Animal Spirits Podcast - What It Takes to Be Wealthy (EP.30)

Episode Date: May 23, 2018

The brilliance of John Bogle, how much money people in their 30s should have saved, how different age groups define wealth, thinking outside the box for CalPERS, David Einhorn's struggles, chart crimes, mortgage rates and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing, hosted by Michael Batnick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. 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. Welcome to Animal Spirits with Michael and Ben. I want to start off with a quote I read this week. He says hedge funds are bad. I'm pretty sure all hedge funds are not bad. This comes from John Bogle Jr. an article in 2013 from the Walshue Journal in Bogle family. It's either passive or aggressive. And I found this article because there was a really great cover story in Barents this weekend about Jack Bogle. Did you get a chance to read that? I think it was amazing. He is, you know, I think Vanguard might be one of the most impressive companies in the world, like even more impressive than Amazon and Apple. Just for the sheer fact that they didn't have an egomaniac running the firm, like a lot of these other tech firms did. And he wasn't setting out to be a billionaire. And so I think Vanguard actually is probably one of the most underappreciated companies there is, if that's possible.

Well, maybe he was an egomaniac, but the things that he was maniacal about was the customer. That's true. But yeah, I just think it's just amazing to me that when he set out the company, they had it. So the fund owners owned the company and not a public or private investment where it made him really wealthy. So Vanguard is a result of sort of the Wellington brand name being destroyed largely by Bogle in the late 60s, early 70s. And I actually write about that in my book. Big mistakes. Shameless plug. Sorry, not sorry. Come me out in a few weeks. Did you learn anything new about Bogle for your research for the book? Yes, tons. But one thing that he said that I loved, and again, this is from the article in 2013. Indeed, the elder Mr. Bogle's stake in his son's mutual fund is one of his few non-index investments. And Bogle said, we do some things for family reasons.

He says, if it's not consistent, well, life isn't always consistent. I thought that was a really great line. Yeah, that's good. Plus it's his son, and he's got enough money anyway. So his son's mutual fund, it's a small cap growth. fund, and it charges, at least last time I checked, it charges like one and a quarter percent. So are you saying it's a buy? I'm not saying that it's a buy or sell. I'm just saying that he invests in it.

Yeah, no, it's a good. So Boko had some great, he's like very feisty when it comes to indexing. And he had some great stats in here. I mean, because people harp on indexing all the time on the fact that it's ruining the markets and it's making it harder to beat. Some stats in here that I really liked. He said that index funds account for 43% of equity mutual fund assets, but their automatic rebalancing makes up just 5% of trading in all. stocks. And what that means is that no index funds are not pushing around the market. It's still active funds that control price setting. Index funds barely trade at all, which is actually one of the best things they do is just not trade very much. And the other ones that really shocked me

I've never seen before. So people are really worried, and we talked about this last week, about the fact that some of these larger tech companies make up such an increasing weight of the stock market. And so he said Apple accounts for almost 3.6% of the S&P 500. But, But it actually accounts for a larger proportion of average stock funds. So it's like 3.63%. Same thing with Google. It's 3% of the S&P and 3.5% of the average fund. And Amazon is 2.9% of the index and 3.4% of the average fund.

So actually, the average active mutual fund has a higher weighting in these companies than the index. Yeah, I thought that was sort of a mic drop. That was really good. I had never seen that before. And one of the reasons I think this is is because, for better or worse, these funds benchmark to this. So not having a position in Apple or Google or Amazon is basically admitting that you're almost short the company. So these funds have to hug the index in a lot of ways. Another thing that was amazing that I learned in the article that I did not know. So Jack Bogle

is writing his very last book. I think this is 13th. And the last one that I read, I think it was his most recent one, clash of the investment, something of the other. It was really, really good. but I learned that he writes his books by hand, which is insane. Could you imagine? That is not. So the funny thing is a lot of successful authors actually do this. So Lee Child, the guy who writes the Jack Reacher series, does this. And I think Robert Parker does it too, who's another well-known author.

I can't imagine doing it. It feels awkward for me to ever write now because all I do is type stuff. So I take notes in the books as I read them and sometimes just doing that, my hand hurts. Right. I mean, are our kids going to even need handwriting when they're older? Will our kids even know what a pen is? Yeah, that is crazy. But this was great, and he actually is, I think, an underrated author.

His books are really good. They're really fact-based. Yeah, I think Bogle is the man. Speaking of index funds, Jeffrey Patak wrote a really good in-depth piece at Morning Star this week, sort of taking a deeper dive into index flows than what we're seeing from active and from passive. And two things that set off in this article. one is that the cheapest and highest performing active funds actually grew. They grew 8% recently. So it's not all outflows. And then the other thing that he saw was that much of the outflows in U.S. active funds are actually coming from one area, large cap growth. You know what's interesting about this is the fact that growth has outperformed value for some time now. So if we look at the five year numbers for Vanguard value versus Vanguard growth, which is just pretty simple index funds, growth has outperformed value. value by almost 3% over 5-year period and over 2% over 10-year period.

That's actually a lesson I would have thought. Yeah, it is. And these are pretty simple value in growth funds. So I think these are probably not very targeted. But the thing is is that this is actually an anti-performance chase by fund investors, which is kind of interesting. So his point, I think, is that maybe it's the cost that matter more and people are going away from those growth funds into cheaper funds.

Is that what's happening? Or the sheeple are leaving active growth and chasing into. like the cues for instance. Ah, that could, that makes sense. So it's more maybe the funds are relieving growth and going into momentum plays. Yeah, but either way, I think the point is this is worth reading because there's a lot more going on if you, if you look under the hood than just like a few sound bites that you read from, from traditional financial media. So Michael, how how long until you're 35? Two more years? Oh, yeah. Okay. So you obviously read the market watch story and this thing went viral on Twitter for, I think for good, maybe

for good reason, maybe not. But I think the, so there was a story on market watch and the headline was by age 35, you should have two times your salary saved for retirement. And this thing went crazy. I wrote about this. The crazy thing to me is that people were very skeptical and angry and in a state of shock and disbelief because obviously very few 30-year-olds have their have their situation in order at that age. But the funny thing is, is that it took this to really like talk about retirement at a young age. Like, this is what it took for people to talk about it. Yeah, good point.

The other thing that I thought was funny was that, like, some of the responses to Market Watch were amazing by that tweet. But it wasn't even Market Watch's study. It was Fidelity. And Marklech got all the blowback. Right. She was just reporting what Fidelity said. And I wrote that too.

So Fidelity also has, of course, a picture of a person walking on a beach, which is kind of part for the course when you talk about retirement. I think you have to either have someone walking in a beach or someone on a sailboat. It's pretty much the same between this and Viagra commercials. But Fidelity showed that by age 40 you should have three times your salary saved. By age 50, you should have six times. And by age 67, you should have 10 times your salary saved, which obviously a lot of people do not have. Yeah, that sounds like a pretty daunting task. And so I looked at what if you were the perfect retirement saver and you started at age 22 right out of school at your first job? How much would you have had to save using some simple assumptions about inflation and salary to have two times your income saved by 35? And if you started at 22, would take about 11% for a savings rate, assuming you did it straight through. If you waited until your 28, you'd have to have over 20% of your salary saved every year. So obviously the later you start, the harder it's going to be. And my point was, you know, no one's life as a retirement

calculator is never quite that simple and easy. But people have to understand if you don't start early, you're just going to have to play catch up later on, which I think is why a lot of people are so sad about this study because they realize the reality of the equation. Yeah, it's pretty sobering. I mean, I did like your thing because what you just said, starting at 22, using simple inflation assumptions. Right. Come on. Nobody does that. Right. Exactly. Yeah. And how many young people do you know that are really thinking that far ahead at that age? It's pretty rare. And so I think that's what people just got really upset about. And so every other tweet for the last week has been by age 35, you should do something.

If you're thinking about saving for retirement at 22, you must be like the least fun person on the planet. And my other point is the fact that it's easy to look at these rules of thumb and realize that you're screwed. But the other side of the equation is these rules of thumb don't take into account your unique circumstances or how much you spend. And I think one of the big things, especially at an early age, the point of developing good saving habits obviously is to grow your assets and allow compounding to help. But it's pretty obvious the fact that the higher your savings rate is the fewer dollars you have to replace in retirement. I mean, they also don't take into account the fact that you could just buy Bitcoin cash. solve this problem whenever you'd like. What about Stephen Sucall Bitcoin 2.0?

What about what? Stephen Sagal's Bitcoin. Oh. Or Jose or Konseko coin. Yes. So $10,000 invested in Amazon would have solved all this problems. But it's a touchy subject for young people, especially because I think a lot of young people just assume that we've been screwed over by older generations because student

loans are higher than they've been. And they came into the workforce following a huge recession. No, it's also kind of interesting. Just generally speaking, not about like this. in particular, but that's something that can be beaten to death in just 48 hours. Like, this is done. Yes, the internet is undefeated again at, yes, exactly. So there was, Bloomberg had another one kind of in the same vein, and they looked at a Charles Schwab study.

And they wanted to know, for different generations, millennials, Gen X, boomers, what, how much money do you need to have to be considered, quote, unquote, wealthy? And I don't really know what wealthy means. Is this a survey? This is a survey. Yeah, it was a survey. We're anti-survey podcast. Just want to get that out of the way.

but we still look at we still talk about them and so they found that the they looked at the amount needed to be financially comfortable the amount needed to be wealthy by different age groups and we'll put this this chart in the show notes they found boomers needed 2.7 million to feel wealthy millennials only needed 2 million and gen x needed 2.6 this is so stupid I mean what millennial said they need 1.3 million dollars to be financially comfortable I didn't read this so I don't know at what age they're talking about but this is something that I've literally not spent a second ever thinking about. If I have $1.45 million in the bank, then I will be content. Like, who, does anybody behave this way or think this way? Yeah, I hope not. And I think

the way that I look at this is like, this is going to sound cheesy. Like, what does a rich life mean to you? I think it's a lot of the little things. It's not the big numbers like that. Well, let me ask you a question, Ben. Okay. What's your number? I don't have one either. I think that's stupid. And especially, it's hard to answer across, like, where you live. Like, I think someone who lives in New York is going to be far different than someone who lives in West Michigan in terms of wealth, right? Just because of the standard of living. Yeah. I mean, that is just such a ridiculous question. I agree. But to me, it's like the little things that it's getting to a point of not worrying, where money is not your biggest worry in life.

So the next part of the survey is something that I can get behind. So they asked, what is wealth to you? And the biggest answer was living stress free and having peace of mind. Right. Because I think isn't arguing about money one of the biggest causes of divorce. It's it's got to be in the top three. It's either the top one or the top two. Yeah. So I think that's the point. If you get to that point where money is not your biggest worry in life, that's, that's wealthy for me. How does that sound? What's the Nick Murray quote? It doesn't matter how much money you have. If you're worried about money, you're not wealthy. Yeah, that sums it up perfectly. And speaking out people that are worried about

money, let's talk about Calpers. Yes, this triggered me this week. Yeah, this is your 35. Yes. Yes, I wasn't as worried about the retirement thing. I was worried about Kelpers. So one of the legislative representatives to the League of California Cities, whatever, that, you know, that sounds like something from the Avengers, by the way. You're basically rolling your eyes as you speak about this. Yeah, it's, it's, so I wrote about this and they said to reach their 7% bogey, helpers needs to quote unquote think outside the box. I think they should just try harder. Yeah, so right, that'll do it. And so they're obviously, they have a huge mismatch between assets and liabilities and what they're going to have to pay out to their beneficiaries.

I think they said the average funding ratio for the 450 cities and towns that participate in Kelpers is between 60 and 70% funding ratio. And so my whole point is if they couldn't get better stats up during a nine-year bull market, well, wait, when did the bull market start? I don't want to get actually-lead. 1896. So stocks have been up for nine years in a row. And if these pension plans can't fix some of their problems after huge market gains, what makes them think changing their strategy now is going to make anything any better? So my point is, guess what?

These pensions are not going to save themselves through investment returns alone. It's going to have to be something else. And my tongue-in-cheek solution is increased tax revenue through legalized drugs and sports gambling. I'm only half kidding. Wait, how did we solve the retirement crisis last week? Oh, because people are going to be paid money to give up Google. That's right. Congress, if you're listening.

Yeah, if everyone gives up Google for a year, problem solved. Yeah, so I mean, this is, I think that the headline of the article is like they urge them to do something. Yeah, think outside the box and try something different, which is a disaster. I mean, especially when you're dealing with the bureaucracy of a pension fund. I'm just, I'm just brainstorming here, but what about like, I don't know, shorting Amazon? on. Maybe they should go along Greenlight Capital as a reversion trade. Yeah, I'm surprised. I wonder if they invest in them as it is. So I actually got reached out to by an author at Institutional Investor magazine. And they wanted to know what happened to David

Einhorn. We actually discussed this a little bit on a podcast a few weeks ago. And I think I tweeted about it. So that's why they reached out to me. And he was probably, I don't know, the last great young hedge fund manager with an amazing track record. Yeah. So he started, he started Greenlight in 1996, he was only 27 years old. And then over the next decade, he did annualize 26%, which is pretty good. However you slice it, whether it was because of a few trades, like, whatever, he did 26% a year for a decade when he was 27 years old. That's freaking good. And he is brilliant. Did you ever read his book? Yes, I really enjoyed it. It was dense, but yeah, it was good. What was it called a fooling some of the people all the time? Yeah, it was about a

short a stock that he shorted and he went to like the ends of the earth to make sure that this thing he knew it was a fraud and it took years and years of of his life and like legal proceedings and he didn't even make that much money on it but it but what it showed me is that he and he's basically like a forensic accountant like so smart but the thing is and and I hate to I kind of was hesitant to even talk to the reporter on this article because you hate to be the person that's dancing on someone's grave prematurely and making like I I I don't have any insider knowledge of why things have gone bad for Einhorn, but my, my theory was, I think, following the crisis, way too many fundamental hedge fund managers got into macro thinking. So his gold thing was?

Yeah, gold, and he talked about the Fed a lot more, and his whole thing coming up was, I'm a bottoms up fundamental investor. Right. And so I remember, so we had a hedge fund that we invested with at my old endowment fund, and it was a long short manager. And it was the same thing. This guy did huge deep dives on long short. It was all fundamentals. And after the crisis, he said, you know, I never paid attention to economic indicators before. I didn't even know what the ISM was. And now I'm looking at the ISM readings every time they're released.

And I know if it's above 50, it's good. If it's below 50, it's bad. And that to me was just this enormous red flag of, listen, that's huge style drift. You're not a macro manager. Just stay away from this stuff. What happened subsequently with his performance? Oh, it was terrible. It was awful. And that happened to a lot of fund managers, I think, that that decided, I mean, it's one thing if you're a macro hedge fund manager, but if you go from being totally fundamentally driven to then trying to incorporate macro, I just don't think that can work. It's just huge style drift. So Einhorn hasn't been in the market since 2009, which is pretty incredible. But this gets to the point of outflows from active into indexing. Like,

this is sort of the poster chart for that. When you're giving money to a discretionary stock picker, how do you know that he's going to come back? Like, how can you know? Right. That's the hardest decision. That's why I thought being a manager of managers in the institutional world was so hard because you just have no clue. It's not that quant is perfect, but at least you know what you're getting. At least you know the rules. And you understand that it's going to underperform for three years in a row at some point in time. It may be even more. But with this, like as a for example, he shorted recent over the past, whatever, 10 years. He shorted Green Mountain, Chipotle, Athena Health, Marta Marietta materials, pioneer natural resources, catapy. Pillar Core Laboratories, Netflix, Amazon, and Tesla. And all of them are either trading higher than when he announced he was short or were bought out at a premium. I mean, what has he been following?

How many of those ended up in your trading book? By the way, you know what's funny? You know it's funny on a side of it? I'm not even doing this to be funny. I shorted at Green Mountain like multiple times in 2012. You know why? Because I think they had a P.E. of like 90. And their competitors were at like, I don't know, 15 or 20 times.

And I was like, well, this makes no sense. By the way, I think Green Mountain was bought by Coca-Cola, and it was like one of the best stocks on the last 10 years. If you actually had investors in your short-selling fund, you would have just said, I followed Einhorn into it. What else do I need to do? Yeah. What's my fault?

Yeah, it is, like, the mean, that's the problem is that mean reversion doesn't exist with individual investors, and that's why it's so hard to pick them because what do you base it on, the short-term track record or the long-term track record? How does this not affect his psychology and his personal life and then all the other sort of garbage like goes into that like it's you know so so investors in 2017 took a third of the redeemable capital out of the fund taking it from a peak of 11.8 billion down to 6.4 so then you get into this do they try to shoot the moon to get back and and get that track record back to where it was or did they become more conservative because one of the things we found with hedge fund managers

after the crisis was they have all their personal capital just about tied up into these funds and a lot of them said we're not willing to get too aggressive with our own personal capital, we're going to preserve. And that's why a lot of them missed the snapback rally. And so it's, yeah, it's really difficult to separate the things there. Maybe he's doing what he should be, which is sticking to his knitting as a value investor. I mean, the gold thing aside, I think 18 or 20% of the fund is in, is it general motors right now? Yeah, GM. Man.

Yeah, I don't know. Nothing was surprising at this point. He could for sure have a comeback. My, my theory would be we'll probably see a bunch of. hits and misses where we'll have articles saying Einhorn's coming back and then we'll have article saying, no, he's not. I think it's going to be a lot of back. One of the reasons why he hasn't gotten flayed in the media is because he just seems like a nice guy and he seems like easy to root for. He doesn't have like, maybe he does have the huge ego, but he's not, he's not the actman sort of guy that's like really easy to root against. Agree. He's not very like out there and flamboyant and overconfident like a lot of hedgement managers are. So anyway, moving on,

this is something that we have been seeing forever and this will never not be the case as athletes is getting ripped off. So Kwame Brown is suing his advisor at Bank of America, Merrill Lynch, and he's alleging that they forged his signature resulting in a loss of about $17.4 million. Jeez. And the reason why he found out about this was because he tried to contact his advisor and they weren't, he wasn't able to get a hold of her. And somebody picked up, looked up his information and said, you don't even have any money with us. Wow. You know, one of the things I think that makes this hard. So I had a friend from college reached out in the last week, and he said he has a financial advisor who the firm shall remain nameless. But he kind of asked me, I don't

even know how well they're doing. How do you even know if a financial advisor is doing what's best for you? And that's not, that is nothing to do with, this is obviously fraud and this goes way beyond that. But I think that's the hardest part for people who are outside of the world of finance is actually understanding, like, is this person doing a good job for me? And a lot of people just don't know. And they think that everything's being taken care of and everything's fine. But the people who don't pay attention to this stuff, I think we may take it for granted because we're looking all the time. The people who are outside of finance, just they have a much harder time figuring out, is this person actually doing a good job for me or am I getting screwed? Yeah,

so not knowing anything about the inner workings of professional sports, but obviously financial illiteracy is a huge issue in the NFL, the NBA, and the rest of the sport leagues. So let's go to the combine this year for the NFL and NBA drafts and see if we can get some new clients. How's that sound? All right. I'm in. All right. Speaking with the fraud story, this thing from the Wall Street Journal is amazing. This is why, I think I said earlier on the podcast, I'm going to pat myself on the back. I said, I'm long lawyers in the Bitcoin space. That would be my best trade of the year. But you were long on paper, to be fair. You have no skin in the game. No, this was just in my trade journal. This is, this is me hedging your Tesla short bet.

It's enough. Knock it off. All right. I'm beating a dead horse here. So they found, they said, and Wall Street Journal said investors have poured more than $1 billion into the 271 coin offerings where the journal identified red flags, according to review of company statements and online transaction records. And investors so far have claimed losses of nearly $300 million in these projects, according to lawsuits.

So this is amazing. Of the 1450 white papers downloaded from the three popular websites that track coin offerings, the journal found, and by the way, this is why we need reporters. Like, you know, they're doing a huge public service with this. The journal found 111 that repeated entire sections word for word from other white papers. This is just like people in college copying papers from the internet and turning them in. Are you thinking what I'm thinking? What?

Spirit coin. You say this all time that hopes brings eternal, right? Like people are always looking for the next thing, always. That's why I think, I like to say Charlton and Huxters will always have a place in the financial service. industry because people want to believe that this stuff is true. Yeah. Like how many how many people do do you think actually read these white papers before investing? Zero. Yeah. It's, the other one was at least 121 of these projects didn't disclose the name of a single employee and several of them had listed team members who either didn't appear to exist or were just copied from other projects

and not involved. It's amazing. I was going through, I did a presentation at Bloomberg last Friday and one of the things that I was talking about was analysts estimates, specifically like chief strategists and what they expect. And every year, it's between 8 and 10%. So I was going back to look at what they actually expect. And sure enough, I think I went back to 2007. And the average is 8.8% a year. That's the average guesstimate. And one of the things that I found was Barron's did a piece going to 2008. And let me just read you a little snippet. So 2008, the market fell 38%. And here's what they wrote. The stock market has just experienced its most volatile year since the current bull market began. Corporate profits shrank on the third quarter for the first time since early

2012. Record oil prices, housing deflation, rising loan defaults, and tighter credit conditions threaten to tip the U.S. economy into recession. Against this troubling backdrop, it's no wonder investors are worried that the bull market might end in 2008. But Wall Street's top equity strategists are quick to dismiss such fears. Indeed, the dozen seers we've surveyed all have penciled in higher stock prices in 2008. On average, the group sees a standard and poor is 500 at 1640 by the end of the year or about 10% higher than the recent 1486 with global growth and a benevolent federal reserves serving as twin crutches for the aging bowl. Ouch. Nailed it. That's painful. So how much of this do you think is it's hard to predict

and how much of do you think this is career risk? Well, I mean, the first one goes without saying, and I would say probably career risk. I mean, you're much more likely to have a plus or minus 20% year in terms of away from the average than you are. to have a quote unquote average year. But why would somebody predict a plus 27% year? Like, there's no upside to that. You know what I mean? Right. And honestly, the market is up on average three out of every four years. So if you predict that the market will rise, there's a good chance you're going to be right. It's just how much. And you've shown stats on this before that the market rarely ever trades within, say, seven to 10% a year. It's extremely rare.

One of the things that I showed was, and I forget the exact numbers, but there was, 14 years that the Dow was plus or minus 3% from the average. And there was 33 years where it was plus or minus 20% from the average. So what I'm trying to say is my 2019 Dow forecast is 29 million. By the way, they predicted the S&P would end the year in 2008 at 1640. It was actually 9.30 that it ended at. And so the average, the average WIF was 12%. They were off by 12% a year. yeah that's but and to I mean it's a tough job and I it's a game yeah it's a game that can't be won which is what game you know they shouldn't be playing in the first place exactly but unfortunately a lot of their clients want to know that they have their hand on the pulse of the markets reading the tea leaves it's a second half story so there was a great article in the cfa institute enterprising investor this week from sloan or tell and it was a group of what 18 different chart crimes, which were, this was amazing.

I wish I would have thought of it. This is one of those pieces that I really wish I would have written. Yeah, it was terrific. It's so easy to use charts and statistics to back up any case that you want. And I think a lot of people actually agree with a lot of them, which is kind of sad, but this was perfect. So one of the most pernicious chart primes, and we see this all the time, I actually wrote about this recently, is, okay, if you overlay two charts, there's only three directions lines can go. They can go up, they can go down, and they can go sideways.

So it's very, very easy to line up two charts and come to the conclusion. So one of the things that I did was I overlaid two lines that looked exactly alike. And one of them was like the Dow from the 1950s and Autria from the 1980s. And boy, did they look alike. And yeah, and they have nothing to do with each other. My favorite one is always, of course, the 1987, which someone puts out a chart that shows the year leading up to the crash in 1987, overlays a chart that is right on the precipice of that saying and they they tweet out just saying on average on average every three weeks we see a

1987 chart yeah that's that's probably about right and the other good one is the the s&p 500 versus the feds balance sheet which that one's not a crime because that's true yeah no no that is be careful what you wish for my favorite and this this wasn't sloan didn't pull this from her post but it was the hours of work to buy the s&p 500 i love this one so the implication is that this peaked in 2000 and of course there's a red circle and then a crash and then in 2016 or whatever this is from there's a red circle and I think we all know what happens next we've seen this movie before yes we know it so one of my favorite correlation and causation graphs over time there was this website a few years ago and they broke things down and showed how you can lie with statistics

and they showed things like the mcci world stock index is highly correlated to the average weight of u.s. farm race turkeys but my other and it's just two lines that Yeah, but my other favorite one was number of people who drowned by falling in a pool correlates highly with films that Nick Cage appeared in. The lines are perfectly aligned. I hope somebody was arrested for that. Yeah, it was, the point was, they were trying to be funny

and say, this is how you lie with statistics and graphs. All right, so I hope this isn't a chart crime, a chart that I made, but it's just an observation. So the bearish catalyst, forget about valuations or anything like that, but like the actual catalyst, So the thing that they were waiting for was rising rates, right? When the Fed pulls away the punch bowl, when things normalize, valuations you're

to come down, stocks are going to come down. And listen, at some point, there is a level at which interest rates will be competing with stocks. I don't know if that's 4% of the 10 year or 4.5%. I guess we'll have to wait for gunlock to alert us on that. But from July 2016 to today, the 10 year went from a low of 1.1.4%. I think it was under 1.4% to 3.1%. And over that time, the SP 500 has gained 34%. So rising rates are not going to make stocks crash. The crazy thing to me is the fact that

people are so worried about 3% in the 10-year treasury. Remember when 3% was considered low? It's amazing. Obviously, we anchor to these past values. It's amazing to me that 3% is now considered high. Well, it depends if you're falling to 3% or rising to 3%. Oh, okay. But yeah, and I've done some work on this in the past. too that rising rate environment stocks have actually held up fairly well. And plus the idea that bonds are in income competition for stocks, I think doesn't really hold water because they're just far too different. So I think comparing like dividend yields to bond yields is just, it's not a good way to compare assets. I don't think investors make decisions based on those those types of variables.

We prefer Tobin's Q all the way. Yes. Yeah. Okay. So we got a good question that kind of makes my head hurt thinking about. And speaking of rising rates, so what impact, and this is someone asked us on Twitter, what impact will rising rates have on the real estate market? And now I feel like you could go a million different directions on this because, so rising rates may cause people to get off their butts and buy houses because they're worried that rates will continue to rise. And if rates continue to rise, then mortgages will be more expensive because interest costs are higher. But let's say rates are rising, maybe that causes fewer people to sell because if you have a 3.5% 30-year mortgage, why would you want to sell your house and go into a 5% 30-year

mortgage? So maybe that depresses supply. But, I mean, there's a million different ways you could do this. This is why I prefer to hold individual homes instead of a home fund. Is this what you're going for? Yeah, you're diverse. And you keep your diamonds in the basement. Yeah. So I think, honestly, especially I think for young people, how many people do you think really take into account interest rates in making this decision? Because buying a home is such a personal decision. Like, when we bought our first house, I didn't care what interest rates were. We wanted a house and we took whatever rate was given to us. Though it's sort of funny, I feel like the layman is really comfortable giving advice

on the direction of interest rates. Like, when I bought my apartment in December 2015, a family member was like, well, I get that mortgage fast because rates are going up. And I want to be like, oh, really? You don't know that. What's your opinion on the Forex? Like, would you like to chime in there? I don't know why people are so comfortable giving advice on the mortgage market.

So I don't, I mean, maybe on the fringe, this changes people's way of viewing things. And the other thing is, well, are rates rising because the economy is getting better? Or is it because inflation is getting out of hand? No one really knows. But I don't think, I honestly don't think the individual, the average individual makes decisions on housing based on interest rates. They make, they use their emotions far too, you know, housing is such an emotional asset. Devil's advocate. Maybe the individual doesn't make decisions primarily based on interest rates, but what if the crowd makes decisions based on interest rates?

That's possible, I suppose. I don't know. I just, I don't see it. Here's my counter argument. The Fed was raising rates throughout the tail end of the housing bubble, and it didn't matter. Rates were going up by a quarter of a percent. Every quarter, it seemed like every time the Fed met, and people were worried that. I think my first mortgage in 2007 was 6.5% maybe. I don't think that really curtailed

housing demand or supply. So I think it's more about, there's a difference between the level of interest rates and how easy or lax credit standards are and how easy it is to get a loan. So I think there's a big difference there. So I guess what we're trying to say is it's complicated. As always, yes, I don't know. That's what I'm sticking with. But it makes me feel good that I was able to refinance at a very low rate for my mortgage. And if rates keep going up, that's going to look like a really good decision. I will look like a genius. Well, just so you know, Carl Kintanilla tweeted this morning, he had the former well CEO on TV. If you're going to buy a house, do it now because rates are all caps going to increase. Okay. Well, so that's our, that's our PSA. So do what you

got to do. That settles it. Any good recommendations for me as well. Okay. So I, I did a lot of podcast listening this week. I told you on Friday, I took the train the wrong direction. So I got, I got off the subway in Jackson Heights, Queens, and I walked to Brooklyn. It was nine miles. By the way, how much has your podcasting listening increased since you got the AirPods? A lot, but no, definitely. But I also, I mean, I walk my dog. I walk my baby. Like, I'm on the subway a lot. So it seems like, my God, I'm listening to a lot of podcasts, but like there's a lot of time that I'm walking in stuff. Anyhow. So on that nine mile hike, I listen to, to Bill Simmons interviewed Lou Adler, who has been sitting next to Jack Nicholson at

Lakers games for almost 40 years. Did you get a chance to listen to that? No, I haven't. It's in my queue. It's freaking amazing. That guy had some life and just really great stories. By the way, sorry to interrupt. Yeah. Wouldn't Jack Nicholson be like in your top five most wanted podcast interviewees to hear? Yes. I would love to hear Jack Nicholson share stories for like four hours. So he told the story about how well He pushed a coach, I think. Nicholson did? Or maybe a ref.

Yeah. Okay. Oh, that's pretty good. And how they went to the Lakers' Celtics finals in the 80s, and they had to be in a cage because the crowd was so hostile. Wow. So then I also watched sticking with basketball. I also watched a Kareem documentary on HBO. I think it's old.

But he was really just a fascinating person. I highly recommend that if you're interested in that. And I also listen to, so I've been saving this up to binge listen, the Caliphate podcast by the New York Times. Have you listened to that? I have not. Okay. So I don't know what sort of award they're going to win. I don't know if it's a Pulitzer or whatever, but it is so well done.

They speak to a Canadian kid who left to join ISIS and then ran away, basically, and is back, I don't know, I think he's in Canada now. Or maybe he's in Pakistan. I forget where he is. But just a really frightening, chilling story about what goes on inside. They're like, you know, their diaries is basically what she said she's looking for. The reporter that is in New York Times just really, really cannot recommend. enough. And then I watched Spotlight this weekend. One, the best picture in 2015. You ever see that? Interesting story. I thought it probably would have made a better book than movie.

It was kind of boring, I thought. Okay. I really liked it. I guess I didn't really have much expectations. I enjoyed it. Okay. Yeah. It was a good thing. I also watched it with my wife, which was sort of fun. It's not something that we do that often, like sit down to watch a movie together. So, I don't know. I had fun. And then lastly, I read John Brooks is is really terrific. He wrote The Go-Go Years, which tells the story about Wall Street in the late 60s, mid to late 60s. And he also wrote Business Adventures, which I haven't read yet, but it's one of the books that Bill Gates always recommends. So anyhow, another book that he wrote was once in Golconda. And he tells the story about Wall Street in 1920 to 1938. And some of the

stories there just render so many of the comparisons that we make to that time just completely uses. Like the story about the president of Chaseman had insuring the stock and then receiving making $4 million, not paying taxes, and receiving a pension for the rest of his life is insane. And Richard Whitney, the president of the stock exchange, who was originally called the Wolf of Wall Street, just unbelievable stories and so much rich detail. I really recommend it if you're into market history. Yeah, he does a really good job of explaining what it was like at the time. It's easy to look back now at the returns and stuff, but he's like a really true historian, I think. So my recommendations for this week, I read The Devil in the White City, which I thought

was really good. And you told me they're making a movie with it with Leonardo DiCaprio and Martin Scorsese. It's the dueling stories of the World's Fair in Chicago in the 1890s, and they were trying to one up the French people who had just gotten done building the Eiffel Tower. And the other side of the story, which I think is more interesting, is that there was a serial killer on the loose in the city at that point in Chicago. And it's a really, really well done book. It kind of reads like a piece of fiction. You know, I think I messed up because I didn't enjoy this book as much as I think I should have. I don't know if I...

It's definitely, it's a very hyped. Eric Larson is the author. It's very high-hyped. You know, I came with a lot of high expectations and I think it's pretty good. Did you ever get into Bay Area on HBO with Bill Hader? I stopped after three episodes. Not because I didn't like it. I just want to, you know...

I'd say I'd finish it. I would say it's a solid B show. I wouldn't say like you have to go out and binge it now, but I enjoyed it. Second season is coming. and I would definitely watch in the second season. I enjoyed Barry. It was kind of a mix between, I'm just a huge Bill Hader fan. I think he's hilarious, his sort of type of humor, which is just very subtle. And I really enjoyed it, and it kind of ended on a cliffhanger, so that was a good one. I really liked two Mark Maren podcasts this week, one with Josh

Brolin, who is a way cooler guy than I am, and I would love to hang out with him, and the other one was Melissa McCarthy. And I think if you hear these podcasts with celebrities, and they kind of come across as normal people, that's usually a salad, signed in my book and both of them did for me. Hey, question, did you Google by any chance Josh Brolin's brother after the listening? No, I did not. Okay, so it's not funny. It's like pretty sad. Oh, that's right. The story. Okay. Yeah, he was like homeless and he's like, at least pictures that I saw, he was like a huge guy and just pretty awful. I didn't realize that Barbara Streisand was his stepmom or was his stepmom. Oh, that's right. Yeah, because yeah,

his dad was an actor too. I guess I didn't realize that either. But he had a cool story. He seemed like a pretty down-to-earth guy. And I've been watching him since Gooney. So he's. He's had a lot of good movies over the year. So I think that's all we got for this week. Wait, what about the Bill Simmons, Ethan Hawk one? Yes, Bill Simmons, Ethan Hawk was another one. He was a tad pretentious, but when he went through all the emails, that's my favorite Bill Simmons podcast is when he just goes through the IMDB with people and goes over their

movies that they've done. Yeah, that's good. I thought, yeah, I agree. I thought Ethan Hawke takes film very, very seriously. Yes, it's kind of like, yeah, instead of movies, he says film. It's kind of like a person who calls jeans denim, right? You can tell those just... Wait, what?

You ever heard someone who calls jeans denim? I'm wearing... Maybe I have, but I don't... What's the analogy here? Just he calls movies film. Okay. And I kind of equated to the same type of people who would call jeans denim. Okay.

That's a stretch. All right. Sorry. But I thought that was a good one. And going over the movies he's done over the years, I'm a big fan of a lot of his movies. So I thought he gave a really, really great interview. The Denzel thing with Training Day was pretty great. Yes, Denzel is like the big top dog alpha male of the acting world.

All right. Send us your TV recommendations, book recommendations, Animal Spiritspod at gmail.com, and we will see you next week.