Animal Spirits Podcast - Valuations Don't Matter (EP.148)

Episode Date: May 27, 2020

We discuss why Zoom is worth more than the 5 biggest U.S. airlines, how many of the pandemic stocks are here for good, Spotify taking over the podcast game, Amazon possibly buying JC Penney, winners and losers from the WFH trend, the summer bull case for Airbnb, why alternative ETFs haven't worked, what happens to the conference industry 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

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

discussed in this podcast. This has been making the routes. I saw it last week and I saw it a few weeks ago. Zoom is now, Zoom, the video conference company is now worth more than the five major airlines, which is Southwest Delta United American Airlines and JetBlue. Those five collectively are worth $45 billion. The market cap of Zoom is $48 billion. And I know that this is comparing apples to peanuts. But trailing 12-month revenue for Zoom, which is growing 100% year-over-year, 622 million, okay? 622 million. So it's training at 78 times sales. If you look at the price of sales ratios of companies in the Russell 1000, the highest is Moderna, which was that vaccine company that we saw spike last week. I think we spoke about that. That's training at

442. Again, extraordinary circumstances given what's going on with people anticipating their vaccine. But other than that, there's a few outliers, but the highest is like you got one at 68 at 54 at 43 at 40. Again, Zoom is training at 78, and we know why they've been a huge beneficiary of what's going on. But listen to this. Delta and United and American each did over $40 billion of revenue in the most recent 12 months. They each, all three of them did over $40 billion. So these five companies have a total of 257 times. the revenue that Zoom does. And I know that it's dumb to just compare revenue because these airlines

might not even exist 12 months hence. Right. They had that much revenue. Yeah. And their future is in doubt. So I get it. Let me just ask you this part. Do you think, so we're seeing a huge spike in market cap for all of these companies of the future, Shopify, Spotify, Spotify, Peloton, Wayfair, whatever it is, all these companies. Is it possible that these all these are, are in fact the companies of the future, but their market caps are out of control, very similar to the way that Amazon and Apple were the companies of the future in 1999, it just took a while for their business to catch up to the growth. Yeah, it depends on how much of this is just a pull forward in revenue and demand and then

some of it trails off or if it's more of a subscription-based thing. I mean, something like Peloton actually seems like this is a good thing because they have recurring revenue. So it's not like they take it in once. They have those classes. I mean, people completely give up the bike or whatever. But it's the speed of this is obviously intense. So you created this chart for Y charts and it shows it looks like it was basically in January February. United and Zoom had the same exact market cap. And they were going in different directions. But then Zoom just takes off like a rocket. And so your point is Zoom is worth as much as the other five airlines combined. Yeah, more than all of them. By the way, the funny thing is

it might be the airlines that are still that are still overvalued here yeah so you have southwest delta united american and jet blue and zoom is worth more than the combined five market caps of them and it just happened really fast is it possible that all six of these companies are overvalued it's possible one of the good things about us using y charts for this whole crisis period for me especially has been like i just get these things in my head like oh i wonder how this is doing what this is looking like and you pull this chart together and it's really easy to just compare stuff like this and it's still kind of mind-blowing just to look at it and think Delta's market cap alone was in the range of what Zoom is now. But doesn't this just make it think to you

like don't half of these airlines just have to form a group together and say like we're going to get rid of for the next two years, we're getting rid of half of your routes and half of your routes because it just doesn't make sense anymore. I just, this is the one I keep coming back to about the airlines. I just don't understand how it possibly makes sense as a going concern for the next two years. We've spoken about this in the past that thinking about market cap and thinking about whether that makes a company fairly valued, overvalued, is probably the worst metric that you could possibly use. These arguments have been made a million times and it's usually on the wrong side. But here's another one. TikTok is now worth, I should say, bite dance, a company that

owns TikTok, they're a platform company. They have other companies, is worth over $100 billion. Wow. Getting back to your thing about, are some of these going to be flash in the pans and other ones are they going to be the companies of the future. Doesn't Zoom seem like the one that's most ripe for innovation and to be just knocked off their pedestal? If someone came in and said, we've created this virtual boardroom that you can have all your conferences in and we do it better than Zoom and it feels like you're really sitting there instead of just in these Brady Bunch squares talking to a bunch of people. Zoom could easily be, what was it, Mirkat? What was the thing before, I guess neither of those really took off? Couldn't they be the

netcape of this whole thing where they could easily be. Do you know what I'm talking about? The Mirkat thing. Am I making that up? Yeah, that was the video one. That's right. Yeah, I forgot. What was that replaced by? I don't know. Whatever one made it. I can't think of the name, but. But same thing with Zoom. Like, why is Zoom with $50 billion? What do they have that's so special? I don't get it. Is it bad of me to think that I want to make it through this whole period without ever doing a Zoom happy hour with people? Does that make me a bad person? No. I'm sorry. I just can't make myself do it. I think it's too depressing. It's kind of like the kids' birthday parties when they do the drive-thru. We've had a lot of those in our neighborhood. The first time it happened, I was like,

you know what? This makes me, like, proud of the human spirit. But now when I see you on, I'm just kind of depresses me. I've shared a drink with friends on Zoom. Not bad. You're okay with it? Okay. I guess you and I have never done that before. Are you saying you don't have any friends to share Zoom happy hour with? I'm waiting for my invite. No, I just, I don't know. The whole Zoom experience, it still feels odd to me. I still think 90% of Zooms could be conference calls. You and I have had business Zoom calls that in the past would have been conference calls. But I feel like people feel like they need to do Zooms right now. Don't you think that?

Like, people are pressing it a little bit. Like, we don't need to see each other for this conversation for a lot of those. I prefer it. I don't like the telephone at all. Okay. See, I prefer the phone. I much prefer to FaceTime. Okay.

Honestly, that's one of the more underrated ones out of all this is I found more value out of FaceTime with like the grandparents for my kids, seeing their grandparents through FaceTime. I think that has been invaluable for us in terms of seeing their grandparents. And we do FaceTime at night where my daughter will read to her grandparents. And I think that one has been kind of obviously that's not a big part of what Apple does. But I think that one has been swept under the rug a little bit and people haven't been paying attention as an underrated form of technology for this, for us at least. Clear the air. Are you still short Zoom in your paper account? it sounds to me like you're ready to go short them and long the airlines here for um yeah i think

i covered that one after a quick two-week bounce i don't know anymore but don't you think even in this little weird two year 18-month period if we're waiting for a vaccine even now don't you think there's got to be another technology company saying screw this we can do what zoom does we can do it 10 times better there could be another competitor that comes along in the next six months and everyone goes yeah i'm sick of zoom let's use this one it's possible unless people are just using to it and it's got that first mover advantage. I wouldn't care either way if it was something else. Yeah.

So news last week in the podcasting world, Joe Rogan is now moving exclusively to Spotify. This was kind of a big one. And I mean, I'm surprised they didn't do a similar deal with Bill Simmons when they bought the ringer. But if you're Spotify, like, this makes a lot of sense. So I guess they paid him $100 million and he probably gets more money in advertising. none of these other big platforms, like Apple owned the podcasting industry from the start with their app, and they seem to not want to do anything because it probably doesn't move the needle for them.

So, Spotify wants to own the audio and become the Netflix of podcasting or whatever it is, I think this actually makes a lot of sense. I'm sure these numbers are completely made up, but Rogan said his show reached 190 million downloads a month last year. I don't know how accurate some of those numbers are, but that's huge numbers, obviously, and bringing that over to their platform. If you're Spotify, why wouldn't you do this? If you're able? Yeah, Spotify is crushing it.

This is one of those companies that I listened to the Freakonomics podcast where they interviewed Daniel Eck, the CEO. And I'm not trying to pat myself in the back here, but this is probably like a year ago. Congratulations. You bought two shares. Right. For my fun portfolio account, I started buying shares in that. Just from hearing that, I didn't do any other research.

I just, after listening to him talk about his thoughts about the industry and how he runs a company. Excuse me. Sound like a professional. You began accumulating shares. So I was accumulating shares, and I performed a discounted cash flow analysis. But I'm just really impressed with him. And so there was another story this week. I think it was a Hollywood reporter or something. They interviewed Bill Simmons. And he talked about it. And he said that he said, Spotify reminded me of the point when I was at ESPN and a lot of the stars had aligned. He said the big difference is Daniel Eck, the CEO. He said he kind of reminds him of Steve Jobs a little bit. And he also said, it's kind of like Disney, where in the 80s, people thought they knew what Disney was. And then they had just the parks and animation and made some movies. And then Michael, Eisner comes in and takes it a step further, and then Bob Ager comes in and takes it even a step further. I mean, if no one wants to wear this audio crown, it kind of makes sense that why not have them step up and do it and just buy a bunch of places and make it exclusive. And so people

have to go. Because like, do you care what app you use for your podcasts? No, I mean, I use overcast. I'm not loyal to them. Yeah, I actually use the Apple one just because I was used to it. I've used a Spotify one for. Apple. Yeah, just the iPhone one. I don't, whatever. A new will move, I'm sure. The average age of the Apple podcast listener is 64. Do you think anyone over the age of 64 uses podcasts? Is that age discrimination by me? Spotify is worth. Their market cap is 35 billion. And they did nearly $8 billion in revenue. So not nearly as expensive based on that multiple. You've been really pouring over the financial statements this week. I'm something of Warren Buffett myself. So the other story about podcasts, so this barstool sports,

call her daddy podcast. Never even, I guess it was one of the top podcasts. Today, Junior. I don't know what it is. I believe it's a podcast where the two hosts talk about sex from the female's point of view. Okay. So these two hosts realized their show went from 12,000 to two million downloads in two months and it topped the charts. And they realized that the contract that they signed with Barstool was totally undervaluing how much money they were bringing in. They decided to renegotiate. And it's crazy how quickly something like that can happen where you go popular and you realize our audience is worth something here and it's worth some more to this company than they're showing us and show one of the quotes from the article that you pointed out it says we all know

that followers are literal capital at this point and it's interesting how this happens in the podcast world especially I think you can get really really loyal people that follow along and it can be a niche thing it can be a big Rogans is obviously this huge audience but you can have more niche podcast or whatever where it's interesting to see how these people are trying to find their value and realizing like, oh, why don't we just, I think a lot of people are trying to figure out, can we do this on our own or do we need to have that parent company do it all for us? Well, I don't really know much about this, but my suspicion is that Barstool is the brand and that their value would be much diminished if they left to do this on their own. Right. Yeah,

that makes sense. And they were saying Barstool was losing 100. $100,000 per episode on this from the ads. And yeah, and the thing is, would they've ever gotten to that point if they didn't have the brand? And I think, can't you argue that that's what Spotify is trying to do? They're going to say to some of these places, even if you already have a big audience, come to us and become bigger. And it sounds like what they want to do is totally change the advertising, because a lot of it is, even for our podcast, we try to look at the numbers and they give you downloads, but you don't get a ton of data on this. And advertisers is

on all the data. So Spotify is going to say, if you come to us, we're going to be able to track the users more. We're going to be able to give the advertisers better data. you're going to be able to make more money and we're going to be able to make more money. I think it makes a lot of sense. So what I'm trying to say is, how much is Spotify going to have to pay animal spirits on 2022 EBITDA to make this deal work?

I want what is Zoom? 78 times sales. Okay. We're going to get a Zoom multiple? Yeah. Okay. I think that's fair. But you know, if we go to Spotify,

you're going to have to do two episodes a week. I don't know if you can handle that contractually. All right, wise guy. I thought this is kind of cool. Maybe this is just PR, but good on Netflix for saying that they're going to stop charging people that have dormant accounts. They're sending like an email to people that aren't watching. That's surprising. So they know, obviously no people don't. Do you think that's just because

they want to get a better sense of who their actual subscribers are? I think it's virtue signaling. Okay. That makes sense too. But it's all good. Like I think that they are, what they were saying is that during these tough times, if you're not using your subscription, you can be better with money elsewhere type of thing. It's probably a very, very small fraction of their users. But speak of Netflix. I watched two, is it A-24 or 824, the production company? No idea. Never heard of it. Okay. They did uncut gems. Well, you don't watch a lot of indie movies like I do. Oh, sorry. Well, I saw two. You really have a year to the ground of the movie industry. I saw two of these films over the weekend. Maybe you've heard of them. Maybe you haven't.

You probably haven't. One is called The Witch. You ever hear that one? No. Horror. I seem to watch horror back to back. Am I? quite sure why. But in this case, actually, I do know the Genesis. So I watched The Witch. I wondered if they spoke about it on the Big Picture podcast, which is a Spotify exclusive now. I looked at it. Oh, so they took one of the Ringer podcasts and made a Spotify exclusive? No, I just made that up. Sorry. I just met that like the Ringer is now on Spotify. So I listened to the director. They spoke about The Witch. Anyhow, I found this other movie called It Comes at Night. So it was another 824 production. And then I noticed that, and that movie was a little bit

better. By the way, you were like the perfect mark for the Netflix algorithm. You watch all the crappy movies that they send your way. Like, you might like this as well. And you're, yeah, let's do it. So anyhow, where I was going was this. The Uncup Gems is on Netflix. That's it. If you want to watch on Kud Jems, it's available on Netflix. I figured, did you like that movie? I thought it was a little overrated. Not bad. Well, like I said, it's a theater movie. I'm not sure if it holds up just on your couch. Are you going to do okay, not going to the theater for a while? I'm disappointed. Are you hurting there yet?

Well, I've got sopranoist to keep me busy for the next long, long while. By the way, just finished season two, and it's picking up. Yeah, it gets better. So it looks like there actually are contrary to popular belief. Companies are going out of business right now. There's been a slew of bankruptcies lately. Wait, hold on. Back up.

What do you mean contrary to popular belief? Don't you think there's a lot of people who thought like, oh, this crisis is just a bunch of corporations getting bailed out? And we're not letting capitalism work. And free markets are dead. So no companies are going out of business. That's not the case, really. So last week it was J. Z. Penny. This week it was Pier 1. Hearst just filed for Chapter 11.

But wait, wait, wait, wait, boy, blah. Pier 1 is actually going out of business. JCPenney, J.C. Crewe. Right. Well, yeah, I'm saying bankrupt and then going out of, yeah, so that Pier 1... They're restructuring. You wouldn't kind of find a buyer. Yeah. Right. But I'm saying people were saying, like, they're not even letting companies go bankrupt anymore. We have all these zombie companies. And there's a lot of people out there who want these. So maybe this is a good case study of... Here we go with the Fed Apologist stuff. Okay. So here's one that I thought was interesting. There was scuttle about last week that Amazon was thinking of buying JCPenney.

We've been trying to figure out what happens to these malls. So maybe Amazon takes them over. They turned it into some sort of local distribution center. It's right next to you. Maybe you could go in and browse some of the Amazon Essentials clothing lines. You could return stuff there, make pickups for your boxes there. That actually kind of makes sense, right? J.C. Penny has like the two floors and all the malls.

Why not just stock stuff there and make it quicker to ship or people pick up? Amazon is the mall of the future. Amazon has a partnership with Coles, I believe, where you can return stuff there? Yes. It makes sense, right? Can't believe you're too good for indie films. I like good indie films, not crappy horror ones that you watch. There's a difference.

Peter Lugar is going to deliver. First time ever. 133 years they've been around. Never once. I don't know what that is. Peter Lugar is probably the most famous steakhouse in New York. Okay. So some of the bigger restaurants are finally ripping the bandit off and doing this.

They have to, right? Mm-hmm. Okay. Are you going to use it or is that just in the city? There's one on the island. Probably going to get it. Yeah, so there's an article in New York Times about commercial real estate. Here's a quote, in April, New York City and State collected a combined $78.5 million in tax revenue on the sale of commercial and residential properties, a steep decline from $217 million in March.

So, shameless plug here. We did a podcast on commercial real estate last week. I thought was really interesting to think about the different sectors are going to be hit hardest by this. But don't we almost have to look at it in terms of cities, too, and regions? They're obviously going to be cities and regions that could hit harder than others, too. That's one of the things that being a non-New Yorker always surprised me about being there in the city is it's this massive, massive city.

But so many of the real estate and the shops and such are these small businesses. And it's not like it's all, I mean, outside of Times Square or whatever, it's not like all these chains and such. So, I mean, are there just going to be empty storefronts everywhere? Well, so do you think that people are discounting the fact that this could be a really bad thing and could trickle up to eventually the banks? And if the banks are left with all this basically holding the bag and maybe they tighten their lending standards so that could lead to a recession? That's been my worry this whole time is that it eventually has to get to the banks. But again, and I think they are probably tightening their lending standards already. I did a refinance. I finally, you talked me into doing a 15 year and it probably was four months in the making, refinanced and we did the closing on Friday afternoon in the side of a parking lot in our car. So it was like a car side closing. But after this stuff all hit, they started looking into stuff again and came back with like four more weeks of you need to send us this and give us this and we need more clarity on this. And they

had all these new COVID procedures that they were looking into and how businesses are being affected. So I'm sure that there's probably been stuff that loans that were potentially going to go through before that have been taken back on because of this. So I'm sure that a lot of banks, and I've heard a lot of banks are also cutting back on home equity lines and that sort of thing. We got an email from somebody basically saying that a 325 on a 30 and a 2875 on a 15 are the same thing if you pay one extra month with a 30 year. And having the 30 year again, gives you the flexibility. But we spoke about this months ago when I was talking about this. I don't necessarily want the flexibility. And I'm very fortunate to be in that position where I don't think

that this added payment is going to be a huge financial burden. But I think that if I had the option, I don't know that I would necessarily take it. I like the idea of four savings for me personally. I needed it too. Otherwise, I probably would have used that money for something else. And that's why automating this stuff is so important for all these savings ideas. Because if not, you're just going to use it on something else, and you're not going to save it. No one does the spreadsheet thing where they, okay, I'm going to take the $500 difference and put it into my IRA in stocks, and then over 30 years I'll come out way better. It just doesn't work like that. So the work from home stuff was heating up last week, especially for all the Bay Area stuff.

There was a lot of takes on this. And the crazy one to me was, so all these companies sort of started following Twitter said they're going to allow work from home permanently. Square, we talked about this. Now, Facebook said they're going to, Mark Zuckerberg said he predicts 50% of the company's employees could be working remotely within the next five to 10 years. Here was the twist from Zuckerberg. They're talking about adjusting your salary based on where you live. So if you move somewhere else, you're not going to be paid the same thing as you would in San Francisco if you lived in Detroit or whatever because the cost of living is lower there.

Do you think that makes sense or is that just this big corporation trying to figure out a way to save money? I don't know. I need to think about this. I assume you've thought about this. Where do you fall? First of all, I don't know how they're going to figure it out because even in a different city, standard of living is different depending on what neighborhood you live in potentially. There's a lot of differences. I don't know how they do an exact ratio. Do they take the median home price where you live? It seems like it's hard. And I think if I was one of these people who are staying in San Francisco, I would be using this as a point to say, like, okay, you need to pay me more. I would be using this as a negotiating tool. But here's the other jumping off point a lot of people made. And Coinbase said they were going to do the same thing. It's surprising that it took something like this for tech companies to offer remote working because you would think they would be the ones that would have the easiest time figuring this out

and doing this because they're the ones who invented all this stuff, basically. Someone said, okay, this guy tweeted Michael Boswell, this was flying around, retweets and such. He said, to all the engineers in the U.S. celebrating work from anywhere, you are losing leverage. Do you have any idea how many engineers in India are patiently waiting to do the job you have at a fraction of the cost? And if you think this isn't an economic decision by CEOs, you're crazy. Here's the thing. I think the leverage thing is different from people who currently work there versus people who are maybe applying to work there. So if you work there, I think you have a lot of leverage because people already know what you can do in terms of setting the rate that

you make and then working from somewhere else. But if you're coming in as a new person and you're saying, yeah, I want to live in North Dakota, but I'm working for this company in San Francisco, then why should you have more leverage than someone in India who'll do it for a fraction of the price? So I actually think this kind of makes sense in some ways. So you better hope that you already have a tie to the company and can show your value before coming in and just say, I'm not going to see you guys very much. If I was a young person, I would be very scared of the work from home idea. Like, I'm not bullish on that because one of the benefits of being in an office is interpersonal relationships.

And just how you interact with people is enormous. I don't understand how people advance working from home. And especially if you're working for a big corporation, so much of that how you move up is all politics and relationship building. And you can't do that on Zoom. It's not just how productive you are and do you get your job done. That doesn't make sense to a lot of corporations. That's not how people get in the top jobs. I'm sure there's a lot of people where you understand what they know.

And this person is not the smartest person in the organization, but they're the best salesperson or they know who to step on on the way up or whatever. So it's not always about just being the best most productive person. So yeah, but maybe for some people who are fine not taking that track and don't want to get political and they're just happy at their station of life, then they say, you know what, if people are passing me up for a promotion, but I'm able to have a higher quality of life, then maybe that's part of it. Right. Yeah. For people that are already established in their career, it makes a lot of sense. But for younger people, I think I'd be scared of this. And let me ask you a question. So fast forward five years. We're completely passive virus. We've had a chance to return somewhat to normalcy. Do you think that the office is 97% of what it was? Or do you think that 20% of the population is going to be working from home? Because I suspect, I think, that people are going to return to the office eventually. I have some friends here in West Michigan.

And a lot of these companies have been here forever. They're these stodgy old companies. And they want nothing to do with the work from home stuff. And they said that they've been driven into it kicking and screaming and they didn't want it. and they're probably going to just go back to normal. All right, but this is your Michigan bubble. Step outside that for a second. Okay, but don't you think...

That was a joke. But don't you think the New York thing, too? There's something about being in the city that people just love. And a lot of people, not just the companies themselves, but don't you think a lot of workers are just going to want to continue to go in the city as well? Well, if you're not going to do that, then what is the point of living in New York? Exactly. Right. So let's say you personally, Ritholt's wealth management announces, you know what, we don't need that office anymore.

Do you move somewhere else, potentially? I mean, no, only because of family. Listen, no, you have roots and stuff, but... I'm not dying to live on Long Island. That's not a choice anybody makes. Yeah, I agree. For the young people, this may sound like a good thing. It's probably not.

This is a good thing for people who are already middle or upper management and have more flexibility. Maybe they have kids or whatever, and they can work around their schedules a little easier because they already have some responsibility and seniority. But if you're coming in at the bottom of the totem pole, it's tough. Really tough. And I think you want to be in the office to move up a little bit, especially if you're in a big corporation, that's how you learn and you can get to understand how different departments work and understand how people's minds work and how communication works. For me personally, I'm not going back into the office for a while. I don't know if it's until there's a vaccine. We'll see. But I have zero desire to get on mass transit right now. Here's the other thing that is probably a little underreported in all this.

this all happened in the blink of an eye there was no planning for this there was no like let's take five or seven weeks and do some studies on this and figure out what's the best way to do this people who are working from home and are doing so potentially with kids that they're trying to homeschool as well like it's pretty amazing that this stuff has continued to dysfunction and maybe part of this is just when someone has the adrenaline they lift the car off the person who got in an accident and then eventually it's going to wear off so we did this huge sprint for three months and then now like people are probably finally going to start wearing out and they can't do it forever but It is kind of crazy that all these companies were able to do this, just everything stopped on a dime.

And it was like, all right, you're working from home now, you're working from home, oh, you have your kids as well, that all these companies were able to do this. And I'm sure obviously there have been challenges for people, but things have still continued to function in a lot of ways. It shows that this stuff can be done, even if you're not really planning for it and thinking about it. But the problem with that is there's probably going to be companies who take it too far. And they extrapolate stuff that's going on now in terms of productivity with what is really. reasonable for the future. It is bizarre, but I do think people like Zuckerberg are probably looking to save some money right now. I think they're using this as an opportunity. One of the things that's making this slightly difficult is that a lot of things for the summer

are closing. So Kobe's campus closed. I'm sure parents all over the country are dealing with that. So the beaches are making it difficult to get in. By the way, I feel like this is totally a coastal thing where you just get to get rid of your kids for the whole summer. We never had that in the Midwest. I was just stuck sitting in my parents' basement all summer. I never got to go to to camp for eight weeks. So now, like the rest of the country, I am scrambling to find a house to go to for two weeks, three weeks. This is the bulk case on Airbnb that we missed. We both said, how is Airbnb still going? I can totally see it being impossible to get a beach rental for the summer. If you have a rental in the right place, I can see that being in high, high demand.

I'm looking all up and down the East Coast, and it's hard to find something. I need pet-friendly. I want be on the beach, maybe with a pool, and it's super expensive, and there's just not a lot of options. Okay, Tinder for beach rentals. Swipes, right? I don't know. Yeah. But yeah, I can see how maybe that is something where Airbnb comes back, like, with a vengeance this summer in just specific cases. If you have like a, hopefully if your Airbnb portfolio of five to ten houses. V-shaped recovery. You'll probably notice more demand than ever for beach rentals and places in certain areas or maybe rural locations. I think that actually makes a lot of sense. Okay. Eric Balchunis is doing some great work on the Twitter on what's going on with investments

and ETFs and stuff. This is interesting. Not sure exactly what to make of this. So they have an index that they track. ETFs used by allocators. I'm guessing it's a ton of iShare's Vanguard, very plain vanilla market beta. And this had seen absolutely monster inflows forever. And this is monthly. Okay, you're seeing it's second straight month of outflows. So this probably is advisors bailing. What else could this be? So this says our index that tracks DIRP sheet core ETFs, beloved by advisors, is seeing the second straight month of outflows, which is totally unheard of. And this goes back to 2014 and there haven't been any outflows. So this is people selling S&P 500 or total stock market funds, basically. And they've seen outflows. Do you think this is meeting potential client withdrawals? and people who just need money right now and they're taking it from whenever they can get it? Probably.

I guess it could be some form of rebalancing, but yeah, I wouldn't be able to guess this. Or do you think people are making the shift from this into airline stocks? This is the great rebalancing. The advisors are turning into Robin Hood users. So we both wrote about this weekend about the link between sports gambling and the stock market now and why it is really bizarre. We're seeing bubble-like behavior during a depression. I mean,

here's the thing. We've all spent all this time now, and for the last 20 to 30 years, behavioral finance has become this thing that is just the cornerstone for a lot of people. And you think you understand human nature. That's the one constant. And behavior should be the one thing that is kind of, especially in the crowd and herd mentality, you should be able to be able to put your finger on and guess like, okay, if this happens, the crowd is going to do this. This is the exact opposite. The market got slaughtered, the worst 30%, the fastest, sharpest 30% bear market ever, and people are diving big into the market.

I gave some thoughts for why that is. Maybe you can give me some of your thoughts on this. Why are we seeing bubble-like behavior in a depression? Well, there are a few factors at play. I think first and foremost, it's the lockdown. People have nothing to do. That's one. two is you can't discount how influential Dave Portnoy is. He has an army of people. Three,

free trades, free commissions. That's enormous. Four is the stimulus checks. So I think that this was the perfect storm for brokerage accounts. And I think I'm going to write something about this. I think that behavioral finance is one of discovering behavioral finance is one of the worst things that can have between an investor. For someone who doesn't have context around it, yeah. Well, just real quick, and we don't have to spend too much on this, but you read, whoever, Kahneman, Dan Ariely, whoever it is, and your head explodes, right? You see the light.

You think this makes so much sense. And then you think you're an expert. That first book you read, it feels like your brain opens up to this new thing, and you're like, ah, I understand humans now. Yeah, now I see the light. And you don't realize that it's talking about you. Yeah, because we don't see our blind spots because, duh, we're blind to them. So we don't see our own stuff that we mess up on.

Here's the other thing I was thinking, we've been beaten over the head for 12 straight years. Why did you not buy stocks in 2008 or 2009 or 2010 or 2011, whenever? Everything has been a buying opportunity. So we've all been told literally every time the U.S. stock market has fallen, it's come back to a new high eventually. It's never not happened before. So do you think people have been beaten over the head enough with this to say, why wouldn't I just keep buying?

You don't think that that's giving people too much credit that they've just been? Because I had a few people reply and say, that's kind of what happened. to me. I've just heard it enough where stocks for the long term and it's going to come back eventually, so why not put some money to work? Because we're talking about different things. Those are people that are buying core holdings. What we're talking about are people that are gambling. Yeah, that's true. There is a lot of that. So Robin had had three million new accounts this year alone. And that's with having these huge glitches during some of the most volatile trading days and it hasn't really impacted them at all. Do you think that once the economy reopens people, go back to work,

this is going to drop dramatically because I think it will. I don't think it's going to happen all at once, but I think it'll sort of, it'll die down. That makes sense. I mean, things were so crazy there. Like, people had to just, that was what you were focusing on. I mean, there was nothing else to do or pay attention to, do I agree? It was a lot of it is just people are bored. Bouchon is one more thing that he did.

He said, J.P. Morgan is closing their hedge fund ETFs. Bad sign for the category. My take, they fall into the dreaded ETF dead zone, too complex, far away from beta for advisors and two public poolish for institutions who prefer exclusivity. Rest in peace. I thought he nailed it. I think that's a perfect take. And honestly, it was the worst time in history to try to quantify hedge fund strategies. Unless you went long, growth, short value, nothing has worked, right? In terms of a rules-based hedge fundish product, long short and managed futures, all this stuff, any of this stuff

that you tried to quantify over the past 10, 12 years, it was a horrible, horrible time to do it. If you would have released some of these in 2006 and they would have been able to do okay in 2008, they probably would have stayed around and done better. It's probably just bad timing for a lot of this too. I also think that he's right. Advisors drive flows to these products. And this is just a little bit too tough to fit into a portfolio. And hard to explain. And yeah, I agree. Not only have new whales been trading their butts off, but a lot of the stocks that they've been into are doing really well. So there's this Renmac tweeted the IPO ETF is at an all-time high. Look at the V in this thing. Unbelievable. So that's another thing. We're in a so-called

depression and the IPO ETF is at an all-time high. What's going on? A lot of those 2019 IPOs that did so poorly when they first came out are the ones that are doing the best. So this is Slack and Peloton and Zoom and a lot of these companies that really are the stocks that have just right place for time for this year. Buffett, Druck, and Tepper are the dumb money, obviously. And Robin Hood is a new smart money. Honestly, it's so easy for people to dunk on Robin Hood traders, but they've been the ones who've been on the right side of things for the last hour long they've been around, right?

Can you kind of say that, even though you think these people are ignorant and irrational and they're going to lose their shirts eventually. Them jumping into the lows, actually, they were right. If you look at their trading in the airlines and U.S.O and Hertz, they also got crushed on this name. So it's hard to make general statements. But generally speaking, yeah, the stocks that they're trading, the stay at home from stocks are kicking butts.

So yeah, we can dunk all we want and we're going to continue. Are we not? By the way, people who try to like put themselves on the sides of these hedge funds say like, Hey, listen, I'm with Buffett and Tepper. No, you're not. And that's not how the market works. It's not Tepper and Ackman or whoever versus Robin Hood. That's just not how this works. Say more. What do you mean? Listen, I don't want to be that guy that says, like, for every buy, there is a sell. And this is just, even though we've had all this churning and volume and increased accounts and brokerages and people coming in, you're still making a market. There's a buyer for every seller, right?

Is that too simple? You heard it here, folks. You heard it here first. There aren't more buyers than sellers today because stocks are up or whatever. I'm just saying, we're still making a market here. And just because these people aren't transacting, again, you said they're not the ones that are setting the price here because those people have just decided not to play at the moment.

If you're in cash, like you said, or if you're just sitting there waiting or you're just buying hold, you're not setting the prices. I got to be honest. I don't know what any of this means. Okay. I just think trying to position yourself says I'm the smart money because I'm doing what the billionaires say. That's just a cop out to me. That's just saying I don't have an investment. Okay, fair enough. This is an interesting chart. I don't know what to make of it. S&P 500 is seen as cheap relative to broadest gauge of U.S. money supply. Dow 40,000, down 50,000. Does this make any sense to you? This is a chart. This is a chart of this is really this is. Why is this even in here? This is a chart crime. Go ahead.

S&P 500 divided by money with zero maturity. Next, chart crime. That's it? Stamp it. Moving along. Okay, well, how about this? Stocks have not been this attractive versus bond since the 1940s. So this next chart is showing the ratio of the S&P 500 dividend yield over the 10-year

treasury. I mean, okay, fine. Anything compared to bond yield. Bond yield is so low. And I wrote a piece about this last week about our stock. is actually the best source of investment income there is, especially right now with bonds so low. Because here's what you get with the dividend yield. Over the long haul, and I went back to the last 100 years, we're talking 2% over the rate of inflation for growth of dividends,

which is pretty good. Obviously, you don't get that with bonds in terms of growth. You get what you get. But obviously, the other side of that is you lose, but they just don't go down as much. So even in the Great Depression, when equities fell on a real basis, 81% or something, dividends fell only 47%. So this kind of shows why fundamental stuff you're looking at never really makes sense because we can always swing a little bit further in the direction. And maybe that's one of the most surprising things about this timeframe is that it didn't swing further than fundamentals suggested. Usually you think in a panic, this should have gone down 50, 60% probably. You swing too far to the downside of it and maybe back to the upside. It didn't happen this time.

A few weeks ago, we were asking the question, is it possible that the economy does, does worse, relatively speaking, than the market. And we're like, no, that's not going to happen. The market's always overreact. Investors always overreact. It kind of did happen. And honestly, I feel like once a week, I'm out with a new theory about why stocks are so strong. I mean, every single one of them is obviously. And manipulation. And manipulation. And fed manipulation. They only make sense because this has happened. I'm totally based on outcomes and I'm probably trying to fit the square peg in to make things work. But these explanations could have been said, and stocks fell further, and it wouldn't make any sense.

Watching indie horror films has never been this attractive relative to the 10-year U.S. treasury yield. Okay, here's the other side of this. This was a John Reck and Thaler wrote about this, and he had a Peter Bernstein anecdote, which I. What? You just completely blue-placed my joke. Didn't even hear it.

Sorry. Proof that you don't listen to what I said. Okay, we sound like an old married couple at this point. Sorry. It was a good joke. You want to try that setup again? Proceed. All right. You'll have your tail between your legs right now. Okay, so this says in 1981 Peter Bernstein, who, if you don't know, he wrote against the gods, and I think is probably one of the greatest investment thinkers ever. He was hired to provide investment advice to a large foundation. He recommended that they purchased long-term treasury bonds, which he lived 15% of the time. At the time, one of the funds directors was a president of a major bank. He said he was so apoplectic of my recommendation. He got red in the face. His memory bank was only full of losses. hundreds of millions, maybe billions at his bank had lost on bonds for years on end. It's kind of hard to think of a time where you wouldn't say, like, how did people not just buy treasury bonds in

the early 1980s and move to the beach? There's always a reason not to buy something. Then, obviously, the thing was inflation is out of control. And even though bond yields are ridiculously high, it doesn't matter because inflation is eating them alive. So that's kind of the case with everything right now. The S&P 500 or NASDAQ is the only game in town. Why would you ever own small caps or small cap value or REITs or emerging markets or international stocks, U.S. stocks are the only thing in town. And there is absolutely no reason or catalyst to own anything else. But isn't that always a case when you have one of these things? Let's fast forward seven years. And maybe there's another asset class that does well. And you go, of course it did. The S&P 500 couldn't keep

that up forever. Won't that just always be the case where there's always a reason to not invest in something, especially if it looks reasonably attractive? Energy and metal companies right now. Who wants them? So what is this one? This is from GM. M.O. The valuation of energy and metal companies relative to the S&P, and this goes back to 1926. This is probably what, Fama French data maybe? So they did a valuation relative to the S&P. And the valuation of these energy and metals companies is at 0.2. So it's trading out an 80% discount to the valuation of the S&P. And just back in, looks like 2008, it was trading at a premium. I don't like these charts because it looks like at an average.

average from 1926 to today, obviously things have changed dramatically in the world, in these businesses. I don't know. This is what I just keep following back to using valuations right now is impossible. Probably always is, especially as a timing indicator, but right now, what good are valuations? Don't you think like the best way to think about this is just mean reversion? And instead of even looking like throw valuations out of the window, just look at different asset classes and expected returns and how those expected returns have been. than how they've done on a relative basis and how certain asset classes

have done just so much better than other ones. Can you just use that as the simplest reason to invest in some of these beaten down stuff or is that just not make sense? Are you still thinking about your joke that didn't land? Moving along. All right, we already talked about the gambler stuff.

What's... All right, survey of the week. I think Jim O'Shaughness who shared this chart a few weeks back. Public trust in government is near historic lows. Gee, shocker. This goes back to the 1960s. This is in secular decline. I don't care who's in the White House. This is permanent, unfortunately. Probably. I don't know. Maybe if you stayed off social media, you wouldn't even see all this stuff. But has any of the response to this crisis, just like the virus itself, totally shocked you? Like, I guess it must have been, I don't know, six or eight weeks ago we talked about, okay, the death count now in the U.S. is probably

going to be, it's almost assured to be 100,000 to 250,000 people. It sounds like we are there, almost close to hitting that 100,000 mark. At that time, even two months ago, I was thinking, like, if we hit that, I can't imagine what the reaction of the country is going to be, because that's such a huge number, even compared to, like, past wars. And collectively, it doesn't seem like the reaction has really been that strong by the collective population, right? It's just kind of like... To people dying? Yeah, it's almost like we're either out of side out of mind or we're just kind of used to it now. We're just going to deal with it, I guess. Those numbers just seem so high when they're given us estimates and now that we've hit them,

the lower end of that estimate, I don't know what exactly I expected, but I guess it wasn't this. You saw the New York Times cover. That was pretty powerful. Yeah, I just, it's just, maybe there's nothing. Like, even if we had an alien invasion. You love this alien invasion bit. This is your go-to. Sorry, I can't help it. We're closing it on July 4th. I'm getting ready to watch Independence Day again. World War II brought us together as a country. Even in the 1968, it was probably like one of the most

just crazy years ever in terms of everyone being at each of throats and the NASA space race brought us all together. Doesn't feel like there's nothing that could bring us together right now? Unfortunately. The aliens could come in and we would be fighting over

like how to treat them or... The last dance was pretty close. That brought us together for a minute. Yeah, I feel like we wear it off a little... I've seen a few contrarian takes about it now. Jordan was lying. I feel like there's always got to be contrarians. know, it just feels like this should have been us versus the virus. And instead of it, surprising

that it's still us versus us in all of this. Well, last week, Jamie Diamond was trending because he made some sort of statement about income inequality, how it's just really untenable. And people were like freaking out about how he's a billionaire. How dare he talk about this. And cancel culture came after him, even though he was saying what they wanted to hear. It's just who they heard it from was appalling. Okay. All right. The other part of it is maybe people are so bored and nothing else to do.

Like, why not just get mad at someone because of this? Because there's no one else to blame, I guess. I don't know. One listener question. All right. Are we in an environment where price multiples may permanently shift upwards? What say you, Fed Hater? Good thing that we've been speaking all episodes of how valuation no longer matters.

Pay anything for a business. What's the difference? Not that it no longer matters, just that it's hard to use it in the moment to make a yes or no decision. And valuations have been rising. If you look at the Cape ratio, it's been rising for the last 30 years. For the last 30 years, we've been below the historical average. We were below the historical average in 2009 for like a second. How is this? If interest rates stay at zero for the next 20 years, flip a coin, valuations mean nothing. How about that? You are such a bagholder. No, I'm saying it'll be ridiculously hard to value things if interest rates stay this low for an extended period of time, which I think is a possibility that rates stay low for a very long time.

And I think at that point, all bets are off, your discounted cash flow analysis throw out the window. How's that? I don't know. Multiple's permanently shift upwards. I guess it's possible. Who knows? Okay. Any recommendations?

What do we've been watching on the holiday weekend? Well, I already told you. Indy films. The Witch was a pass. It comes at night. Joel Edgerton. You ever hear of him? I feel like you're a Joel Edgerton guy.

Yeah, yeah, I know. Good movie. He was in The Warriors. Is that right? I'm going to give you a pass because, honestly, I feel like we've exhausted all movie options. I'm rewatching old stuff that I probably should have watched the first time. And I feel like things are just going to be really slow unless they start trickling out some more video on demand stuff.

There's nothing to watch anymore. Movie-wise, it's gone. I think for a while. New movies, yeah. So I've been riding my bicycle, my physical bicycle. Every day, it's great. Gives me like an hour and 15 minutes door to door. I'm back in the podcast game.

So a lot of ringer. I found a new one. Are you riding your bike and Peloton? Are you double dipping? On a rainy day, I'll ride the Peloton shore. I don't do two a days. I'm not trying to set records here. So I listened to Kevin Ruse has a podcast,

called The Rabbit Hole from the New York Times. Do you know who Pute Pie is? No. Okay. No. I didn't know who he was. He has more subscribers on YouTube. He has like literally 100 million subscribers.

And this podcast, it's like a series, excellent, highly recommend what it does is it shows you the rabbit hole that people fall into when they go down to YouTube rabbit hole and how their algorithm works to, I don't want to say brainwash you, but But if you're searching for one side, speaking back to the topic of why it's everything is so divisive, if you're searching for one side, you are only going to see recommended views from people on that side. And so it's about a person that saw the light, for lack of a better word, and found the voice from the other side.

And it's really all about YouTube and Google's algorithm. I thought it was really, really interesting. So part of the Spotify Joe Rogan deal was he streams it also on YouTube. He's going to be doing video with Spotify now. Could Spotify be a video calendar to YouTube potentially? Yeah. And maybe it's not as much junk on there either. I spend basically zero time on YouTube.

Obviously, YouTube is so massive. They said every day, 114,000 years worth of videos are watched. Okay, yeah, I don't go down the rabbit hole in there either. All right, we've been watching devs on, it's on Hulu. I think it was on FX first. It's by the guy who did Ex Machina, so it's a futuristic take on Silicon Valley Company that is doing some crazy.

crazy technology stuff. You ever see Upgrade? No, I never watched it yet. Okay. It's XMoc and alike. I'm into devs. We're three episodes in. It's a little slow moving, but it's a cool look at technology.

And he always has an interesting take on. And this is supposed to be, I think, kind of a present-day thing on quantum mechanics and some of the crazy stuff that tech companies could do. And it's an interesting one. I changed my mind this weekend. I watched in college, I watched the movie Lost in Translation with Bill Murray. Did you ever see that one? Is that with Scarja?

Yeah. The critics. loved it at the time. I didn't like it. I had a friend in college who left after his freshman year to go to film school. He must watch indies like you. But he was trying to explain to me when I lost in translation. It was one of the beautiful films ever made. And I'm like, I don't get it. It's slow. I don't see why people love it. I don't see why people love it. I actually changed my mind. I liked it. I don't love it, but I liked it the second time. So credit to me for changing my mind. Credit to you. I don't know that I've seen enough to comment, but I don't think I get the

cult of Bill Murray. Okay. Yeah. I'm in on the Bill Murray story. I love Bill Murray. Okay, here's another one I watched this weekend. Cedar Rapids, which I wouldn't necessarily, it's Ed Helms is in it and John C. Riley. I wouldn't say you have to watch this because the last half hour the movie kind of goes off the rails, but it's a movie about an insurance conference in, like, Des Moines, Iowa. These people get so worked up for this one annual conference. And the only good part about the whole movie is John C. Riley plays the guy who's at every conference who goes there because he thinks it's like spring break and he parties and he's all hungover and he's obnoxious and he makes bad jokes and so john c riley and this had like four or five laugh out loud moments that sounds

great so just for him alone it's worth watching just first hour so i but what happens to the conference business i was thinking this is that one of the last things to come online from this because i know people are going to try to do zoom conferences wouldn't you rather have a podcast conference than a zoom oh oh that sounds awful No, I'm saying if you're trying to go to a conference to do, because I've seen a few places try to do like a streaming conference where you watch people. Wouldn't you rather just listen to a podcast of a talk than watch it on a stream? Double pass. Okay. I'm saying I would rather listen to an interview on my AirPods than watch a conference.

Don't you think the conference business is probably one of the last ones that comes back online? Yes, that's a challenge. Oh, I forgot to tell you, I watched the Seinfeld special. I couldn't agree more. I was very overwhelmed. I felt bad. Yeah. I love Seinfeld.

He kind of mailed it in, don't you think? Is it possible? It wasn't that good. But here's what's interesting. The bit about we're all here because we're going out, that was the very listeners know I've started watching Seinfeld. In the pilot episode, that was his bit. And I thought it was so eerie watching it, given the pandemic, that people just want to go out. We're all here because we want to go out. He did that bit in 1989. He reused some of the stuff. Maybe that's why it wasn't that good because it wasn't that fresh. 1989 Okay Not great All right Send us an email

Animal Spiritspod at gmail.com And we will see you Probably next week