Animal Spirits Podcast - What Worked on Wall Street (EP.40)

Episode Date: August 1, 2018

Facebook's enormous stock price plunge, why life can be more challenging for young people today, the death of trend-following, hedge funds that don't want your money, the perfect day, the race to zero in ETFs, Elizabeth Banks as a fan of mid caps, why pop culture contrarian indicators don't work 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 Rithold's wealth management may maintain positions in the securities

discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Last Thursday, Facebook stock cratered after it reported, I guess, lousy, lousy earnings. Stock was down like 19 or 20 percent of the day, and it had the largest dollar decline in a single stock ever. This was a pretty cool chart. Whoever came up with this, it says it's source to facts that, but yeah, Facebook had the largest decline in billions of dollars ever. I guess the largest one was actually Intel in September of 2000. And of course, all of these have happened since 2000, which makes sense since stock market has gotten bigger over time. But my initial slack to you, the night of Facebook's decline after hours was it's down 20 percent. I'm thinking about buying this.

That is like the thing that pops in my head right away. What was your initial thought? Not yet. Right. Honestly, that's like the intuitive thing that comes to me, when I see something like this happen is it's time to get in and catch this falling knife. Of course, I didn't. But that's the first thought that hit me. Well, smart thing that you didn't because so it bounced a little tiny bit. And now it is 23% off its highs on Wednesday. That's wild. Are you about to explain some technical analysis to me on this? I am. I am. I'm about to explain to you how the stock market works, my friend. Okay. Get a pad of paper. Okay. All right. So this is why I said not yet. Because I just think that when a growth story has a crack in the armor and it crashes by 20% in one day, that's a lot. That's not like an 8% decline. That's like a full-on crash. And I just figured that everybody who wanted to sell didn't. And that was my thinking. That's probably fair. The other thing is, so I looked into this a little bit. So first of all, Facebook crashed earlier this year. And they went into like the 150s when they had all the stuff with Cambridge analytical going on. So it's actually.

not even back to those levels yet. They'd gained so much in the meantime that it still hadn't even hit that. Well, yeah, that's the other thing. It's down, it's down like one or two percent year to date. So listen to these Facebook numbers. This is as of Friday. The five-year annualized return is 38.75% versus around 13% for the S&P 500. Over the last three years, it's up 23% a year versus 13% for the S&P 500. So even after getting killed 20% in one day, this stock has still on almost 40% a year over the last five years. So it's hard to say it's reached Ben Graham net net territory quite yet. Yeah, hardly. And also, I believe, and I could be wrong, but that this is the first end that it showed like decelerated user growth. So to me,

that was the type of thing where it's like, I don't know about rushing it to buy after something like that. Right. It's possible. But these are the kind of things where it is kind of amazing the way the stock market works that a company this big could see this much of a realignment, Right. Obviously, it's one of those things where sometimes the reason these things get hit so hard is because they've gone up so much. And that's like the only logical reason. But the fact that something that's worth hundreds of billions of dollars can simply go down by a fifth overnight. Like, did the story really change that much? Right. It's just amazing to me that that sort of thing can still happen. So wait. So is this still on your on your watch list? Do you have a watch list? No. I actually don't own any individual stocks at the moment. I haven't for a few years probably. It was just. just, I didn't, it didn't really do it for me. But honestly, that was my first thought is I should put someone into Facebook after this. And I am considering it still. I will, I'll let you know how that thought process goes. But I haven't quite pulled the trigger yet. So Eric Balchun has tweeted, no one is having a worse day than the leverage shares two times Facebook ETP. Down 37%. Ouch.

I replied to this tweet in real time and I said, I can't believe this is actually a thing that I guess something for everyone these days, but there's two times of leverageage to Facebook ETNs. Who's, I mean, who's taking the other side of this one? Yeah, the good news is that I'm at the website now and it appears there's only $331,000 in here. I guess there was a lot more before this, but it's, it's nothing. I mean, it's sort of ha-ha, but like there's not a lot of dollars in here. Right. So flashback to your trading days, you surely would have been. been betting on this thing back in the day, right? Or shorting it? I probably would have bought. I probably would have bought. No, seriously. I probably would have bought

the first day. Okay. Yeah. But no, I think it's kind of this idea. The whole, the Facebook thing gets to the idea of momentum and value, I think, in a lot of ways. Like, I think a lot of intuitive value investors like try to catch these falling knives. And I think your line of thinking is probably better than mine and that you should probably wait and see what happens. And I just trying to figure out when these things are going to end or if this is this generational buying opportunity, which obviously it's probably not, is a really tough decision to make. Well, it's also conflicting like timeframes and mindsets and all sorts of things. Like, if you're trying to trade because based on fundamentals, it doesn't work. Like, that is a horrible recipe for disaster. Right. Especially, yeah,

in the short term like this. When, yeah, their numbers were still fine, but just it, it was just off expectations. So that's kind of all that matters. So let's stick with social media stocks. So Twitter also reported earnings last week, and similarly got destroyed. So the stock was down 16% in the morning. I don't know where it closed, but Twitter said that the number of multi-active users worldwide fell by a million from three months ago to $335 million, which was the first drop since the second quarter of 2017. However, despite the decline, Twitter posted its third consecutive quarter of profits after years of losses and revenue climbed 24% to $700 million, blah, blah, blah, blah. So all things considered, the fundamentals of

this one, didn't look so terrible. I guess this is all about user growth. So I guess we're going to have to start doing more memes to sort of build them back up a little bit. I don't know what the, is this another case of Twitter got way too far ahead of itself and needed to come back down to earth a little bit? The stock was up huge going into the quarter and still is having a really great year. But it's just sort of another reminder of how the stock market works. Like this thing, let's see, users fell by a million. So like a, a, a tiny, tiny, tiny fraction of their total base fell a little bit, and the stock got destroyed. It's interesting to me that I think it IPOed at 40 bucks or something like that, it's still

well below the IPO price, which was in, I think, 2014 or 2013. I think I got up to 70 at the peak. So this thing is still far below where it went public. I don't know what that means, but I still can't believe that a big tech company hasn't bought Twitter yet. Well, no, it's wild. Just thinking about, so the New York Daily News reported last week, that they cut, I don't know, two-thirds of their staff or something, like a really, really awful number. And a lot of that is the democratization of information. I wouldn't even say news, but just information. And Twitter has been one of the main disruptors in that space. And it seems like they're not really benefiting that much. I mean, now I guess you could say it's a $20 billion market

cap. So what are you talking about? But it just seems like they're, they could be doing so much better, at least a stock. Yes, you shared that number with me about, it's like there's 180,000 people that work in newspapers now, which is down by, what, over half since the year 2000, which you wonder how many people are quote unquote working, just writing for the internet and not in newspapers anymore and making much less money, obviously. A sign of the times, I suppose. Well, speaking of this, that's what's going on in succession. Are you watching that show? The first one didn't draw my attention. I thought it was boring and I gave up. All right. Get back. I should have stuck. I keep seeing people writing about it. I'm only two

episodes in, but Josh keeps talking about it. So, and it's good that you can watch with your wife. Okay, so you're saying that I pulled the trigger to really on that one. I'm saying, get back and bring Courtney in. All right. Sounds good. Let's move on. So I will try to catch that falling knife, but not Facebook.

Yeah. Oh, that's terrible. Really? Okay. All right, I was just trying to put a little, nice, neat little ball on that. Thanks a lot, jerk. All right. So Axios had a picture, Axios, Xias?

How do you say that? I have no idea. That's one of those things where you can't make fun of me because I've, I learned it from reading and not from hearing it being said. I think the X and the S are both silent. Okay. Ios. So they had a story that was kind of flying around the other day, and it was being 30 now

versus being 30 then. And they show, this is another chart we'll post in the show notes, but they show this great stat, the whole line of charts that shows people in 1977 versus people in 2016, and it shows the cost of a four-year college tuition, median income, median debt, attending four years of college, never being married in homeownership, and all of these trends are working against people who are 30 now. So the cost of going to college has more than doubled. The median income has basically stayed the same on an inflation adjusted basis. Debt is tripled. The number of people attending college has gone up. The number of people

who have never been married has more than doubled, and the number of people are homeowners has fallen. So the point here being it's much harder to be someone in their 30s now than it was back in the 70s. What do you think? Is this true or not? I wasn't 30 in the 70s, but I think there's probably some truth in this. If you were, you would have bought gold. Well, absolutely.

I would have bought gold. Are you kidding me? I would have had coins everywhere. So here's a good stat. In 1975, when the oldest boomers were 29, 57% of the group that was 18 to 34 lived with a spouse on their old household. By 1990, half lived with a partner. Now in 2016, almost a third of people are living in their parents' basement.

which is kind of a tough one to swallow here. Yeah, that's not great. Basically, my problem with these types of stats, I think that if you are a young person, you see this, it's easy to get in this defeatist mindset of, okay, well, the deck stacked against me, I'm just going to give up. And so you get caught up in these statistics and not thinking of your own personal situation.

So I get it that it's probably as much harder to be a young person these days, especially if you kind of came out of school during the Great Recession, And there wasn't a great job market, but I think it's, I don't know, I think it's more of thinking about your own situation, how you can improve it than getting caught up in these statistics, which don't take a lot of nuance and context into the equation. Well, one of the reasons why, I mean, it's just gotten so much more expensive to live. So they said that the share of young women who are homemakers, and I think, I mean, obviously this is very good, has decreased from 43% to 1975 to 14% to 2016.

I think one of the big reasons is obviously, you know, females want to be a part of the workforce and not staying at home, but it's just so expensive that data points about median income. It used to be that one income could provide for a household. And that's really not the case anymore. Right. Yeah. So I wrote last week about some of the money revelations I've had from being a parent. I've been thinking about this one for a while. And I said when you add up the cost of raising a child, you have to take into account not only the cost of daycare, but possibly the cost of one parent staying home and foregoing that income. So either way, it's kind of a double whammy where you're hit on one side of the other and it can. It really does make it a lot harder to get ahead, I'm sure. And how about like medical cost insurance for a family of whatever four or five is so expensive? Yes. So yeah, I'd say I do kind of agree it's probably tougher in a lot of ways for young people. I also think it's never been easier for a young person to try to go out on their own and create their own sort of side hustle or do something if they want because technology

has never been better. So I think in that way, if you can work around the system, I think there's a lot of, there's a lot of advantages in place for young people that really take the initiative to do something. Well, I also think that really the answer to this question is you take a survey, right, of 30-year-olds today, would they trade places with their parents? or with 30-year-olds in the 1970s. Right.

And I suspect that the vast majority would say no, despite this data. That's true. Yes. And if this survey did exist, we would not agree with it because we're an anti-survey podcast. That's right. Fair? That's right, Ben. Okay.

So there was a story this week, and it was actually from on an asset manager in Winton Capital is one of the preeminent trend following hedge funds in the world. I want to say they have $30 billion. And this is actually a story on their fund. they took from somewhere else. And David Harding is a founder. I'm actually fairly familiar with Winton because my old endowment fund I worked for was an investor in the fund. And if you're an institution and you have something of a trend following strategy in your portfolio, there's a really good chance that you are invested in this fund or something like it. And the whole crux of this article was about the fact that David Harding kind of thinks trend following in many ways is

dead. And he says, people always say to me, this is what works. And I say worked. So this was, this was pretty opening for a lot of people, I think. And what they're doing is they're taking their trend following approach from 50% of their fund to around 25%. And I think this probably opened a lot of eyes in the hedge fund industry because these kind of are pioneers who started this a long time ago in the quantitative trend following space. And now they're basically saying they don't think it works anymore because there's just too many people trying to do the same things. Yeah, this is a You got to give this guy credit for being so candid. Jim Simon said in a video that I just checked was recently taken down. Unfortunately, it was an interview at MIT, and he spoke about

trend following, that it used to be a slam dunk that people just didn't know about it back in the day. And this is a really good lesson on competition and why markets are so hard, because all of these giant gains had accrued to people like that. I think it was Richard Dennis and I think Bruce Covner and people like that. Right. The 70s and 80s were just wide open for this stuff because the people on the other side of the trades were people who were actually trying to hedge and not invest in this stuff in many ways. Right. What was that book? Oh, More Money Than God. They spoke a lot about this. So I wonder if, I mean, trend following is a huge term. In other words, there are a million different ways to measure the trend. So what did he get

into specifics at all? Well, and here's the thing. Trent following doesn't work on stocks, but it works on commodities or whatever. Here's the thing. For being so large, they were one of these sort of black box funds where they'd never actually tell you what they did. But when we had meetings with them, they would tell us, they talked about the trends. So here's my problem with this line of thinking is these are huge hedge funds who are competing for monthly and quarterly returns. And they want to be different than everyone else. And they were talking to us about they're looking at five-day moving averages and 10-day moving averages and how that in the past, they would use something like a 200-day, but now they can't anymore because it's too long for them. So I think in a lot of ways

those simpler trend-fowing approaches where you're just looking at a simple index and this is a lot of the stuff that we've worked on, I still think that stuff can quote-unquote work because these people, these hedge funds are all competing for much, much shorter trends. And I think those are the ones that have just been sort of arbed away. I don't think you can really arb away the longer-term one. So I think that's part of the problem. It also, when you say works, do you mean provide alpha? do you mean provide maybe market-like returns with smaller drawdowns? I guess. Yeah, well, for these people in the hedge fund world,

it's definitely provide alpha. That's what they want. I think, yeah, that's what I think it's in a different playing field than people who are just looking for market-like returns with less volatility and lower drawdowns. Yeah, so good for them. I wonder what sort of feedback they got from their clients. But I mean, these are the guys, too, who told us that they were using satellites to check the crops for their commodity.

investments to see what the supply and demand is going to be like. So this is like these people are operating on a whole another level than your typical fund. So I mean, and I think you almost have to if you're going to be paying two and 20 these days in the hedge fund space. You can't just. Overlaying trend following on satellites is the next frontier. Yes. I mean, we did recommend this year. So I think we're probably pretty well positioned in this space. So there was an article in the Wall Street Journal today something to the effect of these hedge funds are doing great, but they don't want your money. And one of the things from the article said, quote, do you wait and keep begging to get into the exclusive proprietary funds or do you invest in their A minus product that may still be very good?

I feel like you can't even a lot of these. So they talk about Renaissance and 2 Sigma. And so a lot of these are probably have some of the best track records in history. But are you even getting an A minus in a lot of these? Because I mean, even Renaissance has shut down products in the past. So they actually try to trend following one and it didn't work. And I think in a lot of ways, if you're going to invest in one of these other second tier funds from these people, it's probably you're looking more for just comfort in safety and numbers in a lot of ways. And it's kind of interesting that their best products and their best strategies are only available to employees and they just won't open it to outside capital. I really cannot imagine rationalizing, investing in a fund that they only

open to public investors when they have internal ones that are clearly superior. Another quote was, some investors are skeptical about funds run by firms that also manage internal funds, especially if they pursue similar strategies. Yeah, no kidding. Right. Yeah, I don't know how you could justify this when they have obviously clearly better strategies available that they don't offer to their investors. Can you imagine a scenario where the public funds outperform the internal ones? Right. Yeah, then the employees get mad. So, yeah, it's kind of a weird incentive structure where you're probably, yeah, you're incentivized to, as an employee, you want your own funds to do better than your investors, which is kind of bizarre. Yeah, I can't, yeah, it's, it's odd.

So the Pew Research had a piece this past week, and they looked at the net worth of different generations. So he had millennials, Gen X, Baby Boomers, and the Silent Generation. And they went back to 2007, 2010, and 2016. And they actually found, interestingly enough, that the only. generation that has seen their median household net worth rise since the 2007 peak is Gen X. So Baby Boomers is a silent generation. And I guess Millennials is up, but they basically had nothing to begin with. What do you make of this? I think what I make of this is the fact that most of the older generation has a lot of their household net worth tied up in their actual house. And real estate makes

up a huge chunk of it. And maybe their real estate hasn't gone back to those higher levels before. Okay, so I was thinking the same thing, but came to a different conclusion. Okay. Because I was thinking that people in Gen X probably were homeowners prior to the real estate meltdown and probably stuck, stayed in their home, right? That's true. But wouldn't, but couldn't you say the same thing about boomers or maybe they downsized and maybe, I don't know.

Well, it's possible boomers had a harder time and they were the ones who were forced to sell out or had some issues with their home. And so I guess that would make sense. But this is a pretty good graph, and I kind of show, we'll include it in the notes, but it just shows that actually, in some ways, the younger generation has come out better than the older generations, which is not what you'd think. And again, this is on a median basis. Well, the good news is that median net worth in 2016 for Millennials was $12,300. Right. Yeah. So, see, it is better off in the younger generation. We solved that problem

already. All right. So time for the couple surveys of the week. So this one is probably no surprise, but there was two surveys and 65% of participants agree to the statement that I am more intelligent than the average person. And it was 70% of men and 60% of women assume that they have above average intelligence. And they actually said that there's no clear pattern between different races or anything like that. So pretty much everyone assumes that they are more intelligent than everyone else, which I guess is not much of a surprise. So this is actually a survey I can I can stand with, I think. Yeah, this was done by the Grand Rapids Federal Reserve.

Yes. So the survey of 2,000 American adults commissioned by the U.S. Highbush Blueberry Council, oh my God. Where did you find this one? I don't know, but you know it's legit. The U.S. High Bush Blueberry Council found the average person would be happiest waking up at 8.15 in the morning a perfect day, whatever, whatever. But they said that this survey showed that the average person has 15 perfect days here, which is one of those things that is clearly unquantifiable and totally ridiculous.

So they said the perfect day is waking up at 8.15 in the morning with temperatures reaching 74 degrees, three hours outside and getting to bed by 10.50 at night. I don't know. Is that the perfect day? I guess. I do 74 sounds nice. Depends on the humidity. Yeah, this is just one of those things that's probably impossible to quantify, but 15 perfect days a year, I don't know. I think I'd want more than that, wouldn't you? That's a perfect day every 24. That seems okay. I'll take that. So once a month, once every month and a half, you get a perfect day. All right, every three weeks. I can't do math. Okay. This next one's you. So there was a very good article in ETF.com last week about the race to zero and how expectations. franchise just continue to come down. And she said that Charles Schwab attracted 13% of flows despite controlling only 3% of assets. And Vanguard ZTFs now cost 0.07% on an asset weighted basis. Schwab's down to 9 and BlackRock's at 22, which wasn't particularly competitive, which is

hilarious. 22 basis points is not competitive. Too much. So the only reason Charles Schwab is getting more flows is because they have lower costs. That's it. the takeaway here. Yeah. So she said that investors were willing to pay, by the way, that's an example if I just said, yeah, and I didn't hear a word you said. Okay. Well, we're in an average. We're in an average. Investors were willing to pay for alternatives and for short term use gear funds, but that's about it. Every other asset class followed the same pattern. Market share gainers cost several basis points less than the loser, which in turn costs less than the closures. Every basis point and expense ratio increases the risk of irrelevance or failure unless there's no competition in that particular

space. It is just absolutely cut through it. I think in a lot of ways, like, this doesn't matter because it's a few basis points here and there that really shouldn't make much of a difference. But I think getting back to the competition thing, I think this actually kind of goes to the argument that investors are getting a little smarter in some ways. They're deciding, like, I can't control all these other outside variables, but I know I can control how much my funds cost. And even if saving a few basis points here and there is probably not. not the thing everyone should be focusing on because at a certain point you have these diminishing returns obviously. I don't know. When everything else is going on that that's crazy around them,

maybe this shows that investor behavior is getting a little better. Does that make sense or not really? You don't think so? I don't buy it. I think that this really, I mean, this going from, you know, 20 basis points down to 18 or whatever, it does not move the needle. I mean, I guess in a lot of ways. For a billion dollar pools of capital, it certainly does. But for each individual investor, which I guess makes up these larger numbers, it really doesn't matter. I guess it depends where the money is coming from. So this would be kind of like, if it's coming from much higher cost, active managers that are performing, then I think this probably makes sense. But if it's coming from, if you're going from Vanguard to Schwab because you're saving a few

basis points, that would be like you or I changing our emergency savings account every month from one eye online bank to another because you get a little bit more money from the interest, which makes no sense because at the end of the day, you don't really make that much more money in there. Yeah. So maybe that is the story that these are not flows from more expensive products to newer ones, but from active to the cheapest of the cheap index. Right. I guess it depends on what is driving the change and what it's really all coming from that. Maybe I'll hold off my judgment until I know that further. So a chart floating around this week, this looks like, this looks like who made this chart?

Ned Davis research. Okay. So two lines. One shows the bottom half of stocks in the SP 500, and the other shows similar to what I did, weight of top five stocks in the SP 500. What are the chances that Ned Davis made this after seeing your viral pie chart?

I put it at 75%. Okay, I would say 50-50. It's possible, but they do so much stuff like that that I wouldn't be surprised if they found for us in the room. But anyhow. So, sorry, tangent real quick. So my old employer had a subscription to Ned Davis research. And I'd say annual subscription in the Bloomberg range, 25 to 30 grand a year.

Wow. Isn't that insane that these services still exist that charge that much money? Anyway, end of tangent. Okay. So two things stand out. One is that the weight of the bottom half stocks, pretty constant, at least over the last 30 years, something happened in, what do you think? What's that change in the 1970s where the bottom half became a much bigger percentage and the top

five became a much smaller percentage? What do you think was going on there? It looks like an event of some sorts. That's a good question. Is it possible it was from companies breaking up? Like we had all these conglomerates that broke up and went into smaller pieces. I'm really not sure. We'll post this one in the show. That could be. That would be my guess because there was, I think, there was maybe more a lot more conglomerates back in the day, and maybe a lot of those broke up. That is a very good hypothesis. Because if you remember, back in the 70s, there were fewer stocks like there are now as well. And then through the 80s and 90s, there were more stocks than the index in the index.

So I think maybe that could be part of it. And maybe there was more IPOs. Yeah, I don't know. All right. And then the other takeaway, and we're beating the dead horse at this point. But the weight of top five stocks is not extreme at all. No. Nope.

Pretty much in line with historical numbers. Yep. If you would have just done a simple line. graph like this, you would have never gotten actually by 10,000 people about your pie chart. Yeah. All right. So State Street was in the Wall Street Journal last week. So State Street launched their first ETF 25 years ago and dominated the market. And today, its share of U.S. ETF assets is 17% down from 49% 15 years ago. So they had the first mover advantage and didn't take advantage of it, right? Because they had SPY, which is still probably

by far the biggest ETF. I think it's 280 billion. I don't know. It's a lot. And they just never did anything with that first mover advantage. The graph that they show in here is pretty amazing. So back in, what was it, 1999, they had 75% almost of the U.S. ETF asset market. And they were way ahead of I shares in Van Gogh, and now they're below both in terms of market share. And then in 2003, when GLD came out, that was another huge thing for them. Oh, so it says right $269 billion in SPY, but it has seen $4.2 billion in investor withdrawals in the past year, while nearly identical products from Blackguard and Vanguard, which cost half as much, gained a combined $26 billion. And the story here is their licensing deal with the S&P.

So here it is. SMP's cut alone, just three basis points for SPY, is almost as much as the entire fee Blackground and Vanguard charge for their comparable funds. Right. So why would I pay that extra fee when I could just go to Vanguard and they could make their own index or they could get it much cheaper from another index provider? It is pretty wild though, leaving like mass exodus from SPY, which is I think nine basis points. So Josh had a good take on this one on his blog and the reform broker and he talked about how State Street is really the only one who has yet to come in and say we're going to compete with advisors and because advisors drive a lot of these ETF flows and I actually kind of agree with him in the fact that they could use that as a selling point. Because you wonder at what point does Vanguard start to really anger their advisor base who controls a lot of the money that goes to them by starting their own automated financial advisor service. having the call center. Well, which is up to $100 billion last time. It was numbers were updated. It's probably much bigger at this point. Yes. By the way, did you just do the thing from comedians and cars getting coffee? What thing? Where you spoke through a burp. Have you seen that? Have you seen

that one? No, but that wasn't quite a burp. It was, uh, yeah, I guess I did. Wait, who did that? He talked about it with Kate McKinnon, I think. That's funny. All right. All right. So the Twittosphere was kind of going crazy. Was this on Friday? Speaking of...

Wait, hold on. You missed the opportunity to pivot. Okay. Sticking with State Street. All right. Sorry. Speaking of State Street. All right.

I was too busy worrying about the other things. So State Street had this thing that had fin to it all up in arms because they got Elizabeth Banks to do a podcast series for them. And I guess... Hold on. You got to read this. You got to read the quote. Okay. From the article?

This first bullet point. Okay. State Street Global Advisors, the asset management business of State Street Corporation has teamed up with actress director and business owner. Elizabeth Banks had launched starting today a series of podcasts to raise awareness of the strong performance of several midcap companies that make up the S&P midcap 400 ETF. And I did it with a straight face. Thank you very much.

Yeah, that is some piece of text. So there's a lot of skepticism behind this. There are some stories. There was a lot of snark. we actually, we took one for the team and we watched this, right? We watched the first, like it's a video more than a podcast. I guess maybe it. It's a seven minute video and no kidding. I actually sort of enjoyed it. I thought it was pretty well done. It wasn't. And of course, people viewed this news as this is a sign of the market top. They have actresses coming in to talk about

the mid cap 400 companies, which it is kind of bizarre. I will say this. Midcap companies, I think, are overlooked in a lot of ways. People think small cap on the risky side of things, large cap for more things that, you know, I think that midcap space is something that can sort of slip through the cracks. But if you watch the show or the podcast or whatever it is, I mean, she was very good and asked good questions of this business owner. But I mean, it seems like something that you'd want like, I don't know, someone from one of the business news channels to do. It's just, it's very bizarre. It's a very bizarre pairing, right? Yeah, it is. But I think that this is more of a state.

street story than a market story because what we were just saying, they're locked into their contracts with S&P, and maybe this is just another way to drum up business. And yes, I mean, obviously the headline is sort of funny, but I don't know. I'm probably not going to continue to watch it, I don't think, but it really wasn't that bad. No, but yes, people immediately are drawn to the fact that this someone from the outside of the world of finance is getting in here, and this must mean the market is topped. And so people want to use this as a contrarian indicator, which you looked that in a piece today that, you know, these types of concern indicators are really right. Because we've seen them how many times throughout this whole cycle where someone goes, oh, that's it.

Yeah. So I think there's a few things going on. I think that the people that are creating this content are wise to the fact that any time something like this goes, goes out there, it goes viral. Yes. Right? It drums up a lot of attention. So Kanye West beat the market by 40% was what CNBC wrote this weekend. And last year they had Kenny Gion talking about the stock market. The Milakunis one is by far my favorite because the headline read, this is from March of 2013, and it says Milakunas rotates from cash to stocks. And it's, it is so good. You're right. I mean, there's no reason to have that story other than to drum up clicks, but it totally, like that kind of stuff

totally gets us to read and comment on it, right? So that story went crazy. I remember it like it was yesterday. And the S&P 500 is up 100% since that story. A hundred percent. Yeah, my take is like you can always look to the past and find these magazine contraband indicators that like the death of equities kind of thing. But there's, there's so much news these days and so many things coming, so much content that anything can be a contraining indicator these days. So I think it's, it's, there's no way you can, you can look at the firehodes of information and in kind of form it to any narrative you want. And so I think trying to pick through these consumer sentiment type of things is just, it's impossible now. I don't think it works anymore. You know what would get my

attention if Sports Illustrated for kids has like the stock market on the cover. That would be a good contrarian indicator. But other than that, and I made the point like if you're going to, you know, take that angle, it's probably best to look inside the industry what's going on. So for instance, Vanguard precious metals fund just changed their name to, Vanguard Global Capital Cycles Fund, which is certainly something that would raise some eyebrows because this thing is down 53% in the last 10 years. But so I looked at something similar to this. ProShares launched the S&P 500 X Energy in September 2015. Crude had already been destroyed maybe 70% something like that. XLE, the energy ETF was down almost 40%.

And so you would say, okay, this has got to be the bottom, right? And actually, it sort of was the bottom. But the thing is, that thing over the next three years, XLE did 20% S&P 500 is up double that. So it actually was a decent contrarian indicator for oil, but it still wouldn't have given you information to, like, go all in on these stocks. My other favorite one was the movie Wall Street came out in 1987, of course, right before the crash. And Wall Street 2 came out in 2010, so of course that meant, you know, and give me a break. You know this song, Don't worry, be happy? Yes.

Okay. So do not ask me why, but I was watching that music video. Okay. And there is... Blame this on your toddler son before you, anyway. Okay, sure. I'll blame him, even though that's not true. So that song came out in 1988, and in it, there is a cover of the newspaper, Dow Falls, 508 points.

Really? Yes. So I think he wrote that song. after Black Monday. Just a theory. Okay. Hey, that works for me. All right. So the U.S. reported second quarter GDP numbers on Friday, and there was some good news and some bad news. The good news is that real GDP on an annualized rate grew 4.1%, which was the highest since 2014, right? Mm-hmm. Right. The bad news is there are some cracks in the housing market. So as a for instance, existing home sales, which make up about 90% of the market, fell for a third straight

month in June. And new home sales also was below expectations, which was the weakest in eight months. So what do you make of this? I don't know. I just thought it was, I thought it was more interesting the fact that people were arguing about 4% GDP growth. Like, I mean, I don't, I mean, any of these data points, I don't, I'm not a big fan of making, you know, educated guesses on one data point. I like to see more of a trend develop than looking at a point in time. But it, I just think I tweeted about this over the weekend and got a lot of comments and pushback. But like people were arguing over and it was more the political angle of, you know, trying to ascribe certain growth rates to presidents. And I get that. That is just, that makes no sense.

But it just remains to me to like the most joyless economic recovery in bull market in history. Like, people had, like, people are constantly poking holes in everything, which I think is probably a good thing, the fact that, like, I feel like we've had every opportunity in the world to just have a crazy bubble. I don't disagree, but here's a counterpoint. In previous recoveries, Twitter did not exist. And that really warps our view of things. Probably true. But I mean, you can't admit that you have to, I mean, taking like public perception of people you talk to that are not on Twitter and outside the market, I wouldn't think we've had that sort of, besides the Bitcoin craze there for a few months. I don't think we've had the really,

you know, euphoric period from this recovery. Well, I wouldn't know because I don't talk to anybody outside of Twitter. Okay. All right, so a few more data points. Prices for existing home sales climbed 6.4% in May, which is the smallest year-over-year gains since early 2017. So I guess here's another angle on this. You know how there was a slowdown in NFL viewership and people who like, oh, this is not good for its future, whatever, whatever. But it had grown so furiously over the past few years that inevitably at some point that we will see decelerating growth. Right.

Yeah. Right. Nothing can grow forever. And the same is true with the economy, I guess. So in my theory on the NFL thing, by the way, so they had the World Cup stats come out a few weeks ago. And I think it probably didn't help that the U.S. wasn't in the World Cup. but the viewership was down like 30% even for the finals and the semifinals, which the U.S.

never makes it anyway. And I think the competition for your eyeballs is just greater than it's ever been. So I think all these things are going to continue to go down regardless of the reasons people put on them. It is a zero-sum game. Yes. What do the guy from Netflix say? His greatest competition is sleep. Yeah.

Something like that. So, all right. Well, some of the good news in the housing slowdown is we'll link to a Jonathan Miller piece that he wrote, but it seems to be like it's primarily, it's falling at the high end. Prices are falling at the high end. So places like San Francisco and the Hamptons and stuff like that. Do you still get the anecdotal data from people you know, though, that housing is selling, you know, someone puts their house up for sale and it sells over a weekend. I get those stories all the time still. Yes. So other good news is corporate America seems to be doing quite

well. So very quietly last week, the S&P 500 total return index hit a new all-time high. And Bank of America says that 76% of companies in Q2 are beating on EPS and 67% are beating on sales, 58% beat on both, which is the second highest reading since 2011. And corporate EPS is now on track for 24% growth year over year. Which will bring the cape from what? 34 to 33.98. Yeah, it's a steel. I wonder, I wonder. I wonder. wonder, this got me thinking, is it possible or has this ever happened that there's been a housing slowdown with continued growth in corporate America? That's a good question. I mean, it seems like housing is definitely the biggest impact on consumers, which then ipso facto messes with

corporations. But I would like to see the data on that. My guess is no, but maybe this is something that the readers can school us on or the listeners can school us on. I also think they we're still shell-shocked from 2008 so that any time there is like a even scent of a hiccup or slowdown, it's like, oh, the next recession is here and hasn't is going to cause it again, which is highly, highly unlikely. Right. All right, let's move on. I feel like this is going sort of long.

I have seen more than enough videos of young Brony James, this 13-year-old kid who apparently made his first dunk yesterday, according to the internet, it is a lot of LeBron James Jr. Are you anti-Lebron James Sr. as well? No, no. Matter of fact, well, I do love to root against him, but I am not a LeBron James hitter at all. I think he's done tremendous things for the league and for society. He just built a school in Akron, Ohio. I saw that story. That was amazing. Which is a freaking incredible. So, no, I'm not an LeBron hitter. Well, I would say the fact that he's now in Los Angeles means you're probably not going to be seeing less of him but more of him. So time to quote. Yeah, okay, so I might hate him. But wait, the interesting thing is that apparently Brani is not even that. that good. But, like, there was a quote that it could be, it could be Bronny's team when he scores more than four points. But he's getting so much attention. It's crazy. Yes. I mean, I can't imagine the pressure on something like that when you have such a famous father. But he says he's going to keep playing in the NBA until his son reaches the NBA. So who knows? That'd be cool. Are you,

are you excited for Ozarks? Or Ozark, season two? I just saw on Twitter the trailer for the new season. Yeah, I was into the first season, so I'm, because summer is so slow in terms of TV, like there are no good shows in the summer. You say succession. We'll see about that, but I say that summer's a very slow TV month, so I'm looking for those. Yes. Yeah, I don't, I think that I could have left it after season one, like it was really, really, really good. I'm, I'm expecting a lot down. There are, there are a lot of shows out there that could be only one season. They would have been fine. So, Bloodline, we just started the final season, which has been out for a while. Oh, it's terrible. It could have been a one-season show. I think the same thing with the affair

could have been a one season show and just stopped it. Yes, we are totally on the same page on this one. The Bloodline Season 1 was one of my favorite shows. It was very good. So are you telling that I shouldn't finish the last season? I got to know what happens now. No, you got to. You got I mean, okay. Anyway, so there was a story in the Daily Beast yesterday, a really long one that sort of reminded me of Ozark. It was about the scam with the McDonald's Monopoly thing. And so I'm reading this thing, and I'm thinking, how is this not bigger news? Because I vaguely remember this bust happening. And here's why we forgot about it.

At least I forgot about it. The colorful court case held in Jacksonville, Florida started September 10th, 2001, the day before terrorist crash planes to the World Trade Center. Whoa. So this guy was making fake monopoly things that you peel off the cups? No, no, no. So this guy was in charge of the company that I think produced or distributed these stamps. and the scam went crazy.

He was basically just giving people million-dollar tickets and everybody involved went down. I don't know if it's worth reading because it's pretty long, but it was kind of interesting. Okay. All right. Moving on to some listener questions. This one is about student loans.

He says, I'm thinking about it from the perspective of wanting to have sufficient emergency savings and saving enough for retirement while also trying to aggressively pay off my loans. What would your approach be if children are introduced my wife and I want to contribute to a 529 college savings plan? Should my loans be paid off before saving for a children's education? All right.

So I don't really have anything insightful to add here. So why don't you just go to, we asked the advisors internally what they said. So yeah, we asked some of the advisors at Ritholtz. And Bill Sweet, our CFO, says it's probably, you know, both is the right answer because both goals are important. And I like the idea of balancing these things out. And obviously the interest rate matters a lot here. Tadas Visconta, who just joined us recently from Mddo Roil and says, you know,

it might depend on the state tax incentives for 529. He says, Indiana, for example, provides a 20% tax credit on contributions up to $5,000 a year. Blair Dukene, another new advisor who just joined us, says she's pretty much agnostic, and she generally recommends making the minimum payment only, and that federal loan is actually forgiven at death. So even though they have higher rates, you know, sacrificing that college to get more aggressive on student loans may not make sense. My, I don't feel very, my, I think it's a lot very situational because when I came out of school, the rates were so low, it made no sense for me. to pay them back because my rates were like two and a quarter percent. And it was like if you pay

every payment. Oh, you nailed the bottom. It was so low back then. And if you paid the minimum payment for five years straight, it went down another quarter percent. So it made no sense for me to pay them off. So I can't imagine what people are dealing with now with five or six percent rates. It's amazing to me that the government still allows the rates to be that high since they basically control that program. and that would be like a huge infusion for younger people if they got some sort of a break on that. But I'm of the mindset of you have all these goals, retirement and savings your children's college and emergency savings. I like the idea of balancing them out and starting good habits instead of just focusing on a single goal at once

because I feel like letting those other ones fester and not do anything, I feel like it's easy to just completely forget them and not get started at all. So I think sort of small wins for compounding effects. I just realized we didn't have a debate, even though we probably agree about the S&P 500 being a momentum fund or not. We'll save that for next week. Okay. Yes, because you wrote about that and stark contrast to my piece. Yeah, I took the other side, although I think we would agree.

Anyway, all right, what do you got this week? We have two more listener questions, actually. All right. This is another housing one. All right. I don't have many recommendations this week on it because I said TV is so terrible in the summer. I would think this might be a decent time to dip in your 401k for a house. Although it's painful to pay yourself back at a 5.5% rate, I think it's a good time in the cycle to take that. So would you ever think about borrowing from retirement savings as a down payment for your home? So we spoke about this last week and you said it was a bad idea and I said, I'm not sure that it is such a terrible idea because let's say that you don't want to start a home, right? Because of all the expenses that come with it and you are short on cash for a down payment. Is it such a bad thing to borrow from your 401K? I don't know. My point on thinking on this is the fact that paying yourself, taking it from a

401k is kind of a double whammy. Not only you're paying yourself back, but you're foregoing that compounding in the meantime. Okay, but with the Cape at 32 and interest rates on the rise, you could have said the same thing in 2010. I think it's tough for me to say that, but I mean, if that's the only way you have of making a down payment, you have to get a house, sure, but I don't think that I'd be using market cycles as a way to time this kind of thing. Okay. Yeah. I agree with that. I think that's a tough way to do it. Okay, one more. It's my understanding that, and this is something I wrote about recently, so I want to hear your thoughts on this. It's my understanding that financial theory proposes that as it prices or overt to the long term mean, if so, does this conjecture apply to interest rates to? I like this question so much I wrote about it. And my thought was it's complicated, but what do you think about this? Okay. I loved your post. And I think that people take regression to the mean way too literally. And they try to figure out what the mean is and where they can expect. it to regress to, and I think just simply put what I think about when I think of regression to the mean, I don't know that profit margins regress a long-term historical average or that

the CAPE ratio does or anything like that, but just plainly stated, I think that high returns are followed by low returns and vice versa. Now, I mean that in the most general terms, because high returns can persist for a long time, as can low returns. So that's my two cents on regression to the mean. And I use something we talked about on the podcast, actually, about the placebo effect and how it wasn't that the placebo effect works. It's just that people get better over time. And I think that's a good way to think about the stock market. But I use something I hear from Birth of Plenty, which is a really good book from William Bernstein, that it's kind of on the history of capitalism and how it's succeeded. And he talked about how you have to

take into account the wealth of a society as well. So as societies get wealthier, technically, and there's more trust in the system, interest rates should be going down. So there is no really, in my opinion, a natural interest rate. I think it's constantly changing. And that's why I mean your version is so hard because a lot of it is a moving target over time. So yeah, there's no, yeah, there's no other answers. Okay, recommendations. I just finished origin by Dan Brown. And if you like Dan Brown books, you'll probably like this book. It was a really, I mean, it's a lot of like the other ones. There's religious elements to it. There's kind of people are chasing after the Robert Langdon character and there's secrets and then there's a big reveal at the end. I was a little

let down by the big reveal at the end. There's a lot of build-up, but I guess in a lot of ways... What's a big reveal? He was short Amazon this whole time. Yeah. He's really... He's picking up Facebook shares on the cheap. But, I mean, if you like Dan Brown Books, you like this one. And I had one other kind of market-related recommendation. So this just came out from etf dot com. They have this stock finder tool that they just built.

And I think Dave Nadeg actually posts about this on Twitter. And we'll put this in the show notes. But if you enter a ticker into this, find ETFs by whole... holding. It's called ETF stock finder. So if you want to enter Facebook, you could see which ETFs own the biggest shares, how many ETFs own the shares, what percentage they own, the biggest gainers. It's kind of interesting if you really want to drill down to, you know, what is in a lot of these different funds. And so for Facebook, for example, there's 206 ETFs that hold Facebook. And ETFs own like 141 million shares. And it gives the biggest one, the largest allocation.

So there actually isn't an ETF that holds like 20% in Facebook. It's the communications. Wow. It's actually a spider fund from State Street, which kind of brings us a whole discussion full circle. Anyway, for investing nerds, it's kind of interesting to play with. So that's my other recommendation. Okay. So I'm two-thirds done with a book called The Meat Racket by Christopher Leonard.

It is such a good book. Cannot recommend it highly enough about Tyson Foods and their history and what they did with Vertical Integration and the Stranglehold they have on the industry. And it also tells a story about like farmers in America and a little bit about their history. So it's investigative journalism and character development and history. And it is really, really good. One of the things that I was sort of hesitant to read it was because I'm, I mean, fairly sensitive to like the animal stuff. But it wasn't like over the top describing how awful their living conditions are. It was more about the business. I'm definitely one of those

people who does not want to know how the sausage is made. Yeah. Yeah. So it didn't really, I mean, it did a little bit, but that wasn't, that wasn't the point of the book. So again, Cannot recommend it highly enough. Okay, Succession we spoke about already. And the comedy that you recommended, I'm halfway through it, and it is very, very good. Neil Brennan, yeah. And watch till the end because his life story continues to get more complicated. And it's, I had a few people who said that they really liked that.

It was good. I liked how he talked about his emotions and after a while, suppress them, and they just atrophy. I thought that was pretty interesting. Okay, lastly, so I went to Six Flags yesterday. Oh, really? There's Six Flags in New York City? It's in New Jersey. It's called Great Adventure.

And so I got the flash pass, which allows you to go faster. But the line for it was like an hour. I was so pissed off because I had purchased it online. And there was a separate line that if you already bought it online, you could sort of zoom ahead. But it was like hidden. So I was so annoyed. I was like, what is the point? Anyhow, there's this roller coaster called King DeKha.

And it goes like pretty much literally straight up and straight down. and it goes from zero to 120 miles an hour in three seconds. Wow. That's pretty sweet. And that's how the ride starts. So the ride starts, like, that first three seconds feels like the drop. Wow. So I did it twice, and the second time, it was just too much.

So by the end of the day, I was just like, your body can only take so many roller coasters. But I have a photo of me on that ride, and it is pretty funny. So I'll share the next time. Yeah, no, I'm a big roller coaster fan too, but I'm not a huge fan of waiting in lines. yeah so the flash pass thing was good it worked really really well but the line and then at the end I'm like how do I return this I'm like hello somebody and apparently you have to wait online to return it which is like the dumbest thing ever so okay yeah anyway all right this was a long one sorry for keeping you we will see you next week