard to refute all of that. But can you make the argument that now it's swung too far to the other side where now I guess the

difference is in fairness to growth names is that a lot of the growth analysis is more quantitative. You're seeing sort of the same arguments that it's a new paradigm that these companies are going to grow into their earnings. And yes, some of them will. But maybe it's gone a little bit too far and 2021 is a year. I'm not saying that this is going to be a 10 year swing, but maybe 2021 is a year where value investors get a little bit of reprieve, growth investors struggle a little bit. Can you see that happening? It has to happen. Otherwise, it is over, and it's done with it, right?

Last thing, that would also be in line with history is what happens coming out of recessions is value stocks do tend to outperform. Yeah, if we do actually get a sustained recovery. Yeah. A lot of Fs here, but that's my take. So Einhorn might catch a break. What's going on with Einhorn? Well, he's been short these names for a long time.

Because he said, we're now in a bubble. He's basically calling it in 1999 again. People posted on Twitter all over the place that he's been short. a lot of these names since like 2014. That'd be just options, right? He can't be short these names for five years. No, literally, you can't be short these names for five years. You'd get margin calls.

There's a headline from early 2014. So this is a long time saying the tech bubble is brewing. He's shorting momentum names like Netflix and Amazon and that's a long. And he's saying this the whole way up about how unless there's a new paradigm for valuing equities, the joke's on us. Time will tell in this like 2017. But did you ever read this book fooling from some of the people all the time from him? I did.

So that got left on the cutting room floor. he was going to be in my book, Big Mistakes, and I was going to write about. He had a quarterly letter in 2016, basically saying that everything went wrong, and I was going to write about this, and I just didn't make it into the book. I mean, that book, unless you're a diehard finance person, don't read it because it is very dry. It could have been an article. It was a 300-page book about his battle with this one stock. Was it a mortgage originator? I can't remember. Yeah, Allied Capital, and he was talking about how they were fraudulent, and he was shorting them. And I think he ended up donating the proceeds or something to maybe from the book or they end up being right, but it took

him six years. And he was doing all this forensic accounting. For me, this is the opposite of a Buffett or Peter Lynch book. A lot of normal people read a Buffett book or Peter Lynch book, and they go, I bet I can do that. That's fine. I can do that. You read this book and you realize this is what I'm up against in terms of hedge fund managers. This guy is brilliant. He persevered against all these regulatory agencies against him. The company did a PR battle against him. six years he took to try to take this company down. He finally did it. And he could have just gotten out of the company and said, all right, I'm moving on. I don't care. But he like went against it. And my whole thing is, does that persistence work against you sometimes when you're trying

to fight against Netflix and Amazon and some of these companies? Can he ever be right with these names? I mean, no matter what happens. I mean, if they fall 90%, but even still. Don't you have to bet on a complete redux of post-1999 with a dot com? They just got slaughtered. Isn't that the only thing you're hopeful for? What if these tech stocks just, they're volatile, but they go nowhere for a few years and try to bleed off some of those expectations and the value stocks come back a little bit? And you don't get a 99 where you make a ton of money because you shorted these stocks. And that's possible too, right?

Yeah, I don't want to like pound on him because I understand what he was coming from. He nailed the dot-com bubble. He nailed the GFC by doing what he does, by valuing stocks and things changed. And maybe you could say he was too stubborn for too long. but Netflix is an example. In 2014, Netflix is not the company that it was today. So this is maybe more of a lack of a lack of insight. I want to say lack of. It's not that anybody could see the future, but maybe he was more wrong on the qualitative side than the quantitative side. But I think this is why it's so hard to sustain the pace of being a star manager these days.

This guy obviously is brilliant. He's like a good poker player too. If you're right a couple times like that, remember he took down layman. He said, I'm going to short layman in 2007 before most people did. If you have a few big grand slams like that, don't you just always assume, okay, I'm being contrarian, everyone else is wrong and I'm right. And you stop asking yourself, well, what if I'm wrong, though? And he obviously hasn't really done that with these tech names because he's still shorting them. And whatever, maybe he's right eventually. But that's a long time to be wrong on names like this that are potentially game-changing companies that could be here for a long time to come. So Netflix just announced that their hiking prices. When was the

last time they hiked? They did this, I don't know, a year or two ago. They could double the price every six months and I would still pay. Did you get into the Queen's Gambit yet? I did. We'll talk about that. Before we get there, the last number in my head, if somebody asked me how much is Netflix spending on content, I remember it being like $8 billion. And so when I read this article from The Verge, there's spending an estimated 18 and a half billion in 2020 alone, 18 and a half. I was at eight. So eight was probably two or three years ago. Anyway, the Queen's Gambit. As consumers of this content, I love to see that number. I'm glad that I saw people tweeting about it.

Everyone was right. It's very good. I'm on episode five. I have not seen one person say I don't like it yet. It lived up to the hype. We're on episode four. It's just so well done. Here's the question for you, though.

Why does it feel like their TV shows are so much better than their movies? The quality of it is just so good. There's no way that show doesn't get nominated for some awards, right? So to your point, I watched Holiday this weekend. Did you see that? No, I kind of clicked by that one. Sorry. It's a rom-com.

By the way, I think I'm learning. I don't know if I love rom-com as much as I thought I did. I said that I like the genre. The cheesy ones. You stay away from the cheesy ones, like something called Hollidate. That's probably not going to be good. It was kind of like plus one. Okay.

The name Hollidate kind of turned me off. If it's a play on words. It wasn't good. Definitely wasn't great. Anyway, but you're right. Their TV shows, I don't know why they haven't quite figured it out on the movie side. Birdbox? Was that the one with Sandra Bullock?

That went viral. I didn't think it was good, did you? That was terrible. But doesn't it seem like Netflix has by far. are the most viral shows. I saw people talking about Queen's Gambit for three or four days straight. And it feels like they have the ability to have a show go viral way more than any other channel these days. Well, how about this? The Boys on Amazon is one of my favorite shows, my favorite shows. And you don't really see a ton of press about that. I think if that was on

Netflix, you're absolutely right. So we shared this chart from Matthew Ball a few months ago, talk about monthly churn. And Netflix just does not lose subscribers. So they're talking about a $1 increase for a standard plan, $2 increase for the premium, they're not going to get much turn here. They just don't lose subscribers. That would be the one. I think if I had to pick, I would keep them over all the other ones, don't you? Maybe you'd keep HBO Max. Oh, in terms of streaming? No, no, no, Netflix. Yeah, if you had to pick one. They're just, they are the brand. So you got a bit roasted last week talking about taking out a $400,000 loan for a $300,000 house. Would you like to repent, sir? Did I not say I don't know how the process works?

people did roast me. So a few people came and said that you could use like a two or three K loan, which you wrap construction costs into the mortgage. So you pay a little bit of a higher rate, but you can customize it. You'd have to refinance when it's done. I'm not saying you had to take a real mortgage. People were trying to tell me I'm an idiot, but there's a few of them. We got a few funny emails. Ben, you moron. What do you talk about? I still love you though. Yeah, but a lot of people said you actually can do that. It's just a different type of loan structure called a 203K loan, which I've never heard. That's like if your 401k gets cut in half, I don't know. So this one person tweeted, they'd pay higher APR, but they can customize house versus paying

for someone else's taste. You'd like to refinance that completion? Yeah, so all the people that tried to roast me, boom right back at you. I was right. You can do this. The 203K. Hello? Yeah, I knew that. I just forgot the name. I swear. It's possible. Okay. I feel like every month since this crisis began, the pandemic, there's been a just wait until this happens and this is going to be the other leg to drop. So this is in the Wall Street Journal says struggling rental market could usher in the next American housing crisis. Don't you feel like we've gotten one of these? Like it's going to be commercial real estate. It's going to be the housing market. It's going to be once the fiscal stimulus is done and people are off their unemployment benefits,

then that's going to be the next shoot-to-drip. Careful. We're not out of the woods just yet. I'm just saying how many shoes have dropped so far that we've heard about and it hasn't happened yet. Obviously, whatever, we're eight or nine months into this. It's not that long. I don't know. I think you could say millions of shoes have dropped, not to cause like a national crisis, but a lot of people are having a personal crisis. Yeah, but this is saying could bring down the whole housing crisis because, so they're looking at when the eviction ban comes up and expires in January, renters might be on the hook for months of missed payments, which, what are the landlords, what are their options, kick people out and then just write off

all those mispayments or try to work with them and get something back. That's like, let's say you're a credit card company and you have someone who owes you a ton of money. And they call on and they say, and you can actually do this to credit card companies and say, I owe you 20 grand. I cannot pay that, especially when you're charging me a 15% interest. What if we go on a payment plan and I pay you back 10 of it? Would they rather have 10 or nothing? Don't you think that's what's going to happen in these situations where a lot of landlords are going to say, let's try to save some face instead of completely writing it off and kicking you out? Are you saying this because you mentioned that a lot of these tenants are putting their rent payments on their credit card? Oh, are they? Can you do

that? So that's shocked the hell out of me. It says the number of tenants, She works with who report putting payments on credit cards has exploded. By the way, this is from the journal. We'll link to this in the show notes. This shift of debt from landlord to plastic and harm renters credit long term. Did not think about that about the burden shifting from the landlord to the credit card companies. I just think it all rolls to the banks. That's what I'm saying. Before we get to the most more hodding stuff, someone did send us an article because we talked about how FICO scores have shot up during the crisis. Actually, one of the reasons for that is because they change the way that they calculate the FICO score.

Part of this was people repairing their balance sheets, but also part of it was they just changed the way that they calculate it and actually increased by about an average of like 10 or 20 points per person. We've got some good fact checkers on the podcast here. Okay, Barry Riddholtz put out a contrarian piece on his blog last week, and he doesn't make these types of big proclamations very often. He looked back at suburban housing prices, and there was this graphic from Zillow, I guess,

and it said the average U.S. home price value in 2000 was $126,000. In 2020, it's now up to $260,000, about 106% increase over two decades. Barry says rates are low, pandemic driven demand. Is it possible that we're approaching peak suburban home price? And I say, I don't think we're anywhere close to it. Demographics are overwhelming. So this guy from Morgan Stanley was in the New York Times today. What about a plateau?

Like maybe the pace of acceleration will slow down, but. It's possible. I think maybe people are still stuck in the 2008. I see the total opposite here. So this is from a strategist at the chief global strategist at Morgan Stanley, and he had a piece in the New York Times today. He said that the boom in housing is basically a government creation. He said central banks flooded money to the credit markets, rates on 30-year mortgages, plummeted to record lows. If you are dreaming of riding out the pandemic in a larger home, cheap mortgage is now beck in you. Housing is a bright strap for the struggling economy. But when prices are shaped by easy money, as much or more than genuine demand, the result is often a severely skewery. acute allocation of resources. And I think this completely misses that there is genuine demand. Exactly. And there's little supply. So I think this completely misses the demographic wave

that's hitting from millennials. And I just think, I don't know, maybe this throw to my face in a few years, but the price thing, I don't think that really matters. I think millennials are going to want houses and this demand is going to be strong for a long time to come. I'm completely with you. I think trying to call a peek on this right now is way, way early. By the way, Barry said we may be approaching peaks of urban home prices soon, dot, dot, dot, dot, which is a pretty weak proclamation. The dot, dot, dot, dot, dot. It's like, listen, it could be wrong. That's my out. I didn't say it was coming. Did you not see the dot, dot, dot, dot? That's true. That's kind of a safe face. The dot, dot, dot, dot. Yeah. So, Jeremy Grantham has a new post, developed world annual

real GDP growth. This thing has been trending lower for decades and decades. Is it, I mean, You talked about this on our podcast with Marvin Lowe from State Street a couple weeks ago, and you said, doesn't it make sense that a bigger, more mature economy would have lower growth? Thank you. I was about to repeat that. Doesn't this make sense? I mean, maybe I'm missing something, but what was world GDP? Doesn't the pace have to slow down? Can't you say the fact that we're having 2% growth on such a gigantic number is actually kind of impressive? I fully agree with you. I don't think that you can have this huge growth go on unabated forever. Now, Grantham said something that was interesting. I think a lot of people talk about income inequality as being just a horrible thing for society in general without necessarily looking at the economic consequences. But he said something that was sort of sounded obvious

that I hadn't thought about until I read it. He said, I believe income inequality is eating away the economy from the inside with a lack of economic progress for workers reducing demand, end quote. And we spoke about this with the fiscal stimulus payments going out. A lot of the people on the bottom, they're spending the money. It's the people that have so much money that have more than they could spend. Yeah, they're job creators, whatever, whatever, but demand is coming largely not just from rich people. There's billions of people that if you were to bring them up and give them a living wage, maybe that could get the global economy growing again. Yes, the whole trickle-down thing obviously didn't work, but the trickle up, that's been proven for this crisis to work.

If those people are sent more money, it's getting spent. I want to read a quote from you talking about what he wants to happen. So he was talking about how the banks got bailed out in the GFC and what a complete travesty that was. And this time, Grant him says, quote, we need to have infrastructure dominate the program and what better time to do this than now for two reasons. First, in the U.S., our current infrastructure is unusually behind schedule on maintenance and subpar and quality. Second, it is absolutely imperative that the entire economy become greened if we want any hope to maintain a stable global civilization in coming centuries. This will take tens of trillions of dollars over several decades on a global basis.

And the good news is that the infrastructure spending, particularly green infrastructure spending, pays a respectable return on investment as far as the eye can see. If financed at negative real rates, it is a commercial bargain of all time. This is a crazy statistic. He said, the U.S. has 400 electric buses, while China has 400,000 green energy and industry will not just be economically important in the coming decades, but like oil was before, incredibly geopolitically important. So Joel Greenback has this new book, and he's been on the podcast to her lately,

and I read it. It's called Common Sense, The Investor's Guide to Equality, Opportunity, and Growth. the whole book is his solutions for some of our biggest problems. And one of them is education and he's created some charter schools. But he also has a whole chapter in the book about how raising the minimum wage to $15 an hour, he's saying that the government covers it could actually almost pay for itself because you have all these other welfare programs that people are using when they make less money and getting people to spend more. Like it would actually all kind of recycle into really wouldn't cost as much as the headline number. I think that is,

especially like with rates so low now, stuff like this, why aren't we thinking about this? So Grantham talks about how he wants it to be like the Marshall Plan, basically, something big. With interest rates so low, like he says, you're financing everything at negative real rates. It's essentially you're borrowing for free. Why wouldn't you try something like this? I think making the economic argument might be more persuasive for people than just like the moral societal argument. So I want to talk briefly about ESG, which we don't really spend much time, on. But there's been talk amongst investors for years and years and years about sustainable funds and ESG. But now money is absolutely flying into the space. So there's an article in

Morningstar recently talking about fund flows. They've attracted a record $30.7 billion. This is equity ESGE funds in 2020. It only took until July this year for sustainable funds to garner more flows than they did in all of 2019. So this year, they've been averaging about $10 billion per quarter. So my question to you is, does this stuff affect the cost of capital at all? Does it actually hurt companies that are not ESG friendly? I think it could force companies into whether they're doing it to save face or doing it for the reasons.

I think it could force companies into adopting policies they may not have done before. Stock price matters to a lot of people. And if they're seeing that people want to be in these stocks and they can make a few changes to their board or to their practices, whatever they're doing. Yeah, sure, I can see how it would make the management teams that these companies change their tune a little. I guess the anti-argument that some people make is like, listen, this is not IPO money. It's shares that are traded on the secondary market. But to your point, if capital is fleeing those names because tens of billions of dollars are going into these funds, then maybe it can. I don't really have a strong opinion

there. I guess we'll see. If ESG continues to gain support as I think it probably will, it could become a factor like value and momentum and quality. We'll have our own ESG factors and there'll be more ESG indices made. And the ETF providers will have their own ESG quantitative metrics and stuff that they go by. So that stuff will become more prevalent. So last week, we had a call with interactive brokers looking at their impact dashboard. And they've built a really neat tool that I think a lot of people are asking for. This allows you to drag in your portfolio and see how align your portfolio holdings are with your values. So they allow you to give a portfolio score based on things like how LGBTQ sensitive a company is or their racial equality or gender equality,

like whatever is important to you. You go through a little screen and you say, these six things are really important to me. And then you upload your portfolio and see, does my portfolio actually match what I care about if you want to do that? So now the question is, are these people who care at the margin? Or are they large enough to actually affect change. And I guess we'll say, I mean, there's serious money coming into these funds now. And as young people get more money, I think this is going to be a young person thing where this is going to be building and building for decades as millennials now come into their prime earning years and they're going to care more about this and have more values-based portfolios.

I think we're just slowly, this is just the start of this stuff. There was a story in CNBC about a company called Beam Financial that I have granted never heard of. Did you hear about this one before? I don't think so. They were telling people that you could earn up to 7% interest on your savings in my opinion to count with them. And unfortunately, CNBC found that they, a year later after they rolled it out, customers could not withdraw their money. They were having liquidity issues.

It doesn't really say what the problem was. They weren't implying it was a fraud by any means, I think, but I think it was, I'm guessing there was some sort of liquidity mismatch. If you're promising rates that high, you have to be doing something different if rates on the risk free rate are below 1%. I guess this is the other side of the fintech boom, right? Where we have these places that are trying to democratize finance and make it through everyone can earn more money. If you're making these promises that you can't possibly hope to keep or you're taking on more risk than you should

to keep those promises, there's going to be a problem at some point. So this is obviously specific to this company, but we've been talking a lot. We spoke about Packing McCormick last week in this piece about software is eating the markets. And we've mentioned these names in the past a lot. But I think the lesson here is investors should do their own due diligence, even if a lot of these companies seem like really good ideas, they still have to be able to execute. They're all still very young. The thing is, they can make their websites look so good that you think like, oh, this place is streamlined. It looks great. It takes me two minutes to sign up. There's still going to be some issues with this stuff going forward. It's not set in

still just yet. So Christine Benz did a post a few weeks ago. from Morningstar, what the coronavirus means for the future of financial planning. One of the things that stood out to me was that workers often retire earlier than they expected to, about four years on average. The research found, and I guess this is a survey, that when people are still working, the typical worker estimated retirement at age 66, the actual average retirement date was 62. What do you make of this? I'm guessing a lot of people, either they get to that age and they realize I only have so much time left. I could either accumulate money and keep working or I could start my retirement path now or maybe at that age some people are forced

to retire early, either for health reasons or because, let's say, you're at the top of the income tree for your company and they don't want to keep paying you as much and you're kind of forced to take your time. It makes sense that, I guess my big takeaway is if you think you have it all set in stone, I'm going to work till this age and I'm going to save this much, I'm going to do this. Sometimes when you get to that point in life, it's not going to follow exactly your retirement plan, you're going to have to potentially make some changes or hard decisions or, I mean, obviously retiring four years earlier than you thought changes the financial dynamic of what you need. A big takeaway for me is that people can't predict how they're going

to feel in the future. Yeah, for sure. And the whole retirement thing is a big one too, because right now, I don't want to retire at all. I would not know what to do with myself. Right. Well, you're only 43 years old. How do you know how you're going to feel in 10 years from now, 20 years from now. I know. And your hairline is 53. But that's the thing. I say that now. I think now, like I would never want to stop doing some kind of work. I say that now, too, I feel like at 54 I'm would have to be done. 54. Okay. That's it. You're out of there? Okay. I think the thing for a lot of people is just you have to have some sort of backup plan because some of this might be forced upon you where you might have to start a new job, take Social Security earlier or something. It's not always a

foregone conclusion that you're going to be able to work for as long as you want. Here's a survey. In fairness, I didn't read it. I just read the headline. So forgive me for being snarky here. This is your survey of a survey. A survey conducted by digital asset manager grayscale investment suggests investors' interests in Bitcoin is on the rise. And the top cryptocurrency by market cap is a well on its way toward mainstream adoption. This is like surveying barbers and asking if people should get their haircut now that I would know. So they surveyed like only people who have hashtag Bitcoin in their Twitter profile? Okay.

By the way, very excited. We're talking to BlockFi in a few weeks. We haven't spoken about Bitcoin at all in the podcast. A few people have asked if we could do a full episode related to Bitcoin, and we were going to do that, crypto, in the coming weeks. Somebody emailed us. Last week we were talking about what happens if you get into a self-driving automobile and it's really dirty or whatever.

It needs to be cleaned. So we got an email from somebody who used to live in Detroit and work for GM. And he said, GM used to have a service called Maven, which was a total loss, and they recently shut it down. But it was a car sharing service that is similar to how you were thinking self-driving cars would be used. You drive the car to wherever, get out and leave the keys. Someone else comes and gets it and drives it wherever as well. One of the biggest problems with those was vandalism. People would purposely beat the crap out of those things just because they figured there were no repercussions. People hotbox them relentlessly. That's funny.

Knocked off mirrors for fun, put out cigarettes on the back seats. You name it. Someone did it. Going even further, the cruise automation cars driving around San Francisco got abused too. Except the issue with the cruise cars is that they are 200K prototypes with really expensive sensors everywhere, not base model Chevy cruises like Maven. So knocking off a sensor caused GM 50K, not 200. That's honestly one of my biggest worries about the self-driving car thing is just people messing with them. Because if you walked in front of a self-driving car, it has to stop. So couldn't someone, if they wanted to, if we have a bunch of self-driving cars on the road, couldn't someone just walk in front of them and slow traffic just because they felt like messing with people's day? That's a good point. What level is that? That's seventh level thinking? I don't know.

It seems like I'm surprised that GM didn't have these people's credit cards on file to charge them if they did some vandalism, but I guess that's the unintended consequences of this stuff. If people know it's not theirs, then they do whatever they want with it. Yeah, I don't know how you solve for that. Not bullish on this. Before we get into listener questions, just wanted to mention, I don't know if we ever mentioned on the show, but we have a compound YouTube channel and every week our video producer Duncan takes a video of this show and puts together our favorite clips. It's worth watching because

he adds the graphs that we're talking about. Sometimes you don't get our facial expressions when we're talking just on the podcast. So if you want to sign up for that, it's like Sports Center for Animal Spirits. That's right. While we're doing some plugs, please leave us review at iTunes. Yes. Please find us wherever you find your greater podcast on iTunes and Spotify. If you don't know where you get to find a podcast, please send us an email and we'll punch you in the face. All right. Listener questions. I like this one. My best friend is loaded but can't stop himself from blowing his money on options trades. He has lost at least $500,000 in the last 12 months. Hey, you can't put a price on fun. That's true. Are there any kind of publicly available investing products that he can have some kind of built-in lockup period? He wants to be invested but needs to be illiquid. He owns some rental properties and is a mortgage broker and owns his own real or business. Yeah, invest in a private equity fund.

Yeah, private equity, venture capital, something like that where you just literally cannot take your money out. I mean, to state the very obvious, your 401k. Yep. In some sort of tax deferred retirement account. Tell him to max out his 401k or if he owns his own business, he can do a SEP IRA and invests in more money in it. And after he's got his retirement accounts all maxed out, then go have fun of your options trades. Man, you can't put a price on fund, but $500,000, that's a lot. How much did he lose on the Netflix earnings?

things last week. By the way, I also should mention, we have so many emails. We're so backlogged. So we try to answer everybody in email and say that we're going to get to all of these questions that we will. But if we told you that we would get to one of your questions and it's been a few weeks, we apologize, but we've got like 40 in the queue. Once every three months, Michael's OCD kicks in and he gets us to inbox zero. But it's been a while. I'm a May 2020 graduate who decided to take the CFA exam level one in December due to many hiring freezes over the summer, planning on taking them at some point after I started my career was unable to find a job right away. So I decided to start in qualifications, continuing to look for jobs, but it seems like

anything available for an initial level jobs that doesn't involve selling insurance, wrapped investments for a non-fiduciary, something I'm very against. What do you guys think are the best types of jobs when starting an asset management career if it's not in an insurance space? Well, that's where I started. I'd say any type of big asset management firm where you can go through a training program. Our colleague Chris went through a training program at Wells Fargo. I think that's served him well. Any of the big name firms, you may not love what you do with the firm right away. But if you can have someone else pay for your training to go through something like that with a big firm that has done it thousands and thousands of times before, I think that's not a bad way to go.

Yeah, the idea that you're going to land your dream job right away is not going to be possible. So even if it's a product that you don't love, I think Ben's right here. We get a lot of questions about people, how do I get into an RIA right out of school? And for most people, that's just never going to happen. It's tough to find an entry-level job in that space. If you don't have a book of business or some experience, that's not easy. There are a few of those jobs available. Here's one. Hi, Ben and John. By the way, that's not a joke. The person really wrote, Hi, Ben, and John. I'm a 24-year-old college graduate interested in starting a landlord business while working full-time. That's ambitious. I wanted to create an LLC and have me and my friends

put funds into splitting ownership, basically giving me a zero percent interest loan to buy a house that will give us $30k annually in revenue. Was the subject line on this passive income? People close to me who have done renting tell me this is a bad idea to involve friends with business and so much equity. I completely agree with that. However, if I do not pursue this path, I would likely have to wait five years before I can get the proper cash on hands to start.

I am leaning towards the advice of not making an alice with friends. Great advice. Especially in your 20s. I got to learn more. There's some more details. The nutshell of my business plan is to become a fiduciary principle that manages all the funds for the company, collects rent, selects tenants, use city subsidies for buying home, select insurance, purchase, houses on shareholder behalf. I wanted to include a clause that states no one can liquidate their shares for five years. Okay, not to be a jerk.

How? How are you going to do this? You're a young person recently graduated and you're working full time and you want to be doing this full time. I can appreciate the ambition here, but this sounds like you're taking on a lot because you're asking for a big risk from people who are going to be. giving you their money. And especially right now where given the fact that so many people are behind in rent and now maybe you can pick up something on the cheap, but that sounds like a lot. Kudos to the ambitious nature. I'm sure you're going to do great in life, but don't take friends money the first time you're trying this because you don't want to ruin friendships, relationships

if this doesn't go well. Yes. And my name's Michael, not John. Yeah, going into business with your friends, especially in your 20s, what were the ideas that you'd hear from college friends? Let's do a t-shirt business. Let's start our own bar. Like those ideas never work out. All right. Recommendations. I'll start. How great was Rocky Four rewatchables? That was awesome. That movie gives me the chills every time. Every time. You'll know it's time to hang it up when you no longer respond to that movie. Yeah, I love that one. Last week I spoke about Ready or Not, which was fun, good, not great. I said it was with Margarabi. And somebody said, actually, that's not Margarabi. Her name is Samara Weaving and Google Samara weaving, Margarabi, I mean, Ben, is this close? I mean, is that

pretty much identical? They do look very like, yes. You should have maybe I beat it first, but yes. I mean, that looks exactly like Margarabi. You should have known Margarabi would not have done that movie. That's true. Patrick O'Shaughnessy did a podcast with Brad Gersner and Rich Barden, which was fantastic. Did you listen, Ben? I guess I never realized the idea that he had started Zillow and Expedia. He's got a pretty good guy. Yeah, that's not bad. Three things that I wrote down that I want to share. So Brad did a podcast with Patrick previously, and I think he mentioned this, and I remember being impressed about this, but he said it again. He's talked about how quickly multiples can contract and expand, and he mentioned December 2018

and how there was a sharp correction in tech stocks based on dot plots. And he's completely aware of the Fed and how they operate and how the winds have been in our backs, which is something you really don't hear often from growth investors. So I thought that was super interesting. Rich Barden was talking about how a name influences how people feel else about stocks. I thought that Zoom, just the perfect name. Thought that was interesting. And then lastly, Rich Barton was talking about careers and COVID. And just, it was just really, really good. Cannot recommend it highly enough. You texted me something like, sorry, but Borat, too, wasn't good. And I said, I don't think I was pounding on the table last week. I didn't think it was a great movie by any such of the

imagination. I love Borat. I belly laughed three or four times and for me that was pretty much enough. But you made a very good point. And by the way, that brings me to my next point. I think I'm pretty discerning with my recommendations. A lot of things that I've mentioned, I don't give a recommendation. I'm just saying like the Meg, that was a joke. I don't love the Meg. It's not a great movie. You're telling us the content you're consuming. You're not necessarily saying, yeah, like sexy beast. I was very adamant. That's a full recommendation, zero hedges. Like that I liked a lot. So I think I'm pretty fair. But you're rating some of these names. You're not buying them. Yeah, I'm not married. So anyway, you made a good

point. There's not a lot of good comedy sequels. And I googled this and there's like zero. What's a good comedy sequel? Austin Powers, too. That's about the only I can come up with. Which one was that? Was that gold member? That's when it jumped the shark. The second one with Heather Graham was the good one. That was the one of the few good sequels. Oh, fat bastard. Yes, you're right. That was hilarious. But there's a very limited history in Hollywood of doing a good comedy sequel because the second one is always almost a parody of the first one of the characters. It's really hard to do. So I refuse to watch Anchorman 2 or the second Zoolander.

I made it 10 minutes in Anchorman 2 probably before I turned it off and I just pretend it didn't happen. I think Wayne's World 2 was supposed to be decent. I remember not liking it, but I saw it when I was a child. So I don't really trust that that intuition. But anyway, yeah, you're right. I mean, holiday 2 is going to be amazing, though. It wasn't terrible. It got me thinking that sort of also reminded me a little bit of.

Hall Pass in a way. And I figured, like, I bet the critics hated Hall Pass. Hated it. I like Hall Pass. Yeah, I like that one. That was a good one. All right. Dave Chappelle and David Letterman was on Netflix, really good interview. It's not even that funny. It's just those two picking each other's brain. I thought was great. Wait, hold on. I want to just piggyback on that. I watch that based on your recommendation. I feel like Chappelle has like transeptic comedy. Yes. Like, I don't know when. I mean, I do know when that happened. I guess his latest slew of specials were all just next level. He's moved on to a different point of his career. at this point. I was not a Chappelle show fan. Oh, really? Okay. When I was in college, it was the biggest

thing. We were quoting it obsessively. Yeah. So this is us as my one network TV show that I watch. I don't know if they already had some of it filmed. They included the pandemic in the new season. And so they started it in March and they talked about how Tom Hanks got it. And they had people wearing masks. And it actually, I was wondering how some of the places, movies and TV shows would deal with this. It actually kind of worked. I was really surprised. It was kind of like, oh, remember how when that happened and how long ago that felt, and they surprisingly did a good job with it. They kind of nailed the pandemic. I was like, oh, are they really going to do this? It was not bad. Ted Lasso on HBO, not HBO, Apple TV, is you watch a few episodes and you go, it's okay.

But it grows on you because it's actually a feel-good show, which there aren't many of anymore. Is that Jason Siddakis? Yeah, like how many good, feel-good shows are there? It really grows on you the more you watch. And I really like it. It's one of those where the first few episodes, I'm like, do you want to keep with this? And then the more you watch, the more you like it. Queens Game, we already talked about. Finished the price we pay by Marty McCary, who is a doctor. We've talked about this on the past in the show.

Like, why is the healthcare industry in the U.S. so messed up? This book, if you want to read stories about why it's so messed up, it's very depressing. It just goes through all these stories about people who are bankrupt from their health care bills. Here's something I did not realize. I guess it makes sense because it's a form of debt. If you have a hospital bill that they bill you $20,000 for an emergency room visit, if you don't pay or contact them, they can garnish your wages. So he has stories in here about this person making $12 an hour and the hospital sues them.

And basically the hospital wins every time. And they take your pay from $12 or $6 an hour for these people not making a lot of money. It's really depressing. My whole takeaway, he tried to give some examples of a way we can fix the health care system. To me, they all sound like it wouldn't work. I think the only way we could ever fix the health care system is if the government completely took it over. Other than that, I think it's impossible to fix. That's my conclusion.

So we're going out in a high note here. We're taping this on a Monday. It will run a Wednesday morning. Obviously, who knows what's happening with the election? I just hope that nothing too crazy happens and there's some sort of resolution. The glass is half full is we have a smooth transition and nothing goes wrong. Right. That's a melt-up situation, right?

Yep. By the time you hear this, the S&P could be up 9%. God willing. after being down 6% and Michael's going to be trading Michael's going to be trading all night on Tuesday We're speaking with farm together on Friday Very much looking forward to that one So yeah, if the world does fall apart

investing in farms could be a solution There you go All right, Animal Spiritspot at gmail.com Thanks and we'll talk to you next week