Animal Spirits Podcast - Whatever It Takes Squared (EP.144)

Episode Date: May 6, 2020

On this week's show we discuss Warren Buffett's annual meeting, why Berkshire didn't buy anything, crisis buzzwords, the death of commodities, retailers going out of business, the rise in credit card debt, comedy Oscars 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, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. Michael Battenick and Ben Carlson work for Ritt Holt's Wealth Management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain position, and the securities discussed in this podcast.

Welcome to Animal Spirits with Michael and Ben. I think the biggest news of the weekend is that Warren Buffett still uses Times New Roman in his slide presentations. I mean, that's got to be the last person on the planet who does that. He taught us a very good lesson. Either have the best PowerPoint presentations or the worst. We had a conference a few years ago in New York, our first evidence-based investor conference, and Charlie Ellis spoke.

I remember thinking that, he had the simplest slides I've ever seen. It was just black and white, no pictures, no formatting. Some of the spaces is weird. Yeah, nothing like that. No memes. And probably had one of the best presentations of anyone. And yeah, it's like if you get to that stage and you just don't care anymore and you're going to be good as it is, it doesn't matter. So I guess Buffett talked for four and a half hours or something. Remarkable. Yeah, in a live streamed. There was something for everyone, I think, in this. No matter what your priors were going into it, I think you could have had them confirmed depending on what you pulled out of his talk. It is pretty impressive he's still able to go at this age. He's only 89. Yeah, he's only 80 in Munger's 96 or something.

By the way, I watched a Seinfeld this week. And in the opening, when Jerry's doing stand-up, I guess the year was, so I'm on season four, so probably 93-94. He said the average life expectancy for male is 72 years old. Wow. Isn't that nuts? I mean, I assume that's accurate. That was accurate at the time. And now it's got to be closer to over 80 probably? Yes. Interesting. And he also made an appearance on the new MJ. Yes, he did. That was hilarious. This place's not going to work. Which was kind of awkward, yeah. But, okay, so again, Buffett had something for everyone. Some of the stuff that I thought was interesting. He talked about the Fed a lot, which a lot of other investors are doing. But this is an interesting part. He said there was a period right before the Fed acted

where we were starting get calls. They weren't attractive calls, but we were getting calls. And the companies we were getting calls from after the Fed acted, a number of them were able to get money in the public market, frankly, at terms that we wouldn't have given. So he basically said that like everyone knows, the Fed acted with such unprecedented speed and determination that Powell front ran Buffett. Yeah, which makes sense. I mean, the whole sell off occurred in a period of what, four or five weeks. It's hard to have complete capitulation and fire sale prices from huge companies at that speed. Well, same with the rebound.

Right. Yeah, that's what I mean. Like, there wasn't enough time for these companies to really freak out, I guess, enough to meet Buffett's terms. So it makes sense in a lot of ways that they didn't really put this cash to work. A lot of people are saying, this means this is the most bearish I've ever heard Buffett. And I thought he was more in the, I don't know camp, which is probably the right place to be right now. But we're all wondering, where is he? When you don't have enough time to swing at the fat pitch, a few weeks is not enough time to take the fat pitch. have bought public equities, obviously, but to buy a whole company or do a bailout for a company

at really crazy terms like he did in 08, there just wasn't enough time for it. Maybe there will still be time for that down the line if some of these companies are still just really hurting, which I'm guessing a lot of them will be. But when you see it through that lens, it actually makes sense that they didn't do anything. Some of the biggest news was that he sold his stakes in Delta, Southwest, American, and United. Why didn't he just buy the ETF? I had no idea they owned that many airlines. I guess he just said in February or March, we're not selling these things and now he did. It seems like five times throughout his company letters over the years, he's talked about what horrible investments airlines are. Why did he continue to own these? So he said, quote,

I was amazed at the volume. And he was dumping and all the Robin Hood users were his price discovery. Oh, right. That was the liquidity. So he was saying that it was easier to unload than he thought, probably. Yes. They sold the entire position. The good thing here from his perspective is he didn't blame the Fed. He didn't say, you know what, we're basically a distressed buyer at times like this. He's not going to say we're mad at the Fed. He said that Volker was probably the best Fed chairman of all time. And he compared Powell to Volker saying he said he and Jay Powell couldn't see more different in temperament. But Jay Powell, in my view, and the Fed board belong up there on the pedestal with him talking about Volker. So what I wanted you to read it was this part. Okay. I've always had Paul Volker up on a

special pedestal in terms of Federal Reserve chairman over the years. We've had a lot of very good Fed chairman, but Paul Volker, I had him at the top of the list. Paul Volcker was a giant in many ways. He was a big guy too. Hey. Still got it. So, because there's obviously a lot of distressed players out there who are getting mad at the Fed and angry, and Buffett wasn't going to do that. He's actually giving them credit saying this is what they have. had to do, and they acted so fast that it means that we didn't get to buy lower, but we're okay with that. Where a lot of investors are saying one of the reasons they're mad at the Fed in the back of their minds is because they didn't get to buy at these lower distress prices.

So I'm going to read one more passage. We'll know the consequences of swallowing the Fed's balance sheet. You can look at the Fed's balance sheet. They put it out every Thursday. It's kind of interesting reading if you're sort of a nut like me, but it's up there on the internet every Thursday and you'll see some extraordinary changes there in the last six or seven weeks. And like I say, we don't know what the consequences of that, and nobody does exactly. And we don't know what the consequence of what they undoubtedly will have to do. But we do know the consequences of doing nothing. And that would have been the tendency of the Fed in many years past, not doing nothing, but doing something inadequate. Mario Draghi brought the whatever it takes to Europe and the Fed then

with March sort of did whatever it takes squared. And we owe them a huge thank you. I like whatever it takes squared. That's a pretty good way of looking at it. Right. And he understands, which is, again, a good place to be. I also liked how he put the buyback police in their place a little bit. So again, if you were a bearish person, you could say, oh, I've never heard Buffett this bearish before. I'm siding with him. But he also said people are saying lots of crazy things about buybacks.

He said it's very politically correct to be against it, which I think he could probably be a member of Fin to it if you wanted. Maybe he was Warren Buffett 99. Maybe that really was him. You mean Warren Buffet 99? Yeah. So he said, listen, share repurchases are just a means of distributing cash to shareholders, much like dividends.

there shouldn't be the slightest taint to it. He basically just said they looked like dividends, but sometimes people are just crappy at timing them. But they basically are the same thing, which is kind of what a lot of people have been saying for a long time. So I'm glad he'd hit on that the fact that it's just this political piece that people are pulling on now. Let me ask you a question. Not to be too cynical, just asking, how aware is Buffett of his reputation? In other words, does he see the Fed thawing their bazooka and does he like stop his feet and say, damn it. And then publicly, he says, we owe them a huge thank you. Do you think that there's anything there or is just completely sincere? It could be a little bit of both. At this point,

like, yeah, his legacy is already in place. That's why there was no reason for them to rush in and buy anything here, I think, and really do something that wouldn't have made sense. So I totally understand sitting on the sideline. I mean, maybe at this point at 89, he's just saying, you know what, I'm going to pass the baton on pretty quickly anyway. What's the point of me making one more of these? And maybe if this thing drags on and companies continue to be in trouble, even if the stock market doesn't fall as much as it did, like there's going to be distressed companies from this still. There's going to be opportunities to help different places, don't you think? What was surprising is, like, previously, wouldn't he have been a buyer of airlines instead

of a complete capitulator? And I don't want to say capitulation because, listen, the shares can be cut in half again in the next three years. Who knows where they go from here? But doesn't this just seem like the opposite of how he usually operates? Kind of, but it makes sense to me in the airline thing. I mean, when is that business going to be operating at full capacity again? Maybe he's thinking, I'll get back into these things in 12 to 18 months and probably not at a much worse price, maybe a better price. These businesses might be permanently impaired. I want to say permanent. I mean like three years. It's surprising that whatever six weeks ago, he said, I'm not selling these. I'm just selling a little. And now he's

saying I sold them all. When the facts change, sir, Warren Buffett changes his mind. In 2007, he was buying Irish banks and then flipped and sold it. Not that much longer after that because he realized the financial crisis was getting worse. Again, I mean, Buffett doesn't know the future any better than anyone else. So I guess it makes sense. But again, this thing just, it happened so fast. I think for someone like him with a huge cash pile that it just wasn't enough time to really make anything make sense if he was going to take over a whole company. If the market rolls over again, I wouldn't be a surprise if he does something. Yeah, I could see that. He doesn't want these airline sales to be the last thing in his legacy, obviously. He's got to have something that comes in and that would make sense. Let's move on to some of the stuff on the economy. Jim Bianco tweeted a chart of the United States showing the percentage of the state labor forces filing and it's just claimed since March 20th. In the past six weeks, 30 million people filed, as we know, Hawaii leads at 29%, Kentucky, Georgia, Michigan, and Pennsylvania are close behind.

It's surprising this shows how much more diversified their economy is, I guess. Which one? Texas is only 11% one of the lowest ones because you'd think with the energy stuff falling off, but obviously they're much more diversified economy now. You'd think in the past their economy was probably so just dominated by energy that would have been much higher than that. Only three states are currently under 10%. Wow.

Yeah. Yeah. Michigan is one of the worst, and we've seen that here. Last week, we forgot to discuss because there was so much to catch up on. First quarter GDP, which was down an annualized, I forget what it was, 4.8? 4.8%. Why do they annualize this number? Why can't they just tell us what it actually was?

This doesn't make any sense to me. I'm not an economist. I don't know. I put this out on Twitter. No one could really answer me. You think we can't just multiply that in our head to understand what it would be? Like, they don't say stocks are down 359 percent. pre-market today annualized, why does GDP have to be annualized in a quarterly basis?

It just seems like, especially when we get this 30% annualized drop or whatever it's going to be in the second quarter, I think people are not going to understand what that really means. I don't have an answer. Dan North, chief economist for an insurance company, said they're going to be the worst in our lifetime, talking about second quarter GDP. They're going to be the worst in the post-World War II era. Right, by far. Because again, it only fell 5% or 5.1% total in a 2008 crisis or something. Do you think, is the stock market forward-looking enough to say, all right, we realize the economy is going to be operating at 70% going forward for the next 15 months or whatever

it is, 18 months, can the stock market really say, we're just going to use that as our new baseline? Because in the past, if you would have said the economy is operating at 75% or 8%, you would have to say, okay, that sounds insane. Awful, right? Yeah, you have this huge. But do people get used to it? and say like, okay, this is the new baseline, so we're going to base all of our relative

strength or weakness off of this new baseline. Is that too crazy to consider that we have this new baseline and people get kind of used to it? If the market didn't bounce, we wouldn't be saying the market's this forward looking. True. I feel like we're overreacting to the bounce. By way, I mean, me, everyone. Yeah, and it did, though. So the thing I think people are questioning in themselves, if they are doing some soul searching and all this and realizing that what they thought certainly was going to happen, didn't. I'm trying to figure out, okay, how was everyone so wrong? Deadcat bounce, sure, then everyone's not wrong. But what if people were, like what is it that people are missing? What if it's just as simple as I feel like we just

keep repeating this over and over again, is that the stock market is cap-weighted. We got reports from Amazon, Apple, Microsoft, Facebook, Google, and they're pretty much operating kind of business usual. We'll get to Amazon later. But they're operating at like, what, 95% of where they were? And the market is capital. Wait, and they're holding up the market. I think it's that simple. They're still down way more, but you had to bounce and everything else, too, though. Wait, what do you mean down way more? Small caps and midcaps are down way more than large caps, but those things bounced too. So I'm saying everything bounced. It wasn't just the large cap stocks that bounced. That's true. So obviously, those stocks remain in a bare market and are down much

more than large caps. I don't know. I'm just trying to think either the market is really dumb or investors are really dumb. And maybe there's some middle ground there, but I'm trying to figure out, okay, if everyone was wrong about this, then why were they wrong? If this bounce was real, then what is it? Is the market really able to do this? How about this? Here's another simple explanation. Might be too simple. I'm just throwing this out there. Stocks sold off faster than they ever had, and they retraced 50% of their correction. Yes, that works. Right? Now who the hell knows, right? This just passed. Robin Hood, I guess, is now a mid to large cap. They're raising 280. $80 million at an $8.3 billion valuation, which is, I think, higher than their last one.

That's surprising. I would have definitely taken the under on that one with the amount of pain that they've had. I guess they weather it a little bit. Pain where? There was some PR pain a few months ago. Just the fact that they haven't really weathered this crisis very well where they've had those days where it was two or three days of being completely shut down. So it's pretty impressive that you would have thought that anyone coming in to give them an investment would have maybe tried to strongarm them a little bit, saying, okay, fine, but we're going to do it at a lower valuation. I think it's impressive that their valuation is still so high and it didn't get cut in half or something. So you put this from Forbes in here, 74% of startups of trim staff,

65% of less than six months in cash. So again, Robin Hood is more of a startup. They're a little bigger, but obviously a lot of these startups are feeling the hurt big time. So I think Lyft did, what, 20% of its staff, and that's not the drivers. That's the actual employees. Uber is doing they're thinking about laying off 5,000 employees, which I looked the other day. Somehow Uber is up this year. I looked at all of the 2019 big name IPOs. So Peloton, Uber, I guess Lyft is the only that was down Slack. A lot of these 2019 IPOs that got hit, I mean, Uber was only up 2%. This is last week, so maybe they're down a little now. Now it's down slightly, but that's still very surprising. Pretty shocking, right? I don't know if people are all banking that on Uber Eats or what, but.

This stock is so freaking volatile. It went from a high of 42 to a low of 13. So what is that? Like a 70% decline? Do you think all the venture capitalists, are there going to be a lot of new startups that never get off the ground in all of this because all of their money and attention is going to have to go on current investments at the moment? If you were a VC, you could be saying, well, we're going to be getting favorable terms from new investments or we have all these other investments that we've put a lot of time and energy in. And if we don't put all our money into them, they're toast. So that's what I think making these distressed purchases,

it makes it a little more difficult if you don't have a huge war chest because they're probably going to have to prop up some of their current investments. So let's invert these numbers. 65% of startups have less than six months in cash, meaning 35% have more than six months in cash. That sounds like an awfully high number, doesn't it? Yes. Is this a survey data? Yeah, I'm assuming it is. Got to you right. It is interesting that you're hearing all of these numbers now because this is something we've never really had to think about before with most company. Like how many days worth of cash that they actually have? Do you think this is going to change the equation of how much cash, how much reserves people have

going forward? I mean, isn't it this kind of same thing as do you think? I see this as a maybe short-term type thing. I just, I don't know if people are thinking like, do we have to rewrite personal finance rules where instead of three to six months cash, people are going to have to hold 12. I mean, do you really think people are going to tighten their belts that much? Or are there going to be a few companies that do that? And all the other ones are going to say, you know what? If we do that, business is never going to take off anyway. So what's the point?

Let's roll the dice and see what happens. And hopefully we get enough funding to make it through this. I just don't think we're going to see that many Great Depression babies out of this. I think it's hard to learn that kind of lesson here for a lot of people because this thing was so unique. Speaking of Great Depression babies, there was a New Real Rubini did an article that made its way to Market Watch. I don't know if you wrote it for Market Watch or whatever, but headline, the coming greater depression of the 2020s. Do you think that this was a copy and paste of something he was intent?

I mean, I looked through this. He became famous after the 2008 crisis, but I don't know if he was right once afterwards. Let's go through the list. I have a hard time taking people serious who have been wrong for 10 years and are now using this as a jumping off point to say, all right, see, I was actually right. Because a pandemic is not the reason that you were calling for a crash for 10 years. I don't think you can jump on that bandwagon. This isn't like saying I'm a Golden State Warriors fan now after they won a few championships, right? I feel like that's what's happening in a lot of ways.

He's been very wrong for a very long time. All right. So even if he's right again, I have a hard time believing. Okay, go ahead. The first trend concerns deficits in their correlate risks, debts, and defaults. A second factor is the demographic time bomb in advanced economies. Demographic time bomb is very Harry Dent-esque. I was thinking of the same thing.

A third issue is the growing risk of deflation. A fourth related factor will be currency debasement. A fifth issue is the broader digital disruption of the economy. This points to the six major factor, de-globalization. The backlash against democracy will reinforce this trend. This points to an eighth factor, of course, the geostrategic standoff between the U.S. and China. Worse, this diplomatic breakup will set the stage for a new Cold War on between the U.S. and its rivals, not just China, but also Russia-Iran and North Korea.

And a final risk that cannot be ignored is environmental disruption, which as a COVID-19 crisis has shown, can wreak far more economic havoc than a financial crisis. And Ben, you're going to love how we ended it. He said, these 10 risks already looming large before COVID-19 struck, now threat to fuel a perfect storm that sweeps the entire global economy into a decade of despair. You know those word clouds that you take and they show all the words that are used? I feel like this is a word cloud of what the hell is the word I'm thinking of? doom of buzzwords of economic buzzwords that are used de-globalization demographic time about i don't know maybe he's right whatever but someone did send us i said we need a new word for perfect storm and someone sent us in people sent us in a few ideas this is my favorite one supernova i'm a perfect storm guy

sorry not budging i mean yeah this situation is surely going to push some trends that were already in place further into place and maybe stop some other ones in its tracks I just, I don't know, this is a lot. Maybe he's right. But again, this does sound like this could be an outline for a Harry Dent book that was written prior to this crisis. One unfortunate side effect of every bare market recession is you have to put up with stories like this. Yeah, it's found to happen. And isn't it funny, though, that we have to worry about both hyper deflation and hyperinflation.

No matter what happens with the economy, people are always worried about the risk of deflation of the risk of inflation. And actually, over the last 10 years or so, the risk has been just not much of either. That's what's happened. Oh, yeah? Counter. Tweet from Sarah Eisen. Grocery inflation in the past week. Prices have risen for fresh meat by 8%, eggs by 31%, cheese by 11% and cows milk by 10%. By the way, if you're having people shop for you, when's the last time you even knew what a price of something at the grocery store was? No idea. I would have no idea.

Prior to this, I did my own grocery shopping, and I still have no idea. Not a clue. Yeah, that's true. I've always thought eggs were probably... How much was it? I'm going to guess. Before this, a dozen eggs sounds like $3 to $4. Okay, in Michigan, I was going to say $2, probably.

So maybe now it's $2.25 or something. I always thought a dozen eggs was probably one of the best deals on the planet. You could get that for like $2. I'm Googling it. How much are a dozen eggs? How much is gas in New York right now? Because I feel like gas is really cheap. What do you consider really cheap? 205 or something. Okay. So for us, it's like $1.40.

Jeez. They're giving it away. Can gas prices go negative? Somebody asked us why prices, they are in the Northwest, why prices are still like $3. And I said that we're not going to talk about it because I have no idea how that works. Do you have any hypotheses? I'm sure it's probably still like $3 in California. Some of it is the taxes that are involved in there. but I have no idea. Obviously, it still costs money to get it there and stuff, but it shouldn't be that expensive. It would sink. This is interesting. Egg prices vary from state to state. So, for instance, in Kansas, as of August 2018, a dozen eggs as of August 2018 in Kansas are

68 cents. Wow. In Michigan, 48 cents? No, that can't be. No, it's got to be two bucks. Little known fact about me. I eat eggs every day for breakfast, scrambled eggs. I could probably make the best scrambled eggs ever had in your life. Just throwing it out there. Okay. Not to one up you. Okay. I'm not on your lawn.

I make an excellent omelet. Okay. What's your secret about scrambled eggs? I'm just good at it. Come on. Just good? The copper nonstick pan is the secret that most people don't know. All right.

You put this in here. This is kind of surprising to me how quickly this slipped. There was probably 10 days in there where people thought, why your market's still open? That was actually an argument for a while. Like, okay, if this is going to keep happening, let's just close market down. Right. If stocks are going to fall 10%, what's the upside? Like, why leave markets open? How much worse would that have made things? I think that's the case where if markets close for a couple weeks, then we see that they open up again and they're down 40% or something. No, no, no. If you say to the public, okay, in five days we're going to close the market, that signals, that's like so much worse than cutting a dividend. That signals panic. Think about what the market would have done in the five days between now and when you close it. Or maybe they just say, all right, markets are closed, which is also terrible. To your point, they would.

would have reopened down so much. But like, this was a story about this public pension plan in Canada and how Wall Street banks were paying their fund for crash insurance. And people were talking about how amateurish this strategy was. And this person says, I'm always shocked when I see supposedly institutional funds or money managers getting into these strategies. So what exactly was the problem with this one? I don't know the details, but people are pissed off because this is a,

a pension fund and they took three to four billion dollars in losses and to pour salt in the wound. This is in Alberta where obviously they're sensitive to oil prices, which is just bad upon bad. But this quote is really, I mean, there's a few quotes in here. Selling the small puts is a beginner's mistake. Anybody with experience and options and volatility and trading knows that those century rare events happen every few years, much more frequently than the simpler myth would tell you. It's a guarantee. How often should you play Russian roulette?

So we continue to see, I don't know how often this happens, a few times a year, option strategies, volatility strategies blowing up. Right. I mean, the people, so he said, like, this is an amateur strategy. Why does this keep happening with institutional dollars? Right. Obviously, this is sort of a short-vall type of strategy. It's surprising because the Canadian pension plans actually have one of the better reputations

as far as institutional money managers go, not all of them, obviously. but maybe that's a thing where that's a good rule of thumb for some places. We're never going to go short ball. What is the point? Because it is the nickels in front of a steamroller thing. How about they put this in there too dumb pile? We're just not going to do this. Whatever upside we get, it's not worth it.

We're just going to pass. Yes. So sticking with the commodity thing, this was pretty crazy. Josh tweeted this out, and there was a chart from human progress. Between 1980 and 2019, the world's population increased from 4.4 billion to 7.6 billion, or by 73%. In that time, the prices of total commodities fell by 74.2%. That's another thing where if you would have given someone that information in 1980 and said,

all right, the population is going to almost double over the next 30 years. Where do you want to put your money? And especially after you just saw the 1970s, yeah, I'm putting everything in commodities. All in. Yes. Inflation was still high back then. If somebody gave you the counterpoint, like, no, no, no. here's what's going to happen. The population is going to double, but technology is going to

advance such that the cost go down, blah, blah, blah, blah, blah. You would have laughed, right? You would be like, all right, come on. Yes. So coffee is down almost 90%. Sugar is down 87%. Silver is down 85%. This is since 1980. I mean, for those prices, that is kind of a high point because inflation was high then and commodities just ripped in the 70s. But this is pretty crazy. And obviously, it was also the 2000s when a lot of advisors and investors decided, all right, long only commodities are going to be going in my portfolio. Obviously, is anyone in there still, you think? In the long only buy and hold commodities camp, there can't be many. I mean, again, we've talked in the past about like the difference between tactical in this space because they are so boom-bust and

strategic. And the strategic piece has got to be whoever's the fan of that has to be waning at this point. Do you think that this experience puts to bed the validity or the efficacy of the permanent portfolio? I would say, no, it doesn't at all. Again, I don't think you can actually say that gold is a commodity. I think gold is almost like its own basket of this because it's almost like a currency. If you say commodities X gold. No, no, no. I'm saying there's variations with permanent portfolio. I'm just saying bills, bonds, stocks, and commodities. Yes. If we're not, because I thought the permanent portfolio was gold as that piece and not just like a basket of commodities. I thought it was a basket of commodities. Either way. I still think that, listen, this is diversification in that portfolio.

One piece of the pie is not working. Yeah. But I'm saying if you had the choice between I'm going to diversify either in gold or commodities, I think I would choose gold every time. I think that's a recency bias. No, because I think gold is just shown to be a better low correlation diversifier than a basket of commodities. You're a known gold bug. Yes. Okay, so let's say like 20 years out from here. You'd rather own a basket of commodities from these prices or gold? Hmm. Basket of commodities.

Why hit your wagon to just gold? I don't get it. I'm saying I think it's been a better diversifier. We're going to have to do some back testing on this and get back to you because... Well, I'm not saying it hasn't. I'm just saying going forward. I'd rather own commodities a basket. Okay.

I honestly, even though gold has done better, I think I'd almost choose gold because I think I would trust it a little more. I don't think gold has, unless you're talking about Bitcoin, I don't think gold has the technology deflation to worry about. This was a good chart from Jason Gepford over at Scentimate Trader. $694 billion of inflows in March into money market funds, which was four times the previous record. And I'm going to throw this chart in a post. I'm going to do a post on like broken charts. And this is definitely one of the charts that is permanently broken. Do you think we'll ever see anything like this again?

And turning into money markets? It looks, it's off the chart. There's nothing even coming close. Well, sure. Yeah, everything. And then, of course, the Wall Street Journal says the average U.S. stock fund in April rose 14%. Again, that doesn't mean just because the money market blew up doesn't mean it's all coming from stocks because that could have come from bonds too because bonds also blew up. The crazy one to me is, obviously, this was just a confidence thing where people said, okay, money markets are the only thing I care about.

So Jeff Gunlock tweeted this last week. Do you know that Gunlock tweeted a, I think he spelled it Buffet. Oh, with one T and not two. It gets everyone. It's tough. Nobody's immune. But he tweeted that people were concerned that the Fed was going to be buying corporate bonds and junk bonds and ETS and all this stuff.

And that was what people were up in arms about. And he said he heard that they haven't actually done any of that buying. It was almost like a psychological put more than anything else. They didn't actually have to do the buying. They just had to say, we're going to do the buying. Is that illegal too? Are they not allowed to say it? isn't that the thing where like people are trying to figure out the limits of the Fed and out of

ammo? Isn't it all just psychological? Because I don't know, 70% of people don't even really understand what it is the Fed is doing. So anything they do is psychological. It's just the Fed saying we have this market's back. And the only time the Fed really is going to lose whatever power it has over the markets is if it stops being psychological and people start just going on exactly what they're doing and people understand it a little more. The Fed is a placebo. It's the blue pill. Yes. I mean, obviously, there are trillions of dollars that are moving around. It's psychological at the few trillion dollars. Yeah, trillion here, trillion there. And it's a placebo. So Amazon reported earnings. Bezos said, if you're a share owner in Amazon, you may want

to take a seat because we're not thinking small. Under normal circumstances in this coming Q2, we expect to make some $4 billion or more in operating profit, but these aren't normal circumstances. Instead, we expect to spend the entirety of that $4 billion and perhaps a bit more on COVID-related expenses, getting products to customers, and keeping employees safe. Question, getting back to the cynical part of my brain, did they have to show a loss this quarter? It's almost like he wanted to, I guess. Maybe. Would it have been bad looks if they showed a giant profit? Probably. I'm sure he's telling people, yeah, start spending now and get prepared for this and count it as whatever you want to. But yeah, we're not. I agree.

Right. And given the fact that he's already in the president's crosshairs. Someone asked us, I was going to get this listener questions, but we might as well do it now. He said at what point is Amazon too big, call it like standard oil monopoly big and the government steps in, is this already happening? Don't you think this, even though we're talking about this winner takes all outcome from some of this, don't you think this situation actually makes it harder to regulate them? Because in the midst of some of this and if they're coming out stronger than ever, you're not going to want to regulate one of the companies that's helping keep things working. Don't you think this actually makes it a little easier for them to not be regulated for longer? like it pushes that out a little bit? I don't know, because it's not telling them to shut it down.

It's just break it up. AWS can be a standalone company. Yeah, that seems like an easy one. I wrote about this yesterday. Over the last, I think I went back to 2014 when Facebook was included in the S&P. The S&P market cap has grown at around 8%. And the market cap of Facebook, Amazon, Apple, Microsoft, and Google, which are the five largest companies, grew at three times that pace. And so if that were to continue, in seven years, five stocks would be half of the index and six years later.

So 13 years from now, it would be bigger than the index itself. At some point, if this continues, and I don't think it can continue because the government is going to have to step in. There can't just be five companies. Or competition steps in. Maybe it doesn't have to be the government, right? True. That's what's happened historically. I'm just saying if, if this were to continue, and I don't think it will for this reason, things will have to change.

Don't you think this is one of the most pessimistic things I'm on is they talk about how they have these COVID-related expenses to keep customers and employees safe. Isn't this going to be the hardest thing on small businesses going forward? Isn't there going to have to be any money spent on cleaning or sanitary stuff for restaurants or whoever, small businesses? Can that almost be a write-off to the government somehow? because how are these places ever going to, first of all, they're going to be operating at a lower percentage of people coming in if you're a restaurant. Let's say you try to open up as a restaurant and you put these plexiglass walls up and you have to separate the table so you're operating at 40% capacity or over it is. First of all, you're operating at lower capacity. And second of all, you're having these other expenses incur where you're going to have to clean more.

You're going to have to be more sanitary and keep people safer. I just don't see how some of these places can afford to do that. If the government doesn't just say anything COVID related, it's a complete rate off. and you're not going to have to worry about that. Otherwise, how do they stay in business? I don't see how that's possible. If you have these extra expenses on a smaller customer base, it just seems like the math for a lot of these companies

is just going to be really, really difficult. They don't have Amazon money to throw around and say we're going to spend billions on COVID-related expenses. A lot of companies just are going to say it's not worth it for us to keep operating, unfortunately. So there was an article in the Washington Post. I got a subscription because I wanted to read this article, $23 for a year.

I believe you get a free year's worth of you're a prime member. That's fine. I'm happy to pay $23, and it's $100 a year going forward. Anyhow. That money is going right into Bezos's pocket. I hope you're happy. You're helping make inequality worse. The point lockdowns triggered by the pandemic have forced the temporary closure of 263,000 stores.

Sarah Wyeth, who is the sector lead for retail and restaurants that's S&P Global, said the traditional retail sector has been distressed for many years. and now this is intense shock is pushing more companies to the brink. So the proportion of retailers that S&P considers distressed is doubled from 15% to 30%. And this is one of the reasons why the Fed stepped in with their placebo and said that these fallen angels will, we got them. The picture they used in this story was kind of kicking these places while they were down. They showed the mall based on the stores and they showed the lowest rated stores to the highest rated stores in terms of can you make it? based on your credit quality, and they showed it, you know, when you go to a mall and you try to figure out where stores and they have the little map? Oh, that's right. I didn't even put that

together. Here's level one of the worst stores in the picture like the mall. It was kind of creative, but also kind of mean. Here are two more charts. I'll put on the show notes that are excellent. U.S. Department store revenue is down from a peak of inflation adjusted $30 billion in March of 1999 to under $9 billion today. I mean, malls, especially, they were already in trouble in a lot of places. I just, what do you do with those spaces? I don't know. Too many stores.

So foot traffic, I don't know how exactly how this is measured, but J.Crew, they have 258 stores, is down 97%. So J. Crew finally, Chapter 11, they're going to restructure. They're not going to disappear, but they're going to restructure between Madewell, which was a company they own. I don't know who Madewell is, do you? No. I don't understand why the company's like, if J. Crew went out of business.

I can't believe Banana Republic wouldn't be much further behind. I think J. Crew, how many times did they go through an LBO a few times? But why couldn't some of these stores just be online only? I have been shopping online at places like that for the last, I don't know, seven years now. I feel like you were a huge J. Crew guy. Enormous. I probably have a J.Crew t-shirt on. I keep seeing all these people making fun of J-Crew going out of business and making fun of the people where their clothes.

And I'm thinking, yeah, I shop there. I'm not going to lie. It's whatever. They have like 70% off sales every other week. But I don't know why some of these places couldn't just go all online because they never have enough inventory at the stores anyway. Obviously, they get something from those stores. But if you take away that expense, just lap off all of that lease payments or buying

of real estate. I don't know why they couldn't just try to go online. I don't know the business enough to say why they can. I have no idea. I mean, it makes sense to me, I guess in theory. This is from a 1992 profile of the company. Quote, J. Crew displays the understated cool. of a winner. Seemingly, lots and lots of people want to live the J-Crew life, which means that they

wanted by classic American wear, broken in chinos, vintage work shirts, or the J-Crew barn jacket in company parlance at reasonable prices. And that whole thing just screams Ben Carlson. How did you find a 1992 profile of J-Crew? It was in an article. So listen to this. Analysts say a series of missteps in both fashion and finance have left the one-time mall, darling, with slipping sales and nearly $2 billion in debt. Much of that debt stems from its 2011 acquisition by the private equity firms, TPG Capital and Lender Green and Partners, and a leveraged buyout. Probably not a great candidate for all that debt. No. I mean, again, yeah, this is just forcing, obviously, if you see these companies

that are going into bankruptcy, that probably could have raised some more debt in the markets or gone for a loan from the government. You know things are really bad if they're saying, all right, because even if we raise some capital, it won't work or it's not going to last. And I think Neiman Marcus was the other one. The companies that are going out of business now, you know, they're really, really hurting. I mean, how many more of these? There's got to be tons more. Over the next year or two, pick off the retailers. It's going to be a lot of them. All right. Survey of the week, 2,552 U.S. adults were asked about their credit cards. 47% of U.S. adults or about 120 million people. Currently have credit card debt up from

43% reported in early March. So 43 to 47% doesn't sound like a huge jump. But if you convert that into the actual people. That's quite a bit. Millennial credit card holders have been hit the hardest by the pandemic with one in three going further into credit card debt. I feel like that's a pretty big leap from 2,500 people. Why? If they do the survey every single week? They take a survey of 2,500 people and they say that equates to 120 million people. They're assuming that the survey is accurate as a representation of the country. No good? No, and I'm saying this is why we're anti-survey because no. I mean, do you really think 47% of U.S. adults have. No, I disagree. I feel like this is a legitimate survey because they're just asking about your

credit card debt. They're not saying, how do you feel, like, how do you feel surveys are garbage? Or what do you think will happen, surveys are garbage? But if they're just asking, listen, what's your credit card bills? I feel like that's fairly legit. It would actually make sense that more people are up in credit card debt now, not just because finances are tougher, but there's a lot of businesses saying, we're not accepting cash right now. We're just accepting credit. And so even people who are just paying their credit card bills off every month are holding a little more credit. That's an angle.

That is a take I had not considered. Because a few of the places we've gone to, like Chipotle for pickup, they say we are digital only. So only order on our app. We're not going to take any payment. We're not going to take any cash. All right. Listen, listen, listen.

I mean, people are going through credit card. Oh, no. That's certainly part of it, too. I totally agree with it. I just don't know that half of all adults are in credit card debt. But after this, are more people going to be in debt? Sure. And again, if you're one of these people who knew you were.

were in financial peril, wouldn't you take it up to the limit that you could and then just call your credit card company and say, sorry? I'm sure there's a lot of people who are unfortunately in that position right now who are, if they can't make rent or whatever, they say, listen, I've got 2,500 bucks more until I reach my limit on a credit card. I'm going to use all of that. And then after that, it's exhausted. This is an interesting story last week. Tesla was downgraded from a buy to sell at Tesla. Elon Musk. Elon Musk cut his price target. What did he say? The stock price is too high. You know what I was thinking at the time? Someone didn't buy the bottom when it fell. He's a little angry there. Sometimes I can't tell if he is just galaxy brain guy

or if he's just trolling people. Which one is it? I can't even tell anymore. Okay. So there's this chart going around of all these countries that are doing way better than so U.S. and United Kingdom and some of these developed countries aren't doing so great in beating this thing. But there's countries like Vietnam and South Korea, New Zealand, Thailand, Australia, who have more or less beat this, quote unquote, and that their numbers have come way down. Do you think it makes sense? Will we see, obviously, maybe these economies will still be slowing? But will we see some of these individual country stock markets? Will we see some separation there from the countries that have beat this thing or do beat this in the countries that don't and it lingers?

Will we start to see some difference in the stock markets of those countries or is that too much of a leap. I mean, that makes good, clean sense. I know the market is not the economy thing, but like, I don't know if your economy is reopened, shouldn't your market do better? Yeah, that's what I'm thinking. That would kind of make sense. So all these other countries that seem to have done a much better job in Germany and some of these other places, wouldn't you expect the next leap would be, okay, maybe more money will go into the stocks of those countries? Obviously, the U.S. hasn't done a very great job at this thing. So that hasn't really made sense at this point yet.

Okay. Listener questions. Why exactly does the U.S. government continue to bail out the auto and airline industries, even though these businesses are fundamentally flawed? They're hyper-competitive. They're super low margins, massive cap-ex requirements, etc. I understand that they make up a huge number of jobs. But if the businesses aren't allowed to fail, are we ever going to see an improvement in the way they're run? Is there a solution you guys could think of? I mean, I get it. There's no good choices here. Right. That's a fair question. It is. And I almost have to punt this one because I come up with a solution, especially on the fly. I have no clue. Again, we talk about could the government nationalize the airline industry? Would you really want the government to run the airline industry? Like, would that work? I don't know what the answer is. Yeah, I don't either. And guess what? The airline companies before have gone out of business. Then we say a couple weeks ago that they've declared bankruptcy 67 times a century or something ridiculous. I would, wish I had an answer on this. I'm glad I'm not making those decisions right now because I just have no idea. All right. Recommendations. So they had a Parks and Rec episode. Did you ever get into that show? No. It's a good one. It's a good binge, actually, because there's a lot of really good inside jokes. There's a great cast. It's pre-superhero Chris Pratt when he was like 300 pounds in the first few seasons. But it's one of those shows that grows on you because they have a lot of inside jokes that just carry through to future seasons. But the show ended a few years ago, and they

did a Zoom episode with all the employees. And it was great to see the old characters and stuff. But if we have to see TV shows or movies where they try to do it like a Zoom thing, it's just not going to work. Five minutes in, I was like, oh, that's cool. We could see these characters and have some inside jokes. But watching a TV show done on Zoom like that or like on your computer is just not that interesting. If a bunch of people try to do that, it's not going to work. I was kind of like, okay, that novelty kind of wears off. And you're like, all right, this is just not that. Just someone's sitting there. It's not that good. Michael Lewis was on the Tim Ferriss podcast, and it was a good conversation, but maybe this is just me. He basically yada yadaed. Did you get to that episode yet?

Seinfeld? He yada yada yada over the pandemic. He, like, mentioned it in passing. Tim Ferriss didn't ask him anything about it. I'm not trying to tell Tim Ferriss how to do his podcast because he's obviously very successful at it, but if you have Michael Lewis on, I feel like I need at least 20 to 30 minutes all about his thoughts on the pandemic, what he thinks is going to change after this, what's not? What are his crazy thoughts about this? And they did nothing on that. Don't you think during this time people would obviously understand getting out of your life in some ways and having a place to have an escape? But isn't it hard to just kind of paper over it? Don't you have to? Just Elf into the room. Let's talk about it. And then you can get to the Solomon Brothers stories and

stuff and how he's a good writer. Anyway, I was surprised that they didn't talk about it at all. Okay, rewatched Just Friends this weekend on Netflix. That's a Ryan Reynolds one. Anna Farris, have you seen that one? Yes. Okay. I think that's one of the funnier, more underrated movies ever. Your Ryan Reynolds, Stan. If it was made without Ryan Reynolds, the movie would have been horrible with him. Okay, here's what I don't get. I've mentioned this before, maybe none of this podcast. Why don't they have Oscar categories for comedies?

In 2005, I looked, I mean, I would have given Ryan Reynolds best comedic actor for his portrayal and just friends. I looked at some of the other ones. I would have given Vince Vaughn best supporting actor for wedding crashes that year. and maybe Ana Farris would have been best supporting actor for this one. That's how funny I thought this one was. I think I have an answer. Okay. I feel like the comedy genre is very cyclical. There's probably years where there's just nothing.

That's true. Like, couldn't you say, I've always thought Jim Carrey and Dumb and Dumber is probably one of the best performances ever for me. Yeah. It's kind of sad that Jim Carrey didn't win a good award for Dumb and Dumber. You're 100% right. That's brilliant performance. I was watching Aladdin this weekend with Kobe.

And I think Robin Williams' voice work. in that as the genie is the best voice work of all time, and it's not even close. Oh, that's right. Yeah, we haven't watched the cartoon on much because we watched the Real Smith one. Okay. I'm just thinking, like, I feel like they need some sort of separate category for that. Okay, finally, we got it for Christmas, but I finally put it together in the last few weeks, a basketball hoop, which somehow, even though I'm completely useless when it comes to putting

stuff together, I follow the directions and put together a basketball hoop for our driveway because my 6-year-old, she's actually pretty decent at basketball. I think she could be kind of good. She's pretty athletic. We put it together for her, and it's one of those adjustable ones that can go up and down. And I forgot how cathartic it is just to shoot hoops for a half hour. My kids are outside, and I got it from my daughter, and she plays a little bit, but it's mostly just me playing while they're outside.

I haven't played in like a pickup game since like 2007, probably. And when I was young, I used to get home from school and shoot for like two or three hours. It's just a cathartic thing to do, just to shoot. It's great. That's a good quarantine activity, shooting in the driveway. I want a basketball hoop, but I only have a one car garage and driveway. So we have to, like, do something about that. This is, like, the portable one with wheels you can push out of the way.

I want, like, an inground one. Okay. Anywho. Any Rex. Yes. Okay. How good is Save the Last Dance? Save the Last Dance.

I'm sorry. Wow. I just said Save the Last Dance. I meant... Isn't that Julius Stiles movie? What I meant was the Last Dance. Yeah, the Last Dance is amazing. The episode with, I don't know if it was five or six, where Jordan is just getting burnt out.

on everything. That was the episode where you thought, like, the first few episodes, you're like, oh, my gosh, I want this guy's life. Then you see him in his hotel room and not being able to leave. You go, oh, yeah, this is why being famous kind of is tough sometimes. He didn't want to leave his hotel because he was so famous. You know what? There's four more episodes.

Don't you feel like there could be 30 episodes? Yeah, easily. Like, they barely went into the Sun series was, I don't know, 12 minutes. Right. I could watch, like, the director's cut of this for sure. Yeah. They did a great job. here's news.

Last week I watched seven episodes of The Sopranos. What do you think? Pretty good. Yeah, it's good, right? It gets better. Yeah, I mean, it's obviously very good. I'm sort of the idea of watching like 80 hours of that show, or not that show, any show, is a daunting task, but we'll see. Very good, though.

I think his portrayal is probably the best, he's probably the best character ever. That was where I fell on it. Best TV character ever. He's very good. Okay. Last thing. So we got a lot of feedback about one episode, two episodes. I think how I'm feeling is that I feel like the quality is suffering because the news flow has slowed down so much. So we're just, I feel like we're repeating ourselves. Now, if things go crazy again, if the market, whatever, whatever, like if there's a reason for us to do two episodes, we will continue. Maybe we'll do some impromptu here and there. But consider us a one show a week type of thing. this is like you are Jordan in 93 and you need to take a break to go play baseball you're burnt out is that it I just think the quality is suffering a little bit we got like 15 emails saying that we should continue to do two and you got one email that said that we should just do one and

you latch on to that's not true total confirmation bias whatever it's fine it was probably 70 30 in favor of too but it's fine we'll pick it up again for those weeks where things get especially I mean life is so crazy right now anyway like things are going to get weirder it's bound to happen. So we'll do two when it warrants, and when it doesn't warrant, we'll just do one. So send us an email, Animal Spirspot, at gmail.com, and we'll see you next week, probably. Next week. Thank you for listening.