Animal Spirits Podcast - Upside Down Markets (EP.167)

Episode Date: September 16, 2020

On this week's show we discuss some work from home backlash, parents vs. single people in the office, where inflation comes from, the new fiscal policy regime, why markets are so hard, experts on an earlier version of the world, the two beers and a puppy rule, the growth in sports gambling and more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by our friends at Y Charts. One of the simplest features that I like when you're trying to search for data, you can always use their search function, but they also have broken down by ETFs and mutual funds and stocks and bonds, but they also have economic indicators. And if you click in there, oftentimes you find information that they have that you didn't know you needed. And especially when we're kind of digging into this stuff, it's very helpful. So today we're going to talk about the insane growth in the money supply of the U.S.,

which based on Y charts data going back to the 1980s. has grown at nearly 180% over the past 12 months, which is by far the biggest jump we've ever seen in this. And we're going to talk about that. As it relates to our favorite pseudonymous blogger, Jesse Livermore's latest tomb. So go to Y charts, tell them Animal Spirits, send you to get 20% off your latest subscription. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Nick 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 Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spheres with Michael and Ben. I suppose this was inevitable. So Reed Hastings has a new book out about the culture at Netflix. By the way, I can't believe his people decided to drop the book the same week as Morgan Housel's The Psychology of Money. That's a balsy play on his part. Isn't it kind of interesting, though, that he's doing a book when he's not even retired?

Because you've been seeing a lot of CEOs who are in their retirement phase doing it, but he's doing it while he's still there unless he's maybe phasing out soon. I'm retired from reading about Netflix. Okay. Yeah, right. You've read like four books on them. Have you not? I'm saying, yeah, I'm out. Okay.

So you're not. Yeah, I probably don't need to read this either. But I think you got the gist from the 347 interviews he did over the past week. But the part that I pulled out from the Wall Street Journal interview, they asked him, have you seen benefits from people working at home? And Hastings replied, no, I don't see any positives. Not being able to get together in person, particularly internationally is a pure negative. I've been super impressed at people's sacrifices.

And then they asked how many companies are going to shift to work from home, even after the crisis? His guess was he thinks a five-day work week will become four in the office and one at home. That's where a lot of companies will end up. That's reasonable. Yeah, it is, but probably not the way many people would think. He's not sugar-coding it. And I'm sure there are a lot of CEOs and type A personalities who just hate the work-from-home concept. I'm guessing especially at big corporations.

So another Wall Street Journal story last week said JPMorgan executives told all their senior employees of their sales and trading staff that they have to be back in the office by September 21st. So the backlash of this is starting to happen a little bit, right? where we get these companies who did it because they had to. And now they're saying, all right, you know what, we're going to figure it out and people are coming back whether they like it or not. There's backlash within companies, people that have the ability to work from home and people that need to be in the office. But I think there's a bigger backlash coming in the broader economy versus people that are able to work from home versus those that are not. And there's a, so Bloomberg shared a chart. Naturally, Americans with higher incomes were more

likely to telework in August. If you made between 50 and 75 grand, you were 30, likely to work from home. It just increases, basically, the more money you make, the higher chances you were from working from home. Right. People who made 200,000 above, over 70% of them were able to work from home. Whereas if you made less than 25 grand, only 11 or 12% of you were able to work from home. Here's the other side of this. A lot of people say this is the inequality stuff at work, and I agree with that. I think this chart is going to work against high earners in the future, though. Because I think unless you're at a really cushy company that loves their employees in perks galore, they're going to say, all right, you make a lot. You make a

lot of money, you come to the office. I don't care. So you've been able to do this for six months because we're in a pandemic. But guess what? Pandemic's over. You make a lot of money. You get your butt in here now and you're going to be in the office five days a week, whether you like it or not. I don't care what you want. I think that's going to happen. We can see a lot of that, especially with if you're working for a big corporation. One of the dividing lines is within companies, it's people that have kids that are getting extra accommodations for good reason versus people that don't have kids. Yeah. So this was in the New York Times, and they talked about how when this stuff all happened, a lot of the employees needed child care because a lot of that was closing down for people. And so this said at a recent company-wide meeting for Facebook, employees repeatedly argued that work policies created in response to COVID-19 had primarily benefited parents. At Twitter, a fight erupted on an internal message board after a worker who didn't have children at home accused another employee who was taking leave to care for a child of not pulling his weight. Was it a quote tweet or a sub-tweet? But, I mean, honestly, I'm biased here as a parent, but those single people can F off.

Like, think about it. It is so not easy to be apparent during the pandemic. And where's the camaraderie and the teamwork? And you know what? I'm going to pull up a little more slack. But, I mean, if this is happening now, I mean, think about like the political backfighting that's going to be going on. If certain employees have worked from home status in the future and certain employees don't, this is not going to be good for a lot of big corporations that have internal. politics. Put yourself in the shoes. Why don't you go back 10 years in time, Ben? If you pre-children, you would have been so pissed off at parents. And so would I have. This is bullshit. I guess. Maybe I'm just more understanding now and realize that it's a little harder. But I mean, in the future, the political backstabbing is going to just be ramped up. Isn't it? If those people who are at the office, they're going to be talking smack about people who aren't there and trying to leverage it into a better opportunity or

I just think that's where we're headed with this stuff. If certain people get it and certain people don't at companies, I don't know how it's going to work. For sure. So another headline, VMware and Twitter, cut pay for people leaving the Bay Area. Is this fair or unreasonable? I mean, I think it's fair. You base your pay on standard of living and cost of living, but don't you think that really high-level employees are going to say, I don't care what I do for you, you pay me whatever you pay me wherever I work? I'm sure there's going to be people who fight against this. I understand that mentality, certainly, but I feel like companies that are located in areas with high standards of living have to compensate their employees for that. And if you leave,

then you don't need to be compensated that way. Now, I don't know what the exact numbers are. Like, if you go from San Francisco to Bozeman, for example, and you get a 20% reduced pay, is that fair? I think so. Don't you think there's going to be workarounds for this, though? So we yet in college, you couldn't live off campus until you were a junior. But we had a friend who used his parents' address at a town a half hour away just so he could live in an off-campus house somewhere. Can we get some of that where someone still pretends to live in San Francisco but really moves away and just says I'm going to be working remotely from San Francisco? This just shows it's almost been easier to do it through this six-month period because everyone was in the same boat.

So once those restrictions are taken off and the pandemic is over and back to normal and people try to navigate this, it shows how challenging it's going to be for companies and employers to figure out what to do and what are the right steps to take. There's no playbook for this. It's going to be messy. It's going to be messy. This is interesting. Finally, the consumer price index for college tuition fell 0.7% in August. That was the steepest drop since 1978. On a year over year basis, the index was up just 1.3%. And that was the smallest increase on record, which is pretty remarkable. How is it still up during a pandemic? Well, Jesse Livermore, who we're going to get to in a minute, wrote about this idea. What a freaking brilliant piece that was. I mean, I admittedly

skimmed a lot of it. I didn't get to the end, but I feel like that should be required reading for Fed officials. Maybe for investors. How about just for understanding what's going on in the markets right now. So yeah, he wrote a commentary for Oshon and C.S. He has a management called Upside Down Markets. Before we get to that, let's just talk about drunk really, really quick. Okay. Here's a clip from Stanley Drock and Miller last week talking to CNBC. Look, Joe, I have no clue where the market's going to go in the near term. I don't know whether it's going to go up 10%, I don't know whether it's going to go down 10%.

But I just want to remind people that there is no valuation support because we drop 10%. That hasn't mattered because we're so far outside of the valuation realm with the Fed doing what they're doing. that doesn't matter, but I would say that the next three to five years going to be very, very challenging. And what the Fed has done, in my opinion, if you listen to the Jackson Hole speech on the framework, it was quite amazing. It sounded like an apology because inflation has been 1.6 instead of 2 the last 10 year or 12. Their mandate is price stability, where I think 1.6 is like they hit a home run. They actually sound like they've been two. tight the last 10 years and look what they're risking in terms of financial stability to hit

that 2% mark. And my own my own sort of central cases for the first time in a long, long time, I'm actually worried about inflation unless everything I learned about at Bowden is incorrect de facto MMT, which is what we're doing right now because we actually have the chairman of the Federal Reserve with a three and a half trillion dollar deficit out lobbying Congress to do more spending and guaranteeing those of us on Wall Street that he'll underwrite it. I think it's, I think it's dangerous. I think we could easily see five to 10 percent inflation in the next four or five years. Ironically, I also think he's raised the risk of deflation because I cannot find a deflation that happened because you were near that so-called

zero bound. Everyone was preceded by an asset bubble, and he's created this massive asset bubble. So ironically, he's raised the two tails. The risk of inflation is much higher than I'd say it was 12 or 24 months ago, and the risk of deflation. I'm talking like minus three or four percent, because if things don't work out and we get a bust here, that is up. I think the odds of us hitting the sweet spot, which I would say is around the two percent. center area, which is where we've been, have actually gone way down with the Fed activity. Doesn't this sound kind of, he's saying that the risk for inflation and deflation are higher than they've ever been? I just feel like he's been bearish for a long, long time. And it's so

of a lot of people. But have you ever heard of a macro investor who's bullish? And I guess in Drucker and Miller's case, when you make a living betting against central banks across the globe, you're going to have a bearish bet. That makes sense. Certainly, I haven't seen any bulls. bullish ones since the great financial crisis. I think if you had macro in your title somehow or your newsletter, you've been bearish. Maybe Mark Dow. Yeah. And Cullen? It's one of those things where I think a lot of the people who follow central banking and follow macroeconomics are using a playbook from another time. And I'm not saying this is necessarily Druck and Miller because obviously if he invested exactly the way he talks, his returns would be horrible because

he's been betting against the Fed for the past 10 years. And to his credit, a few times he said he's been wrong. So I'm guessing his investment portfolio does not match the stuff he says. Watch what they do, not what they say type of thing. And that's the way it is for a lot of hedge fund managers. You follow someone like Ray Dalio, it's the same way. They always sound bearish, but their portfolio doesn't match what they're saying. I think there's so many hedge fund managers. This is why since the great financial crisis, have we had a single superstar fund manager that has just shot the lights out. I mean, isn't the biggest star fund manager right now just in the NASDAQ 100 ETF? There hasn't been a single one. And I think because a lot of them are

using a playbook from the 80s and 90s and early 2000s that is completely gone. It doesn't work anymore. The market has changed. And they were all waiting for hyperinflation from the Fed keeping interest rates low for years. And it never came. So maybe this is a good lead into Jesse Livermore, who is a modern day, I don't know, genius. What do you even call this guy? His understanding of the markets is phenomenal. And it is kind of funny that in an information world we live in, that a pseudonymous blogger is kind of schooling everyone on what's going on in the markets.

The way that he breaks down concepts and re-pieces them and looks under the hood and rebuilds them, and I mean, it's remarkable. This took me a long time to get through it. It was a slog, but there's a ton of golden nuggets in here. It's a 40,000 word piece. So we tried to pull out some of them. So again, it's called upside-down markets. And he's looking at what if we have this shifting regime where we're going from monetary policy being the most important driver of markets to fiscal policy, which is something that we've been talking about for a while.

And the way that he explains that he kind of breaks down the economy as a whole and how it's looking and how things change if when that happens. And he calls it upside down markets because he's saying, this is the reason you can have a bad economy and strong asset prices. He makes a perfectly good explanation for why when you have such strong monetary and fiscal. policy, as you did this year, even during a nasty economy, you can still see asset prices rise because people know, okay, the government has these corporations back. And we're going to be willing to look over the valley for a year and know that this next year is going to be bad because these corporations are going to be helped out by the government and everything's going to be fine. And that's really the way things have played out this year.

So getting back to what we spoke about college earlier, like how is this happening? I thought this is very smart. He said industries that aren't able to appreciably increase their productivity tend to experience above trend inflation. They rely on labor or supply whose cost is increasing faster than inflation, but they aren't able to use that supply any more efficiently to generate output. So they have to pass the cost to consumers, raising prices at a pace that exceeds inflation as well. So Mark Andreessen was on an A16Z podcast this week talking about the fact that things like health care and college inflation are just out of control. And those are the things that hurt the middle class. And that's one of the reasons that we have

wealth inequality. So he broke it down. And this chart that you put in here is great because it's looking from May 1998 to January 2020. Television's are down 16% over that time, which makes sense. We talked about this a couple weeks ago about how it's harder to manage inflation. The higher ones here are hospital services and daycare and nursery and college tuition, of course. Those are all running much higher. And this is why people complain about inflation as a measure. That's his point. things that you can't get higher productivity on, basically things that are technology-related, cost tend to rise faster. Right.

Don't you think, though, that's going to invite more technology firms to try to step in there? 100%. Would it really surprise you if Bezos is running our health care someday through Amazon Prime? So there's a few other ideas that he got into. And one of the things is the threat that inflation has on equity valuations. And I thought that this was very, very smart. Talking about like being an expert on an earlier version of the world, he said, quote, The association between inflation and reduced valuations is not a consequence of any inherent aversion that stocks have to inflation. Much of it is instead due to a single coincidence. Inflation has tended to occur during and after wars and wars are risk off events that drive contractions and equity valuations. The remainder of the association is likely due to accounting factors and policy feedbacks. So he broke it down to the two things. Overstated earnings. Inflation leads to an understated depreciation and therefore overstated earnings. Overstated earnings warrant lower PE multiples. And he then said a policy response.

inflation leads to interest rate hikes, which makes stocks less attractive relative to cash and bonds, and B, increased corporate interest expense as well as the risk of financial instability, bankruptcy and recession. So the takeaway here is twofold. If the federal would take away policy response by farming its intentions to hold rates at low levels despite elevated inflation, then stocks wouldn't have any reason to become cheaper relative to properly measured earnings. In fact, they would have good reason to become more expensive, given that they are one of the few asset classes that can protect investors from the wealth losses, associated with inflation. This is why the old ways of thinking about inflation from the 70s or 80s

are antiquated at this point. So you have this quadrant that Dalia uses? Inflation growth, good, bad, whatever, whatever. Yeah, it's kind of backwards. And he ties this all to fiscal policy, too. I thought this one, he said, people on both sides of the aisle are increasingly coming to the realization that fiscal policy is the cheat code of economics. If you're willing to tolerate inflation risk, you can use it to achieve any nominal outcome that you can. And that's why I think that these politicians... they have to understand this and say, if we want to get some sort of nominal growth rate, they've made these promises in the past, they can do it. It's just the political will

to make it happen. And he's saying, of course, this doesn't come without risk. And inflation is that risk. So eventually, you have too much fiscal expansion and then you have wealth that's higher. And then eventually, if that problem is solved and we have inflation, so if things are going well and inflation is kicking at the same time and you're through the bad times, then eventually higher interest rates are going to have to come in and you're either going to need spending to keep up at certain levels or spending is going to drop off and then you pull the punchbow away. So it's not like there's no risks from this type of strategy. It's just a different way of thinking about strategy versus what things were like in the, I'd say, great financial

crisis world. So bringing this back to the chart that we talked about from Whitecharts, the money supply chart. Yes, money in the system has exploded. However, he looked at wealth velocity by income quintile, showing that not all of the money that's going into the system is spent. So wealth velocity by income quintile, the top 20%, the amount of money they're spending relative to their wealth hasn't got anywhere since 1989. He broke it down and he provided like an actual playbook, a roadmap for how fiscal policy makers should think about this sort of thing. He said the bottom 20% of earners spend an amount equal to 65% of their net worth each year, whereas the top 20 percent of earners spend an amount equal to only seven percent of

their net worth. These numbers offer a different way of framing a point that is already well understood, the poor of a much higher marginal propensity to spend than the rich. He then goes on to say inequality in wealth and income is obviously a social problem to be lamented, but from a fiscal perspective, it's actually an advantage. It's what allows us to run aggressive fiscal interventions during crisis without introducing longer-term inflationary pressures. Again, all of the money that's going into the system is not flooding the system. It's not all being spent. A lot of it is being saved, and that's another reason why those unemployment benefits have been so beneficial because that money going to the bottom 20% or whatever is being spent, but then

the other side is balancing it out and saving more. So you have this seesaw approach. It's almost like Goldilocks. Yeah, it is. And that's why people who are expecting this to end so badly may be sorely mistaken. Lastly, and there was so much in here. So I think we pulled out the good stuff, but it's certainly worth reading. He asked a question that we've spoken about in the past. Why don't European and Japanese households take advantage of the enormous premium over cash and bonds that their equities appear to be offering the same way that U.S. investors have? And he basically said the answer is a mystery. We really don't know. But he compared the average asset allocation in the U.S. to Japan. It's roughly 50-50 stocks to bonds here. In Japan,

it's just 23 percent stocks, 77 percent bonds. So who knows whether that's demographics or the market that they've experienced that crash and left scars? Who knows? Right. The fact that they've had low interest rates forever and it hasn't really led to more risk-taking or speculation. It's possible it's a cultural thing. Obviously, we love speculating in this country. Listen to a sports podcast right now. Every single commercial, gambling, gambling, gambling, gambling, that's all it is. Can we interrupt and talk about sports for a second? Yesterday for the first time I created a Draft King's account. You're like buying call options on the giant? I used to bet a lot on sports. I haven't bet on sports, like actually on sports in maybe

almost 15 years, because I had some really bad loss. And I was like, fuck it, I'm out. I can't do this shit anymore. So yesterday, I almost had one of those moments because I really wanted to bet heavily on the Lions. Oh, wow. You should have talked to me. Being a lifelong Lions fan, I would have talked to you out of that one immediately. The Lions were favored by two and a half. That dropped touchdown in the end zone. That would have been a lot of the end zone. That would have have covered would have been devastating. I would have lost my mind. It was such a great reminder of why I don't bet on football games anymore. I joked that the Lions losing in heartbreaking fashion was the first normal moment for me in 2020. Things felt right again. I sent you the

Freakonomics podcast in the NFL. I was dead wrong about that. I didn't realize how well the NFL would be able to run a testing and contact and tracing setup. It's too bad that we couldn't have the professional sports leagues running the COVID response in the country because it sounds like they really know what they're doing. They've taken the steps that a lot of other people or places just wouldn't. So I was surprisingly, felt like a normal Sunday yesterday, even about fans there. I did a daily fantasy thing. It was like the best performance of my life. I had an amazing day. One of the best days I've ever had. I've never done daily fantasy. I've done fantasy for 15, 20 years. I've never done daily. So I made a team yesterday. And it was off the charts how good I did.

Well, not off the charts, but it was very good. So there was 237,000 entries, I think. And they were giving away $1 million in prizes. So I think their gross was like 1.2 and they're giving way $1 million, which is pretty nice business. Like, wow, that's pretty great. So anyway, there was 240,000 entries almost. I was like 8,000. So I was in the top 98% or top 2% I should say of places. You put in five bucks. I got $10 back. Not bad. It was probably the best day I will ever have in life, and I won $10. By the way, so just like Facebook, I've never played fake football before. Of course you haven't.

Wait, you've never done fantasy football? No. You've never done fantasy football? No, for whatever reason, I never got into it. And people ask me every year to do it, but now that I've never done it. I don't want to be the new whale there. My point is that this, like, it's such a waste of time. It's basically the lottery, because it's fun, but you're glued to your screen all day.

I did Ben, I did so well. I had such an amazing day, and I won $10. So I think I'm out. That's the thing, though. Gambling on sports, people were like, well, what if they all stick stocks and gambling on sports is going to be enormous. That's so much fun. But that's going to be the thing that keeps people coming to the game and paying attention.

And that's kind of a layup. For people who are saying the NFL is going to go under, just think about the amount of people who do that fantasy football and all this other stuff. That's the stuff keeping people around for sure who aren't even huge fans of the game, the speculation aspect of it. Yeah. So Corey Hofstein did a similar piece. I don't know how to transition off of that, but Corey Hofstein did a similar piece where

he looked at really, I would say, like the guts of the market. and market structure and liquidity and all sorts of things like that. Corey and Jesse are, I would say, experts on the current world that we live in. Obviously, they know where the market is going. Nobody does. But the point is, like, they're adapting to the current realities of the world that we're living. Right. There were a lot of people, I think, who were left behind following a great financial crisis

with an old view of the world. And I think there's going to be a lot of people who are similar going to be stuck after this with an old view of the world and probably wrong. And that's not to say people who accept this new reality. are going to do better in the markets because you still don't know what the investor reactions are going to be. But if you're using this old model of this is how things worked in the 70s, so this is how they're going to work forward, you're an expert on an earlier version of the world and you're going to be probably left behind because that's just not how things work anymore

and things are different. Can I just say one thing about this? He made such a good point. This is so hard to invest in this type of environment. He said, this is Jesse, by the way. He said, in the end, Tina markets are guaranteed to be difficult and frustrated for a large number of people. The problem of how to properly invest in them has no easy solution. Chasing ultra-exensive assets, nervously supervising them in the hopes that you have in top-tick them is stressful and unpleasant, but so is waiting on the sidelines earning negative new overall returns while everyone else makes money. I mean, nailed it. This is the hardest investing environment anyone's ever been in. I think that's the setup that

you're forced to deal with. There are no easy answers. So these charts from Jesse and Corey are actually kind of similar in terms of the flow chart, if this, then that, bad environment, Fed steps in, the loop repeats. Corey's point was basically this whole way that markets are structured now where you have the way people invest and the way the Fed steps in and now we have the fiscal component, it's going to probably lead to more short-term bursts of volatility. I totally agree with that, that we're going to see way more mini booms and busts because of the way that markets are structured now.

He said, a feature of current market, this is Corey now, a feature. Future of current markets is a dramatic mismatch in liquidity needed versus liquidity available during periods of market stress. This leads to a structural imbalance when it is met with the systematic and often convex hedging pressures of option markets, levered and inverse ETPs and more. These imbalances can lead to liquidity cascades as the hedges are liquidity takers during periods of liquidity stress. When the Fed steps in to fix this liquidity stress, the cycle begins anew. I'm going to be honest. I understood about 11 to 12% of Corey's paper. All right. But you got the gist of it.

I think I got the gist. That's why you need a flow chart for people like us who don't understand big words. All right. There was a good piece by Invesco. So we've seen charts in the past of how many stocks underperform the index in any given year. We don't need to go back to that. But this was interesting. I never seen it this way.

They showed a chart that showed if you're just picking stocks, the longer the investment horizon, the fewer stocks exceed the index return. In other words, if you were to just look at a one-year period, 49% of stocks aren't to perform. But if you were to extend that to three years, that drops to 41 percent, to five years, it drops to 37 percent. And this drives with that best and bidden their paper that we reference all the time, do stocks outperform treasury bills. How many people that come to you for advice, just normal people, friends, people outside of the finance world, how many of them come to you,

do you think that their assumption is that picking stocks is investing? Yes, for sure, 100%. That's, I think, one of the biggest misnomer for a lot of people who are just starting out or people who don't pay attention to this stuff, that they just assume that. tell me a few stocks to buy, and that's my investment strategy. There's another side of that. So that's number one. Number two is, should I buy or should I sell? So it's which stock should I buy and when should I buy them?

So, yeah, they're picking stocks and their timing the market. They think that's what good investing is all about. You can get lucky with that occasionally, but over the long term, that just as these numbers show, that is just a losing strategy. Yesterday, I got super lucky in fantasy football and I won $10. Yeah, right. Then you're going to do it for the rest of the season and lose every Sunday, right? I mean, honestly, how long did it take you to create this fantasy football league?

You probably spent a lot of time on it? No, four minutes. Okay. That's still four minutes. You're never going to get back. But I looked at all the winning teams, and sorry for people that don't give a crap about this. Yeah, that's me. I don't give a crap about this.

Every winning team, for example, had James and Crowder. Because he was a guy that cost no money that had a ridiculous day. So if you didn't prick James and Crowder, you were shit out of luck. But honestly, the way that they do that with the lottery, that's how a lot of the... You are so boring. Because I don't do fantasy football. Sorry. What do you do for fun?

I'm not a nerd. But the way that they do with a lottery like that, that's how you get people to save money. It's a great way to get people to speculate. But that's also how studies have shown that if you tell people, if you save $10 a week and it's going to put you into a lottery, there are certain saving platforms that do that. That's a way to get people to save more as well. If you give them that one like, oh, what if I do this? That's a good way to get people to save, too. Can I create a fantasy football league that also saves you money?

Like the Acorns of Fantasy Football League? VC people reach out to me. Listen, you can't put a price on fun. All right. But in this case. All right. This is from Zillow, getting back to our work from home stuff. They did a report and they said if this work from home stuff really latches on,

they think nearly two million renter households who are in jobs that could likely be done remotely and have been priced out of the market where they live, mostly California or metro areas, could afford to buy a starter home elsewhere in the country. They make up close to 5% of all renters in the country. And I think, what is it, 65% of people right now? own a house. So home ownership rates like 65%. So they're talking about it's mostly millennial. So they show in like in San Jose, 25% of the people that rent can't do so because they can't afford to buy a house. But if they were to go remotely, then they could afford

to buy a house. So they're saying this could open up the real estate market in other parts of the country. If you're priced out in New York or California, somewhere in California and your company lets you move, there's a huge number of people who are ready to be those willing buyers somewhere else. Are you bullish on those sort of cities? It's too easy to say city like Austin now because that's... Well, what's next? You're right. There's got to be a lot of cities in the southeast and on the Little Rock. I mean, like the North Carolina's and those type of places, just the echo cities. I think there's going to be a lot of those that, yeah, we'll see a lot of people come to them, don't you? Yeah. Places with some half-decent weather. And I think you're going to

see a lot of that in the coming years. We haven't done a ridiculous survey in a while, but this one fell right into our laps. Forty-three percent of investors are trading with leverage. Yeah, there's no way that's possible. So this is a thousand Americans. I am curious. What were the details of this survey? That would be an impossible number. Now, honestly, how many investors would even realize if they are using that or not? They probably don't even know. If 43 percent of individuals were really using leverage, I don't know. That's like 1929 levels of margin? That would be at 75,000. that was accurate. Somebody tweeted, I can't believe that 57% of investors still aren't using leverage. That's pretty good. Yeah, there's obviously no way that's high. That's why we're anti-survey.

I wanted to share this random thing that I saw. I thought this was terrific. Here's a helpful test for determining how you feel about somebody. It's called Two Beers and a Puppy. Again, I'm sorry, I don't remember where this came from. Two Beers and a Puppy is a test that I developed while working on an Esquire story on the American son of a bitch. The test is, in order to find out how you actually feel about someone, ask yourself, would I have two beers with this person? And would I allow this person to look after my puppy over a weekend? Some people are no and no. These people are to be avoided at all costs. Some people are yes and no. These people are to be cautiously trusted. Some people are no and yes. These people are no fun, but they make the world a better place for puppies especially.

And some people are yes and yes. These people are wonderful people in your life and work are better for having them in your life. Seek them out, collaborate with them, enjoy their company. There's definitely a lot of my friends from college who I would have had two beers with any time, but would have not trusted them with my dog. So I guess this is a... I think you fall in the yes and no category for me. What would you not allow me to do? The beers of the puppy. Hey, I have a dog. Okay, fair enough. You wouldn't let me watch your dog?

All right. Of course I'm. You'd be too busy with your fantasy football team to watch my dog. Your three yeses. I'm going to use leverage on this one. So this is like an interview question you get at Google probably, right? Something like that? That's a good one.

It's a good test. All right. Matthew Ball shared this chart on monthly churn for video on demand. So stars Netflix, HBO, now, Hulu, Showtime, Disney, whatever, whatever. is the king. I mean, this is insane. Basically, nobody cuts the Netflix cord. 2% monthly turn, and that's pretty static. These other ones are all over the place. Showtime is up to like 11% now, which kind of makes sense. Well, Affair is gone, Homeland is gone, Ray Donovan's gone. What's left? There's not much good on Showtime for a while. This Hulu

one had a huge spike in November. Do you think there must have been a show ending at that point, and then people leave? Was that Disney Plus? Because it might have been like part of the bundle or something. Yeah, that could be. But this is interesting. to see. In HBO had a similar, I mean, there's 12 HBOs now. And I still can't watch HPO Max on my Roku or. It's ridiculous. Amazon Fire. How are you watching it? On my laptop, like a noob. Noob whale. Yes. Total noob whale. So Ben, last week you wrote a piece about why stocks have to crash and it's basically an expectations thing. So a friend of the show, Nicole Boyce and tweeted, from my 13 year old daughter, do you think Tesla would be a good stock investment? Of course. So that just goes to show you

where we are in the cycle. And another stock that has done incredibly, maybe not as good as Tesla, but not far off is Peloton. So Palaton reported earnings. Sales went from 223 million to $607 million, up 172%. The numbers were off the charts. They're kicking ass. They showed a chart average monthly workouts per sub, which is rising and rising. People are using it more and more. By the way, I'm back on my Peloton. Now that's cooling off, I'm starting to use a little more too. I was going to ask if you're using you. So now that Robin is back in school, I am home with the kids in the morning, so I don't have time to be on the physical bicycle. So I'm on the Peloton, which is going to increase my TV watching and decrease my podcast listening. You don't listen to podcasts on the Peloton? That's what I do. Well, I'm watching Yellowstone, which I'll get into. So anyway, so Peloton, the results cannot have been better. Just cannot have been better. So the stock opened up 10% was up as much as 12% on the day. It ended up closing down 4%. As of Monday, it's down another 5%. and this is what happens. Yes, it's in a 12% correction, even though the numbers were amazing because that's why

the stock is up 250% or so since the bottom in March. That's why it's so hard to gauge these stocks because eventually the expectations and the bars raise so high, even if it meets them, if it doesn't exceed them, then the stock may get sold off in a big way. This was a sell-the-news event. And yeah, to your point, like Nicholas Cage said, you only know where the top is after the fact. So you don't know what the expectations are until the earnings come out.

All right. Listener questions. Okay, I live in Vancouver. Real estate is very expensive. We rent an apartment in a nice area of the city and have all our net worth invested in the markets, stocks, bonds, etc. Our investments have performed well over the years, but I keep feeling we were missing out on historically low interest rates because we currently hold no debt.

A lot of considerations here, but are we missing out by not owning real estate? Well, not if you're investing in the market, sounds like. If you are debt-free and have money invested in financial assets and this is a FOMO thing. As long as one area of your portfolio is doing well, should you really care if you're not doing well in the housing market too, especially in a place like that that is ultra expensive and is done really well? I don't think that you should necessarily worry about that. Why would you significantly overpay for real estate if you can afford to rent? Yeah, I see no problem with that. In fact, owning a home in a high cost area like that simply adds

risks to your portfolio in a lot of ways, don't you think? You're locking in, not that we know what the future holds, but there's a decent probability that you're locking in low real returns and giving up liquidity. So I don't know why you would do that. That's why owning a home is not really part of the investment equation. If you want to settle down somewhere and be a homeowner, then that's a whole other story. That's a personal finance issue and not an investment issue. I don't think you look at owning a single home as a way to round out your portfolio because in a lot of ways it doesn't. It's a concentrated asset. There's a lot of upfront and ongoing costs involved. I don't think you look at that in terms of your portfolio. You look at

in terms of your personal balance sheet. I'm a 30-year-old working in the finance industry. My earnings have been highly correlated with the overall market. When I'm looking at my 401K, my training account, and my other savings, all of them are highly correlated with the equity market as well, which makes me worry sometimes. Any suggestions on how to deference if I went from the overall equity market for those who earnings are already highly correlated with the market, prefer to stay liquid also. Well, open up a draft king's account.

We're in the same boat. My entire 401K is in the stock market. my livelihood is tied to the stock market. The alternatives are, I mean, you know what the alternatives are. The alternatives are cash and bonds, which give you very little. And then the alternatives are alternative assets that we've been discussing, whether it's art or crypto or private real estate or student income agreements. Like, those are your choices.

They're not really liquid, though. You want your best hedges, have a high savings rate. He said that. Yeah, I did. I mean, other than that, a high savings rate or a high cash holding for, a backstop. How about gold? Yeah, I mean.

Palladium. I mean. Wheat. Yeah, this is something that we do with too, but like, what are you going to do? I don't know, buy a bunch of puts. I don't see how you can really hedge that without just holding a bunch of cash or having a really high savings, right? Well, he's not talking about hedger. He's talking about diversifying.

So, I mean, commodities are certainly a diversifier. CTAs. I mean, there's a million ways to diversify, but all of them come with their own idiosyncratic gross is what I'm getting at. I wish we had better answers for this. Again, there are no good answers. If we lived in a world with 6% bond yields... Yeah, then this would be very easy. Much easier, but we don't.

What do you got for recommendations? I did a couple old 2000s movies. I did the 40-year-old version based on the rewatchables. It's been a while since I watched that. It was like you could have rented it for $3.99 or bought it for $4.99 on Amazon, so I bought it. So this was like the unrated two plus hour version. It took me two nights to finish it probably. Why does it feel like longer movies?

Why do they feel so much longer than just binging a TV show? I could binge eight episodes in a row of a TV show, but a two-plus-hour movie just feels so long. I don't know that I've seen the unrated version, but you make a good point. There was a good Kevin Hart scene that wasn't in the original. That was pretty good. He was very strong in that movie. He was only in a few scenes, but. And then they recommended, I love you, man, because of that, which is another 2000s one.

And that was like five bucks as well. I love that movie. I think that's probably Paul Rudd's best work. That's one of the more underrated ones of the 2000s. That's Paul Rudd and Jason Siegel, where Paul Rudd's trying to find a new. new man friends. It's so great. There's just so many great lines. I think that may be one of the most underrated comedies of the 2000s. Wait, wait. How about the Andy Sandberg, J.K. Simmons, relationship in that movie? Hike Mardukas. Yeah, Andy Sandberg is really good as the brother.

We watched Georgia Rabbit this weekend. So I asked you if you watched it. You said you gave up after 20 minutes. It's a dark comedy about a little boy living in World War II Germany who is part of the Hitler youth. And this is almost the movie that's impossible to explain because his imaginary friend is Adolf Hitler, but it's a dark comedy. What was the pitch? What was the pitch of that movie? That's what I said to my wife. How do you pitch this to someone? But here's the thing. It's a second half story for a movie. Give it some more time because I watched the first 20 minutes and I thought, is the whole movie going to be like this? Because I thought it was like a weird Wes Anderson thing. But the movie

totally changes, it's still kind of funny, but it changes tone halfway through. And I think it's probably one of the more creative movies I've seen in a long time. I loved it. I watched 20 minutes and I was like, I just, I don't get it. This isn't for me. Yeah. But it changes. In the little. kid. He's like this 10-year-old boy was amazing in it. Scarlett Johansson plays his mom and she was fantastic. Sam Rockal was good. I loved this movie. It's like a kind of movie that gets better the further along you watch. Finally, rereading a random walk down Wall Street, the newest edition. I think it's in like the 12th edition or something. I thought this was interesting. This is Bertram-Malkiel

Classic. It came on in 1973. He did a comparison of things that are different since 1973. In 1973, we did not have money market funds, ATMs, index mutual funds, ETFs, tax-exempts, tax-exempts funds, emerging market funds, targeted date funds, floating rate notes, volatility derivatives, inflation protected securities, equity rates, asset back securities, smart beta strategies, Roth IRAs, 529 savings plans, zero coupon bonds, financial and commodity, futures and options, and new trading techniques such as portfolio insurance and high frequency trading, just to mention a few changes. But other than that.

Yeah, other than that, I mean, this is the other thing about being an expert on an earlier version of the world. It's amazing. In 50 years, all that stuff has happened. and we're trying to figure out what's going to happen to these things in the next cycle. Like, we have any clues because these things are still so new. Yes, this is why investing is so hard. What do you got?

All right. So since I'm on with Peloton, I've been in front of the TV a lot. I watched The Hunt for Red October. You ever see that one? In the 90s. It's been a long, long time. Alec Baldwin plays Jack Ryan. Sean Connery is the rogue Russian commander on a submarine.

This is the part that got me. So it was a very good movie. It's a long one, too, right? It's not a recommendation. You don't need to go out and watch it. But for those of you who saw it, you know what I'm talking about. So Sean Connery is a Russian with a Scottish accent. Oh, right.

Doesn't change his accent whatsoever. But Sam Neal does like a fake Russian accent. That part of it was very confusing. Certain actors had a fake Russian accent. I have a hard time taking Sean Connery seriously anymore just after Celebrity Jeopardy. So on SNL. Somebody sent us a few weeks ago. a podcast where it was This American Life, they follow a car dealership on Long Island about

the inner workings. And this part of it really got to me. Did you listen to that yet? I just listened to the first one today. It's very interesting. So there was one part where this car salesman is not only necessarily playing the buyers. He's also playing their manager. And I say he because all the car salesmen are he. So, for example, a person says that they want to be at 150. So the car salesman can take that to his manager and say, listen, they're aggressive. They want to be down to 190. Oh.

So he's like playing both sides. You know what I mean? I just thought it was interesting how, so we talked about this on a podcast recently and we're wondering how your car buying experience, how the margins are so thin. And they talked about that their quota for the month was 129 cars to sell. And if they only sold 128, they'd get nothing. But this is a Chrysler dealership. But if they sold $129, Chrysler would give them like an $85,000 bonus.

Even if they lose money. The incentive structure there seems so bizarre to me. On the 129th car, they would agree to sell the car for a lower cost than what it, right? They would lose money on the car. So they were saying for a lot of these cars, yeah, they're losing money and selling them below what they paid Chrysler for them because they'd make up for it on the bonus. But then if they don't get the bonus, then they're really screwed and they get nothing. It seems broken.

All incentive base, but it's very interesting. So I listened to one episode of SmartList with Will Farrell. He is the funniest person in the world, in my opinion. I was dying at the original Harry Carey stuff that he did back in the day. He's just the best. This sort of got me. No matter how much money you have, everybody wants more, I feel like that's a very obvious thing to say. But for some reason, listening to celebrities do the ad reads. Yeah, Jason Bateman pitching AutoZone was weird, right? It's just weird. And I don't begrudge him like, it's all good. It's just weird, right? Yes. I thought the same thing.

I heard Rob Lowe do one. And it's like, really? But, okay, so I watched Yellowstone. I'm almost done with the season one. Not surprisingly, it's a very good show. It's a mix of, to me, Succession, Bloodline and Sons of Anarchy with much, much, much better writing and acting than Sons of Anarchy. Yeah. But sort of got the gang stuff, the family dynamics, the boss stuff. Yeah, the guy's living in the rodeo house, that's very Sons of Anarchy-ish. Let me ask a question. So I was looking at Kevin Costner's IMDB. He's been in a movie pretty much every year since 1982 or whatever. And I was thinking to myself, I was like, why didn't is Kevin Costa have a bigger career. Like, he's obviously done good work, but he's not an A-List at all.

So then I went to his IMDB page, and he's worked every single year. You don't think Kevin Koster was an A-lister in like the 90s? Maybe. Yeah. 2000s? But what happened? It's sort of... Yeah. Yeah, he kind of dropped off. I agree. Yeah. It's like outperforming in the market. It's tough. You can't do it forever. Yeah. All right. Animal Spiritspod at gmail.com. Thank you for listening. We'll likely be back Friday with another... Oh, that's right. evergreen personal finance one on saving for retirement see you next time