Animal Spirits Podcast - Trickle Up Economics (EP.163)

Episode Date: August 26, 2020

On this week's show we discuss the potential for a spending boom when the pandemic is over, what happens to all of the government debt we're racking up, what happened to the middle class in America, the red hot housing market, a tough fall ahead for students and parents 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

The number one question that we get from listeners is, what do I do with my cash or what were my bonds? I want to stay liquid, but I still want to earn something on my money. Last week, Ben and I talked about how 80% of all outstanding bonds yield less than 1%. And understandably so, investors are looking for other options. And that's where Masterworks comes in. Masterworks lets you invest in shares of blue chip art from artists like Banksy, Warhol, and Cause. They buy art at auction, qualify the paintings with the SEC, and take them public through a reggae offering. They even have an active secondary trading market. So if you need liquidity, you can sell your shares after you invest. We interviewed MasterWorks CEO Scotland in April, if you want to go

back and check that out. If you're looking for an alternative asset class with a long history of uncorrelated returns, go to masterworks.io and enter promo code Animal to skip their 15,000 person wait list today. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holtz 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 Rithold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rittholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. One of the unintended consequences of all the stimulus and the CARES Act that we've gotten over the past few months is this huge surge in personal savings. So I'm going to make a case for cash on the sidelines for a potential boom post-COVID world. I think it's really getting close to the possibility of a huge boom in just people doing stuff and spending money.

So let me lay it out. So this was from Tim Dye at Bloomberg, who wrote a good piece calling the forgotten $1 trillion supporting the economy. And this is all from the CARES Act, how because so much money was sent out and people were forced to not do anything for a while, there was this huge glut of savings. So he calls it excess savings, which represents the additional resources available to households. And he said it was almost certainly the largest it's ever been at the end of July. And the total is close to $1 trillion, so it was $931 billion. So he said, supposedly spread that the amount of excess savings over 12 months. that provides households an additional $78 billion of monthly spending power, which is equivalent

to 10% of wages and salary that people have sitting there. So now we've seen these stats where total checkable deposits in the economy of surge $1.3 trillion, which is wild. So obviously it's not everyone. There are people hurting, but for a lot of people, they've actually been able to cushion their savings throughout this. And assuming this thing doesn't last forever, eventually that money is going to find its way in. And I think that there's a growing possibility that we're going to see a huge boom, a relief boom of I'm going to travel, I'm going to buy this, I'm going to do this after this is over. Thoughts? Yeah, I think isn't this the case for inflation that people have been making? Could be. Now, I think you could also make the case that, listen, a lot of stuff

people have been spending money on, pools and RVs and stuff, maybe that money transfers from that stuff to now other stuff. So maybe there is people to shift their consumption to other areas and they have this, but yeah, I guess this is the case for a boom inflation. We'll see. But I think specifically the areas that have been hurt the most, leisure and hospitality, and I think there's going to be such pent-up demand, Disney World is going to go crazy and people are going to go on vacations and obviously not everyone, but I think a lot of people are going to say, when this is over, I am going to go nuts and do all the things that I wanted to do for the last, however long this lasts. Do you think that that is going to offset the people that are

like, I'm not going on vacation right now, no way. I think there is something to that. I think there's going to be people who just go crazy. So you think people that would not have taken a vacation, there's going to be more of those people than there will be people that do take vacations that are going to wait it out. I think it's possible. I think trying to get a Disney reservation in the six to nine months after this is over and things are opened up fully, I think is going to be really hard.

I think that there's going to be areas. Like, I think you're right about Disney. I think Disney's going to be. booming, but I think that other places are not going to be as fortunate. I don't think, and this is based off nothing, I don't think leisure and hospitality are going to be back to what they used to be. There might be a very short-term boom, but I think that's still a lot of people until there's a vaccine are just going to err on the side of caution. Yeah, and honestly, for me, that's one of the areas that I really haven't missed that much

going out to get a drink or a restaurant or something, just because of my place in life, probably because we have little kids. And so doing that stuff is not that enjoyable anyway, unless you get a babysitter or whatever. But I can see that being slower. to come back because people have taken on new habits and some of those habits are going to stick. I think whatever happens there, I think that there's little chance that this money is going to sustain people's savings accounts. I think it's going to get spent. That's what I'm saying is that wherever it gets spent, it's going to be burning a hole in people's pockets and they're going to put it to use somehow. I don't know. So the other side of this is obviously government debt.

So the Wall Street Journal had a piece on government debt. And we've talked about this before. and a lot of the comparisons are under World War II because that's the only time in history we've seen this. So they looked at all the advanced economies in the world. They showed, this is from the International Monetary Fund. At the end of World War II, government debt as a percentage of GDP was 125%. We just passed through that now.

As long as we have history of modern economies, for all these advanced economies, this is the highest that the government debt as a percentage of GDP has been. And their point was, we're in for a rougher time here because after World War II, they brought it down quick because of inflation and then rapid economic growth, obviously. So by 1959, it was back down to 50%. So from 125 to 50, they're saying this time it's going to be harder for demographics and technology and slower growth, which makes sense. So I guess even if there's a boom from spending, maybe it's short-lived. But don't you think there's a case to be made that following this, now that we've done this, these numbers, are probably just going to continue to rise higher in the years ahead. And this is something we may

not get our hands around for a long, long time. I don't really have an opinion there on the future of government debt to GDP. This is one from, I got from wisdom tree a while ago. Japan's debt to GDP has gone from 100% to 300% yet their interest expense has gone down because interest rates are so low there. So don't you think a more reasonable outcome this time as opposed to a 1950s style boom that they had following World War II, even if we do have some sort of boom, that we just keep interest rates low forever and continue to inflate the debt higher, as opposed to getting arms rounding and lowering it. I can see that being more realistic this time around.

That sounds like a very good outcome. No one would be angry with that outcome, right? Oh, somebody would be. There's always angry people, but... I'm saying a lot of people would because they hate seeing the debt numbers. but I think a Japan scenario of going from 100 to 300 seems more likely in my mind than going from 125 to 50 like we did back then. If the MMT stuff kicks into full gear.

Yeah. If it's just not feasible for a politician to take the debt away if we don't get the economic growth that we had back then, which probably not going to happen. So like in the 50s, they said growth was around 5% a year in France and Canada, 6% in Italy, 8% in Germany and Japan, U.S. economy grew up 4% a year. we're probably just not going to get those levels again like we saw back then. What happens if, let's just say the government's spending, the acceleration slows down and GDP continues to grow at two, two and a half percent. Just based on that alone, it would take forever,

it would take a while for this number to come down, debt to GDP, right? That's what I mean, because you'd have to have some nasty austerity, which it seems like those days. That's not happening. Right. One way that government debt could continue to increase is what if we give every, I think you laid this out, we give every child born $10,000 in the S&P 500. But that would make the index fund bubble way bigger than it already is. So I think that, so the inequality stuff. So the Wall Street Journal piece on this too. And they said the top 10% of earners own 80% of all US stocks as of the first quarter of 2020. The top 1% owns more than 50%. The bottom 50% owns less than 1%

of the stock market. That was what I was getting at is that when looking at this chart, What stands out is not the fact that the top 1% have owned such a bigger piece of the stock market. What really stands out is the next 40%, so after the next 9, the next 40%, then sort of at the bottom 50% have gone nowhere. The next 40% has gone down. It's not like a punish that people at the top. You've got to do something for the people at the bottom. Yeah. And that's the thing.

If we're going to do this MMT stuff and throw people money and obviously we've seen, I think they said for the people who are unemployed and got the jump in unemployment benefits, they spent 73 cents of every dollar that they got. that money immediately flowed into the economy. Yeah, it would be nice if we could somehow give some money to get in the stock market somehow. So it's like trickle up economics. It actually works. I guarantee you if more people were invested in the stock market, there wouldn't be so much anger in people saying the how the stock market is detached from economic reality and all these things because there wouldn't be so much anger thrown at it. People would actually be happy that the stocks are rising and their finances are getting better during a period where we're having such economic pain. The gist of this article was how great the stock market is doing. Then they found

a few people that's like, yeah, that's terrific, but I don't own any stocks, not one. And then the the other thing about the stock market for this economy, I found this Matt Phillips piece in New York Times, and he talked about there's a researcher from Ohio State who looked at all the companies in the U.S. And there are 600,000 companies in the U.S. that have 20 or more employees. 3600 of those 600,000 are publicly listed, meaning less than 1% of all companies that have 20 or more employees are in the U.S. stock market. Now, obviously, those are the biggest, baddest corporations in the world in a lot of cases, but this is why there can be a disconnect, because there are so many small businesses if you look at the total number of businesses that aren't involved in the stock

market at all. That's why those businesses can be going through such pain right now, and a stock market can be doing the opposite. That's not a great analogy, but you know, you see like the 12th man on an NBA team, and if they ever get any playing time, it's like, this person can't do anything on the court. It's like embarrassing and watching them. But then you realize compared to the rest of the world, they're in like the top 0.000 0.001%. They would destroy anybody. So it's like, what's the worst stock in the S&P 500? I don't know. GameStop, whatever. Is GameStop even still in? I don't know. But it's like these are giant companies compared to small businesses. Right. It's a whole different ballgame. And so the other thing where the inequality,

and one of the biggest reasons that share has been shrinking for the bottom 50% or whatever is because people don't have as much money or income. So, There was this new report that came out in just this month from Stephen Rose, who's at George Washington University. He looked at, it's called Squeezing the Middle Class, income trajectories from 1967 to 2016. So he looked at these income cohorts from 1967 to 1988 to 1982 and then 2016. Why those years? I don't know if that's when they had it or I don't know why he broke up into 15-year classes. I don't know if that's just how it works, but 2016 was the most recent one. So I think he wanted to look at different 15-year cohorts.

So he looked at the poor and near poor, lower middle class, middle class, upper middle class, and rich. The thinking was, why has the middle class shrunk so much in the U.S.? And there's actually good news and bad news. So the middle class in 1981 was 50% of, he broke these income levels down at $2,018. And middle class was defined as earning $55,000 to $108,000 in household income. So that could be between two partners or the whole household. So the middle class went from 50% in 1981 to 36% in 2016. But the upper middle class has gone from 6% in 1967 to 18% in 1981 to 33% today.

So a lot of that middle class actually went up a rank and went to the upper middle class, which was much smaller in the past. Some of that shrinking middle class has been a good thing because it's gone to the upper middle class. The problem is the poor class has stayed exactly the same almost 16% in 19. 167 to 13% now, rich has gone from basically a rounding error to 2%. And rich would be anyone earning more than $380,000 in a year. And then the sort of lower middle class has gone down as well, but it's been pretty stable since 1980. So the problem is, go ahead.

Is there any hope to eliminate poor or near poor? And frankly, I mean, obviously I haven't thought through all of the potential outcomes. I don't know about the stuff. But I would say this is probably a permanent future, unfortunately, of not just capital societies, but just society in general. But I think what's good about, to the extent that there's something good about this, is that as long as people have a chance to come out of that. And I think that's the chance of escaping poverty in recent years has probably become more and more difficult. Is that fair or am I making that up? Yeah, I think that's why you're seeing so much anger now between the classes is because there is no middle more. It's barbelled. So there's really low and higher and high.

But has upward mobility decreased? Yes, that was also in this piece that there was much more upward mobility from 1967 to 81 than there has been from 2002 to 2016. So that's the point he made, too, is that upward mobility. Think about like the college scandal. Yes. Recently. That's just everything.

What's gone on over the past few decades? So 1967 to 1988, 1981, median family income rose by 27%. and from 2002 to 2016, it only rose by 8%. And there was also, we've talked about this before, I think Russ Roberts had that piece about how looking at these classes over time is difficult because people can move among income classes. It doesn't mean they're stuck the whole time. But he also showed how three times as many people in the 2002 to 2016 period experienced

a large loss, which is defined as a drop in an income of 25% or more, which is probably the great financial crisis. And that didn't happen as much before. And there's also fewer people who experienced super large gains, whereas in the past, that would be defined as like 50% gain from one to the next. And this one is only 30%. So I think that there's just a case where we're seeing it barbelled and it's just getting worse. And his whole point was anyone who's in the college educated upper middle class has been doing extremely well. And anyone who's not has seen things regress. That's why we're seeing this bifurcation.

There's an article in the Wall Street Journal, COVID-19 has divided the American worker. According to Yelp, 73,000 businesses in the U.S. listed on its website have already closed permanently since March. So that's all restaurants and that number has to go up in the months ahead, right? It said, including bars, restaurants, gym, salons, shops, 73,000. It's the type of thing where like one death is a tragedy, a million deaths is statistic. This is the same thing with business. 73,000 is a gigantic, gigantic number. 73,000 businesses. Think about if you're a small business owner and your whole life and livelihood is tied up into that. And now it's gone. And your employees? Right. Yeah. That's, that's the worry of a lot of people say, well, it's in these periods of great upheaval that we see the most innovation happen. My worry is just that because the big companies are getting stronger and the

small companies are getting weaker, what if we don't have that this time? Because so many entrepreneurs have just been punched in the nose too many times and say, you know what? I don't believe that. Yeah. I don't know if I believe it either. I'm on the optimistic side, but it's- Stop being so bearish. Anytime you start talking about like the restaurant hospitality stuff, it just gets me depressed because I know we're probably never going back to that period in whatever, February, January of 2020, unfortunately for them, for a lot of them at least. And it's kind of depressing.

Anyway, moving on. So there was an interesting article in institutional investor. Investors are clinging to an outdated strategy at the worst possible time. A former CalPERS Investment Pro says investors need to rethink how they mitigate risk. Here's why. And it was basically a pitch, I guess, for tail risk hedging. Did you read this, Ben? It's kind of funny that Kelpers is pushing tail risk hedging.

Well, didn't we just a month ago to talk about how they bailed out of it? No, he's not out of Kalpers anymore. Okay. Anyway, but yes, remember they built out of tail risk hedging right before the crash? Yes, yes. So there's a lot in here that raised my eyebrows. Here's one. While I was at Calpers, concerns arose in 2016 about the effectiveness of standard portfolio

diversification as prescribed by modern portfolio theory. We began to recognize that management of portfolio risk and equity tower risk in particular was the key driver of long-term compound return. So forget the second part of that sentence. Do any giant organizations like this start with the framework of modern portfolio theory? I'm kind of shocked that they still had that. I mean, the whole idea behind modern portfolio theory is just that it's the idea of diversification. If you're taking it literally, like you're taking the covariances of asset classes and measuring their standard deviation and putting them in the matrix. No, the world doesn't work like an optimized spreadsheet anymore if it ever did. He wrote, the traditional 6040 mix of stocks and bonds commonly

portray as an optimal portfolio is supposed to mitigate the effects of this sort of extreme market volatility and deliver returns that pension fund managers can rely on. But the 6040 mix is an artifact from another time. The optimal mix presumes it is possible to achieve a high rate of return while simultaneously constraining volatility and practice that limits portfolio volatility in benign market environments over the short term while making huge sacrifices along our performance. The so-called optimal portfolio is, in effect, the worst of all worlds. It offers scam protection against tail risk, and at the same time, achieves an under-allocation

to riskier assets with higher returns and long periods of economic expansion, says there's the past decade. This sounds like someone in the institutional world would say. Sounds like something they would say, because you're seeing a lot of stuff without really saying anything. Because, honestly, bonds still offer the best tail risk there is. bonds hedge stock market risk. He said properly managed options-based tail risk hedging can raise the keager where bonds have

failed. And I would just say, where have bonds failed? I understand that bonds are going to be challenged going forward. The 6040 might be an artifact from a time past. I don't really necessarily believe that because people have been saying that for a long time. But how did bonds fail? They delivered. I mean, sure, there was a blip in the third week of March, but they held their value

incredibly well when investors needed them most. bond returns have been unbelievable. They're not going to be going forward, obviously, but bond returns themselves because interest rates have continued to fall have been pretty darn good. How about this stuff about how from a few weeks ago, you talked about how tail risk strategy over time costs you more money than they make you? So how does that end up giving you a better compounded annual growth rate?

I know. This struck me as odd. There's a table in here showing from January 2008 to December 2019, So I guess to include the bare market, the GFC. And then there's another chart showing April 09, so I guess the bottom, to December 19. And it shows the S&P 500, the ag, which is the bond index, and a 6040 portfolio. And then he shows the performance drag of a 6040 portfolio compared to the S&P 500, showing that bonds cost you money. I don't know.

This whole thing was just odd. I think that in the months and years ahead, there's going to be a lot of weird. financial advice because bonds offer such low yields. And I think that's probably what this person is grasping because it is really like, what do you do? So there was a headline in Market Watch just the other day I looked at it. It says, invest in tech indexes, but head your bets with fine wine and stamps, says this strategist. Hold on. Say that one more time, just in case anybody missed that. Invest in tech indexes, but head your bets with fine wine and stamps, says this strategist, which honestly, I don't know, maybe that's like an inequality bet. You're buying fine wine. So

this London-based firm forecast that the NASDAQ 100 will be about eight times higher than the current level in 2040. What? To bolster your portfolio. Hold on. Hold on. Ben, you're bearing the lead. This is an actual line.

The London-based firm forecast that the tech-heavy NASDAQ-100 index will reach 90,948. Yes, very exact. If you would have included a decimal, I would have believed him more. But fine wine and stamps as well as other art and collectibles will tend to be uncorrelated to tech companies, conservative effective hedge. I just think we're going to continue to see weird hedges like this thrown out and people are just going to throw stuff against the wall and see what sticks without really understanding what they're doing.

I just think with interest rates where they are, this is the kind of stuff that we're heading for in the years ahead. Wine and Stamps. What else? I don't know. So what's the Stamps one that people always push on podcasts? Stamps.com? Yeah.

What about books? What about old books, collectibles? That's on here. Okay. I have a question for you. I was trying to rack my brain on this who could not figure it out. So tech stocks outperformed for the decade of the bull market. They did amazing. We get a bear market. Tech stocks outperform then during the pandemic. Now we get another bull market. We've backed all time highs. Tech stock outperform

everything then. I looked. Nothing has outperformed the NASDAQ 100 in terms of a big group of stocks. The small cap growth is close. Microcaps are close. This is just in the recovery. But from all that other stuff, NASDAQ 100 has won over every period. Has there ever been a large segment of the market like this that outperformed during the bull market, the subsequent bear, and then the following bull market following the bear? Has it ever happened before? I racked my brain. I could not think of anything. I think this is a one of one. Probably. Possibly. I can't think of anything. The circumstances are unique, but they are for every bull and bear market. That's what I think makes this such a weird time to invest is that you had a supercharger put on

second of the market that was already doing the best. And so it protected risk the most during the downturn and then gave you the biggest bang for your buck on the upturn. Well, one more thing that you didn't mention is that it was the best performing area going into this. So it was the best performing area for the last five years. Then it was the best performing. I did mention that. Yeah. I turned that. I was getting ready for my next point. I'm saying even for 10 years it was outperforming. Yeah. And then we had a whatever. a one-month bear market. Maybe it's just back on that trend that has been supercharged, but I can't think of another area of the market because usually what happens is the area that was

doing the best during the bear market gets crushed the worst. And then it gets left behind a little bit and something else new comes to the forefront. But that hasn't happened this time. It's been the opposite. By the way, for people listening that just saw myself miss one of Ben's points, so sometimes when I'm listening to the podcast, either Ben will say something and I just won't take debate or, no offense, but I think sometimes a lot of times you miss my jokes, which is fine. It's hard. Like last week, what's in the box? I missed a joke about seven last week. Hand up. I'll admit it. The point is this, in real time during conversation, when you're doing a podcast, it's difficult because you're trying to, like, we have a dock open. We're trying to get to the next point,

not trying to forget. Anyhow. The reason why I got to Strath was because I was looking at this next chart from James McIntosh showing the correlation between S&P 500 and the Equal Weight Index. I've never seen this before. This is a good looking chart. Right now, it's, The correlation is crashing because we know why. Here's an amazing statistic from Andy Thrasher. You know how many times the S&P 500 advanced decline line has been in a 10-day low when price was at a new high in the last 30 years? Once Friday.

So this is the idea that it's all the biggest stocks that are carrying the day, which makes sense. Two extremes that we've really never seen before. In this correlation chart, it can work both ways. So right now it's saying that the equal weighted, which is basically all the smaller and mid-cap stocks that aren't the biggest ones, those are becoming detached from the largest ones, and largest ones are carrying the day. In 2000, this chart crashed as well, but that was when those stocks are doing better and the large stocks are doing worse. So it obviously does work both ways, but this is one of those times. Yeah, everything I've looked at historically has shown the

smallest, junkiest companies tend to lead in the recovery after a bear market. That didn't happen. I mean, this is an event-driven bear market, but still. I think it did happen. It was just masked by the giant stocks. So I saw a chart recently, most shorted stocks have been absolutely ripping. Well, right. Yeah, all these other areas of the market have recovered extremely well, but they just haven't beat the tech stocks, which is bizarre. So they actually have kept up or tried to keep up, but yeah, they just haven't done the same as the NASDAQ 100, which is just wild. It's easy to think, okay, when these stocks come back to reality, meaning the the giants, it's going to take the market down with them. But bespoke showed that these

sort of divergences are not necessarily bearish, quote, just over 10% of the all-time highs in the S&P 500 since 1990 have come on days with negative breadth. Strangely, the index has gained 13.2% during the year following such occurrences, better than the 11.9% averaging following all new highs regardless of breadth. Albeit counterintuitive, weak breath readings at all-time highs in the past have actually been followed by stronger returns than times in which breath was positive. Okay. Not flashing red just yet. I thought that was kind of interesting. David Schaul tweeted a chart showing that basically all mutual funds are underweight, the fang names, whether it's S&P core or large cap core, large cap growth, large cap value. Actually, the large cap values are overweight a little bit relative to their benchmark. But then there was another follow-up chart from Copley Fund research showing the net combined underweight of the fang stocks is really something. So what do you make of this? It says as of right now, so this is a total assets that are managing with $3 trillion.

And collectively, it's underweight by almost 7%. Is that what I'm reading? Yep. I think part of it is probably, there's a little of it that these managers are trying to be more contrarian and there's a value bent in some of these funds so they obviously underweight them. The only thing another one is that they've just gotten so large that I'm sure certain mutual fund managers have a ceiling on how big their positions can be.

We only own stocks at 3%. And when it gets at any higher than 3%, we trim it back. So I'm guessing there's something to do with that. That has to be the case because, for example, even these growth mutual funds, which are benchmarked to these stocks, so Apple, for example, the average underweight is 557 basis points. That's a lot. And maybe it's just because Apple's gotten too big that they have to trim. Sorry, 557 basis points. I think that goes over my max of when you can use basis points. So next time, just say 5% plus. I'm just reading the chart. Give me a break. Three thousand sixty-seven basis points.

All right. You'll never hear me say basis points in the thousands. I think hundreds is fair game. I think you've done it before. I think this chart, this looks like an Eric Bautunus chart, or maybe a Tom Serafegas. It's a Bloomberg chart. I don't know exactly who made it. But it's showing the fund fees over time in index funds and the tracking error.

So fund fees have come down. Tracking error has gone the other way, in a good way. In 1977, for example, the tracking error was like 65 basis points. And now it's basically zero. This was in the Jack Bogle book where he said when they first started their index fund, they didn't own all 500 stocks. There wasn't enough money. They only owned 100 or something and just enough to get there. And now I'm sure they are sophisticated enough where they can own all the stocks. And it wasn't that what it's seven. How many basis points does it say? I said 65. Okay. Yeah. So you're saying they're narrowing it down and it's a better time to be an index investor again.

Yes, sir. As always. All right. Existing home sales jumped 24 percent, which was, let's see, the highest monthly gain ever, at least going back to 1968, also the highest sales pace since December 2006. A few more statistics. Six of that are interesting. First-time buyers accounted for 34% of sales. The median home price for existing houses rose 8.5% to $300,000, or $304,000, to be precise. Another record high. Yeah, this is the coup de grace. I think I'm saying that wrong again. But let's just, I'm just going to use that and adopt that for a good data point. You just want to use that phrase so bad. 68% of houses that sold in July were on the market for less than a month.

How about this? That's a chef's kiss. All right. Chef's kiss works. I think this real estate, even more than day trading stocks and all the speculators in Robin Hood accounts, the animal spirits in real estate comes out more than almost any other asset there is. For sure. People start hearing about, I sold my house over a weekend and, well, why don't I do that? Or I can I?

Exactly. And people start wanting to trade up. They hear people talk about it. Just the word of mouth kind of thing in your area can really start getting the juices flowing for this stuff. Here's a quote. The last thing we need in the thick of so many challenges is some putts on LinkedIn whaling and whimpering. Everyone's gone.

I want 2019 back. That's Jerry Seinfeld dunking all over James Altucher's head. Some putts on LinkedIn. That's pretty good. I mean, obviously people from New York felt the need to defend their city after that LinkedIn piece saying New York is done forever. But this is what he wanted. He wanted to spark outrage and get mentioned by.

someone big like this, Seinfeld went to add him personally on this. That's great. Josh Brown did a podcast last Friday or Thursday for the compound and talked about how what a marketing genius altiture is. And I think he even said evil genius because it probably is, but he knows how to push the right buttons and get half the people outraged at him and the other half cheering him on and saying he's doing the right thing. And all he cares about is getting people riled up.

And he did that perfectly with this. And I'm surprised Seinfeld took the bait. I'm not surprised because he doesn't know what Al-Tucher is doing. This morning, Rassila and Bill Simmons were talking about it. They didn't mention Al-Tutcher by name. I thought that this is probably the most important point of why New York will never die. He said energy, attitude, and personality cannot be remoted through even the best fiber optic lines. That's the whole reason many of us moved to New York in the first place.

You ever wonder why Silicon Valley exists? I've always wondered, why do these people all live and work in that location? They have all this insane technology. Why don't they just spread out wherever they want to be and connect with their devices? because it doesn't work. That's why. He had some good points about the work from home stuff in here. I agreed. The problem is everyone is moving from Silicon Valley to Austin now.

Well, I'll just say, for me personally, I have no interest in energy, attitude, and personality. I'm very good for my home office. Right. But I do think that people are probably taking this stuff overboard and he had to bring it back the other way. Obviously, there's extremes. But I just, it's hard not to give people like that the time of day. but I feel like if he's going to do that just to poke people and don't give him the platform

because you're just getting more people to read his stuff. That's the way I feel that. He knows what he's doing. And I think if you can play in people's outrage these days as an audience, if you're going to use that as a tactic. He was early on the outreach thing. When was a 401k is the worst investment you could ever make? Was that like 2014? Yes. After like outrage comes, he's like, I didn't mean it like that. What are you talking about? That's not what I meant. Here we are. Falling for it. Yes. I guess we fell for it too. Seinfeld should not have waited. Why your 401K is a scam.

He knows how to say stuff that'll get people pissed off. And that's the whole point. Oh, man. Anyway, okay. It was 2015, anyway. All right. So there was a piece in New York Times about parenting and the fall. And I think the fall is going to be tough for some people.

So this is some of the stats from this. Just one in seven parents said their children would be returning to school full time for the fall. And for most children, remote school requires hands on help from an adult at home. Yet four and five parents said, they would have no in-person help educating and caring for them, whether relatives, neighbors, nannies, tutors, according to this survey by morning consult, and more than half of parents will be taking on a second unpaid job at the same time. They're holding down paid work. So there are going to be so many people who the kids are going to be punished for having to stay

home because they don't have the resources of the energy to hire a tutor or a nanny or do the pod thing. And they probably don't have the resources to have a good computer or that kind of stuff. So I just, I don't envy anyone who had to make these school decisions because they didn't ask for that. And it's a tough thing to do. But I think that there's going to be a lot of kids that are going to get left behind for this semester or year. And it's going to be tough for the kids. This is going to be ugly. One year, I think I went from something happened where I skipped a math class or something like that.

And I can't remember the details. But I remember I missed a part and it stayed with me because I was always behind because I didn't remember this one step. Like, how does that happen? happen. If you just miss stuff that builds. I don't know if they're going to have to go through the whole summer next year. I mean, my daughter's going into first grade. So I'm not that worried about it. They're doing two days a week. Three days a week is going to be remote. And they make the point in this article, my wife has worked her schedule out at work so she can be there with my daughter most of the days to help her out. But they made the point that a lot of women in the workforce,

those are the ones who are taking on this burden and are probably going to have their career stunted because of it. It's just this cascading impact. And so the other the three days, my daughter's not in there. She's supposed to sit in front of a computer for seven hours. She's in first grade. There's no way for some of these kids that it's going to happen. And the other kids, I'm sure, that are in middle school and high school could probably get all their work done in a couple hours and be done for the whole day. What if you're supposed to be a starting freshman in high school or especially college, especially college? The first three weeks before school starts where you're meeting people, you're unpacking your dorm, like that

shapes what's going to be for the next four years? I mean, not to mention the kids who don't get to sports and that sort of stuff, like when they're senior year in high school or whatever, it's, I can't even imagine. Yeah, I feel for the mental aspect of this for these kids, that's got to be really challenging. Luckily, kids can bounce back and they're tougher than they seem, but I think that this fall is going to be challenging for a lot of families who don't have the resources to help their kids get through this stuff. So Tesla's down 0.14%?

0.09. Otherwise known as nine basis points. Is this the top? So that stock is up 390% as of last Friday for the year. It passed Walmart as the ninth largest stock with the market cap of worth of $370 billion. Here's the only companies now that are bigger than Tesla in terms of market cap. Amazon, Apple, Microsoft, Google, Facebook, Berkshire Hathaway, Visa Johnson & Johnson. That's it. Tesla is the ninth largest company in the S&P 500 if it was in there today. Did you see this chart by Drew Dixon? No. He showed automaker enterprise values versus sales versus Kappex. And what's in here? Fiat Chrysler, Ford, Ferrari, BMW, Daimler, Volkswagen. And Tesla is way bigger, way bigger than all of these combined. And as you can imagine, sales of the rest of the companies are, I don't know, eyeball on this 10X what Tesla is.

The numbers continue to boggle the mind. So they had a piece in institutional investor about how this is the longest, most unprofitable short someone has ever seen, talking about Tesla and how it's the Whittlemaker trade. And so they interviewed a few people saying, is it just short covering that's driving this? And obviously people don't really know. But this Mark Spiegel guy who runs a firm that's short the company, he's blaming it on people just supercharging. He says some entity I don't know who was executing a strategy of buying massive quantities of out-of-the-money call options. He's saying that's forcing the stock to go up and it's spying out of control. I don't like to venture into the conspiracies theory is too much, but wouldn't it be funny if Elon Musk was just buying call options against the stock that he already owns in the company

and pushing this higher just to piss these people off? He's not doing that, but... What if it's simply supply and demand? There's 4.27 billion shares outstanding of Apple, for example. I mean, that's not a great example because Apple is going up and up and up. But Tesla, there's only 186 million shares outstanding. So what if there are just way more buyers and sellers? I don't know.

I never really like that one. What if Elon Musk mines a bunch of Tesla cars from an asteroid? Wait, wait, wait, come on. You don't buy that at all? I think this is a weird cult. I don't know. Maybe it is like a Bitcoin thing. So the short sellers lost $6 billion in market market losses in June alone.

and it says they've lost about $21 billion for the year, as recently as this month. There's still $15 to $16 billion sold short, which has actually stayed relatively consistent throughout the year. So even though the market gap has gone up and they've seen losses, that's still pretty similar, I don't know. So this Spiego guy says that his conviction is stronger than ever, and he upped his short bet after their second court earnings call. I don't see whether you're a bull or a bear, how you could ever have conviction on this

stock about anything. It's funny that the people who own the stock seem to get mocked more than the people who shorted it. The thought is that the people who own it are dumb, but the people who shorted it are really intelligent. But guess what? The dumb people who have owned it have won so far. And even if this thing got cut in half and it's back down to $900 a share, there's people who've been shorting this thing since it was $100 probably, right? I've run out of things to say because the numbers are so crazy at this point. All right. Speaking of shorts going away, A chart from, I think this is Bank of American Merrill Lynch, not positive. Colvin Sachs, it says.

I'm sorry. There it is right there. Median S&P 500 stock short interest as a percent of market cap is as low as it's been since they have data going back to 2004. I mean, I don't blame people, right? We had 10 years of markets going up and then a month where they went down and then they're back up again. Wouldn't you throw in the towel at this point if you were a short seller?

When did you stop shorting stocks, 2013-ish? 2012, sir. You shorted the S&P to pay for your wedding. That's still one of my favorite stories. Too soon. Is that what I did? You're trying to head your wedding by saying you sold the S-B short or something. I got to check the archives on that.

I got a bill from my kidney stone. $9,138 for computer tomography. I don't even know what tomography is. I don't either. A thousand seven for lab services. 34 bucks from the pharmacy, five grant for the emergency room to pour salt in the wound, $13.18 for a New York surcharge. What's that about? Maybe New York is dead forever if they're charging you $13 when you go to the hospital. It's desperate. That visit to the

hospital, my insurance was billed $12,552 and $60. And your total payment was? $150. It's like these numbers are just made up at this point. In the hospitals and the insurers just kind of shift them around. I don't understand why it has to be that way. Costs keep going up and up and up. I think our insurance premiums, we're at 14% this year and then IEP up 20% next year. There's no upper limit to how much healthcare costs. What is going on? You got me. Yeah. That's the kind of thing where I have zero faith in my lifetime that we're going to be able to fix the health care system. I don't see how that's possible, how they can. Yeah, I don't know. So I had a run with my doctor last week. I had a just

a small cut on my knee. And it stayed there for a while. You went to the doctor for a cut on your knee? What are you six? Listen to this. So it got infected. And my whole leg was turning red and it was painful. And so Friday finally said, all right, I tap out. I'm going to the doctor. I called them. I hope they could give me some antibiotics. So we want to see you. And the doctor said, it's a good thing you came in. This thing is pretty bad. Apparently, I don't know how I got it, but I've been, whatever, in the lake a lot this summer. They said it could have been some bacteria got in it somehow. This thing was pretty nasty. My leg was a lot of pain. Like for a couple nights, I couldn't sleep.

And he said, it's a good thing you came in. He gave me a shot, and then they gave me an antibiotic, and it's starting to clear it up. Wait, hang on, hang on. Actually, you're not sick. It sounds very tough. You couldn't sleep and you didn't go to the doctor. I know. I'm one of these people that, like, the doctor is the last resort for me.

So I didn't even tell my wife about it. I just went in and they gave me a shot and numbed it up and then gave me some antibiotics, and now it's on the way to healing. But it reminded me for this book, Fewer Richard Greener by Lawrence Siegel, and he talked about how I'm going to say, it's left up your knee. It's kind of gross, actually. You don't want to see it, the stuff that was coming out of it. So this is from Lawrence Siegel.

In 1836, Nathan Rothschild was the world's richest man, which in today's dollars had about as much money as Bezos and Buffett combined, died at the age of 58 from an infection that could have been cured a century later with a dollar's worth of antibiotic. Calvin Coolidge was the 30th president of the United States from 1923 to 29. His son died at age 16 while he was in the White House in 1924 from an infected blister on his foot because there weren't antibiotics that were able to take care of the infection. I don't know if I would have died from this 100 years ago, but isn't it kind of crazy that it's such a small period of human history that we've had antibiotics, just simple. Like, they gave me these antibiotics and it cleared it up immediately almost. A hundred years ago, are you losing your podcast co-host from an infection to his leg?

It's wild to think about. Wow. All right. Listener questions. My employer provides a 4% match, which requires the employee to contribute 5% to get the match. 28 have used this as my primary retirement vehicle contributing 10%. I just realized there's a floating fee of roughly 1.25% that seems very high. It doesn't make sense to reduce my contribution.

Should I just open up a target date fund someone else? Thoughts? That does sound very high. I would talk to your employer about getting a better provider. Well, if you work for a small place that unfortunately you have to pay a higher fee sometimes, and a lot of these places don't know how to pick a 401k provider. But the typical rule of thumb is no matter what, get the match. That's the first thing no matter what.

That's your best deal. Even despite the fees, it makes sense to grab the match. because you're still coming out ahead. And then if you decide the funds are terrible or the fees are too high, then open up an IRA somewhere or a brokerage account and save that way. It would make sense to me. I think it's the fees too high. And the fee does sound pretty high.

So that's the way I look at it. Next. Had the good fortune in an offer, you're a double one of my IRAs, Humblebragg email of the year. I sent this email. Yeah. Yeah, that's from you. Pretty far ahead of the curve in terms of retirement savings. This year, the CARES Act allows us to take money out of retirement accounts without paying the

penalty and spreading the taxes over three years. Would someone ever advise taking some of these gains out and putting a 20% down payment on a home? Obviously, many variables consider, but what are your thoughts? So maybe this listener is thinking that they've had some luck of doubling their IRA and want to cash it out and take some tips off the table. If you're not paying the penalty, what do you think? I don't see anything wrong with this. So again, there's no penalty and you could spread the taxes out over the next three years. So if this money can help you get into a home that you've been dying to get into, what's the problem? Yeah. I don't see a problem either. So what? You interrupt compounding in 60 years from now. All right, whatever. Let the kid live. You're rebalancing

your personal balance sheet. And if it can give you a 20% down payment and give you no house you want, I see no problem with it. Recommendations. All right. So I'm typically anti-biography just because they're too long, but have you read any ones from Doris Kearns Goodwin before. She's one of my favorites. Yes, I have. Okay. So she said she's written extensively on Lincoln. And both Roosevelt's. The both Roosevelt's, who are fifth cousins, which I didn't realize. So for this one called Leadership and Turbulent Times, she wrote about all four of these guys. You read it before? Yeah, great. And so I love how the fact that she wrote about all four of them, and instead of spending 800 pages on just one person and who their seventh cousin was and how they died when they were born,

she goes into just the best stuff in stories, and she breaks up into different phases of their life. And then she compares and contrast the leadership styles and the different upbringings they had. She wrote Team of Rivals, which I have not read. Okay, that one's on my shelf, too. My dad's a big Lincoln fan. So I like this as a biography, the fact that I'm learning about four people at once, and she's comparing contrasting. This is a very good one. What was excellent about that was that Teddy Roosevelt adored Lincoln, FDR adore Teddy Roosevelt,

and LBJ had some stories when he met FDR. They all had some very good linkage. It's good. Dex Shepard interviewed Bill Gates last week, which was just awesome. He talked about Michael Jordan and Steve Jobs and Da Vinci and Buffett and optimism and luck and all this stuff. It was very good. Finally, I think it was on Amazon Prime. You ever seen Midnight in Paris? No. Owen Wilson and Richard McAdams is his fiancé. I watched it when it came out in 2010-ish and thought it was pretty good. It aged well. I won't spoil it because it's got an kind of absurd premise,

but it's one of the movies where if you go with the absurd premise, it's very good. So I'm putting that on my recommendations for you for this week. That's all I got. I watched a little bit of Jurassic Park yesterday with Kobe. The original? Yeah, it's perfect. I mean, maybe I have too much nostalgia here, but to me it's like the perfect movie. It was just incredible.

So I told Robin to put on the camera and video when he first sees the dinosaurs, when they first see the giant dinosaurs. And Robin's like, are you crying? And I said, no. I don't know why I got emotional. I think because it was like one of my favorite movies as a child. Okay. See, there's the nostalgia piece, the top gun thing.

But Jurassic Park is actually good. It did age well, but yes. So I was thinking about this. Movies from the 80s. I went and looked at the best movies of the 80s, and I got to tell you, not an impressive list by any stretch of the imagination. We might disagree here, but I just wanted to give you my top 10 and then the honorable mentions.

So if you look at like movies from 1995 or 1996, for example, there's like 75 great movies. The 90s is unquestionably the best decade for movies ever. For the 80s, I only came up with like 30 good movies. And my top 10, in no particular order, aliens, Raiders of the Lost Ark, The Terminator, A Nightmare on Elm Street, coming to America, E.T. The Princess Bride, the Shiny, when Harry met Sally, and the Empire strikes back. Any problems with that list? I feel like I wish you would have given me a heads up on this because it would have taken me at least a good 72 hours come up with a list like that. So I'm going to need some more time.

I've got the honorable mentions right here. These are things that just miss a cut. Trading places, back to the future, die hard, the breakfast club, stand by me, Raging Bowl, Blade Runner, Do the Right Thing, Ferris Bueller, Ghostbusters, Weird Science, full metal jacket, Fast Times of Ridgeman High, Platoon, Caddyshack Friday the 13th, National Amputins Vacation, the Goonies, Beverly Hills, Cap, Karate Kid, Beetle Juice, and Poltergeist. So that's 30 movies And that's like the cream of the crop That's it

That's not a very good list I think you're missing a lot of stuff here I don't have time Planes trains and automobiles And Ferris Bueller's Day Off I said Ferris Bueller's Day Off Okay I'll give you this list

And you could fill in the missing holes But either way My point is When you look at like the top movies There's so many movies Like Gremlins was on the list Is Gremlins a great movie? I don't think so

Good movie, fun movie It's also a problem Where are you getting any list from Listen the lists are the list What do you mean where am I getting them from This is one person's opinion. There are 70 movies on the list. I grabbed the best 30.

Okay. I'm sure you missed a ton. Beverly Hills Cop. I said Beverly Hills Cop. You can't go on, sir. All right. Not a great decade. I missed Top Gun.

Yeah, I'm not arguing. The 90s was, again, a way better decade than any of them. So we agreed to agree. Yes. All right. Not read anything lately? Actually, I am reading something. I didn't watch any movies this week.

MBA is in full swing. It's been amazing. I was way wrong on that. I thought that being in Florida, and I thought they're going to screw the bubble up, I know that they had the best chance of success of anyone. I didn't think it would work this smoothly or as well as it has. I was way wrong on that one. Yeah, it's been pretty flawless.

I'm reading D-Day by Stephen Ambrose, which it feels like a small book, and it's not a small book. I read that a while ago. He's the best, and as far as I'm concerned, the best World War II author that there is. Yes. Band of Brothers remains my favorite book of all time. Anyway, Animal Spiritspod at gmail.com. make sure to check out our deep dive on how to spend money and budgeting from last week if you missed it.

Talk to you next week. Thanks again to our sponsor, Masterworks. See their disclaimer at masterworks. com.