Animal Spirits Podcast - Who Are the Losers? (EP.101)

Episode Date: September 4, 2019

On this week's show we discuss how flows affect the market, why there is no passive bubble, why small caps are always underfollowed, financial literacy differences between men and women, the Peloton IPO, why the Fed is not our savior, the Rock's singing voice, the new Chapelle, and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirits is brought to you by Y Charts. If you are coming to Wellstack next week in Scottsdale, Arizona, which begins on Sunday, goes through Tuesday, you can see a live version of Animal Spirits, and we are currently working with Y Charts as a research provider to provide some charts and data and research for that live show, and Y Charts is actually a sponsor of the conference. It's going to be a great time. Come out and see us. We are actually closing the show on Tuesday.

We're the very last ones. I can't tell if that's good or bad. But Whitechurch is going to help us with some data on that. We have some good stuff planned for a fun live show and a lot of stuff we haven't done before. 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 Rit Holt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. So over the last year, 400, so why charts put this together for us? $428 billion has come into money market mutual funds. That's half a trillion, just FYI. There's more cash on the sidelines now. What happens when cash moves to cash?

So Whitecharts sent us this. Most inflows and most outflows from mutual funds. They broke it down by category. And it shows for inflows, it's money market and bonds. Actually, it's money market and bonds are having the most inflows, which is kind of wild. So maybe there's some performance chasing there. Largest outflows. It's kind of interesting. Large growth, large blend, large value. Wait, wait. Well, it depends what time frame we're looking at. Over the last year, it's large growth, then large value behind. Large blend is seeing inflows. But over the last year, 75 billion. and 63 billion came out of large growth and large value. So what's going on? Stocks are near all-time highs. Everybody's selling. Is this going to be the most well-timed bare market ever? Here's my question about the inflows and outflow stuff. I know we kind of pay a lot of attention to this and it's good to use. People like to use it as like a contrarian indicator that people love something or hate something. Do you think it really matters like in the aggregate? Because here's my here's my pet theory I'm working on. See what you think about this one. Value investing has had a poor, call it 15 year period. I think a lot of it has come in the last five years, but it's been a

pretty bad run for a while now. But value funds in terms of factors have more money than any other factors combined probably, right? Wouldn't you say so? Yes, absolutely. So how come all that money rushing into value after the really nice run ahead in 2000s hasn't propped up performance more? Do we make too much of the flow thing is what I'm asking? Yes. Yeah, I think so. Because, and I think the other reason is because we pay a lot of attention to mutual funds and ETFs, but there's still so much more money in the greater stock market world in terms of separately managed accounts and pensions and individual holdings than there are in these fund,

in these fund world. So I don't, I don't think they have as much sway as we like to believe. You hear a lot about index funds propping up the market. Every stock is moving together or just moving with flows. And I wrote a piece of while back about how General Electric went from like the fourth biggest stock in SPY to like, I don't know where it is now. But how could a stock like that lose 70% that flows are just propping everything up? So the latest passive bubble truther is Michael Burry, who came to fame in the Big Short. He was played by Christian Bale. I mean, we talked about him on our rekindled podcast of the Big Short. short, just an amazing character for this sort of stuff. But he said that the bubble in passive

investing through ETFs and index funds as well as the trend do very large size among asset managers has orphaned smaller value type securities globally. That's different than saying that there's a bubble in index funds. Yes. He's being pretty specific saying that they're distorting smaller value type securities. He could have just said this same thing without saying there's a bubble in passive investing. There's no reason to qualify it with that. I think maybe he, I didn't see the interview, so maybe he was just talking, maybe this is just out of context and he was just talking off the cuff and this is just dissected. This is probably dissected way more than he thought it might be. But you sound like his PR agent right now, actually. So here's the thing. He could have just said large cap stocks have outperform small caps and value. So I got the numbers over the past five years. The SP 500 ETF is up like 60%. Vanguard small cap value ETF is up just shy of 29. So it's outperformed by 30% over the last five years. The majority of it has come since 2017. These things basically tracked each other. But I don't think he's talking about performance.

I think he's talking about fundamentals in the way that some of these smaller tiny stocks trade. But don't you think that that's almost always been the case? I don't know. These companies are under followed. Like back in the day, to your general electric point, everyone held AT&T and General Electric and ExxonMobil for their dividend. And these smaller stocks have always been overlooked. Don't you think that's always been the case? I shorted AT&T in 1973. You probably would have. So I think this has always been. And if you actually, if you go back to the inception of this Vanguard fund, which is like 2003, 2004, it basically has the same exact performance as SP 500. So I think what he could have said, instead of blaming passive ETF owners, he could have

just said, this is a bad point in the cycle for small cap value. And maybe it's time. There's actually some value there. Now, instead of blaming it on index fund investors like everyone does. Well, here's the thing. If there is a, when you call something a bubble, that implies that it's going to pop, right? Yes. And the money moving into out-of-closet index funds and into actual index funds is not going to pop. It's not all the sudden. There's the idea that all of a sudden money is going to rush back into active management is absurd. Yeah, but that's the thing. It's like a long, slow, like a thousand little cuts of active management death because there's so much money in the active management space still. And to your point, Josh had a better take on this. He said

active management was more of the bubble. And maybe it's more of like a, it's like turning of a battleship where, yes, all this money is coming out and it was already basically indexed anyways because we have a bunch of benchmark huggers. And so people were getting indexed fund like performance with maybe paying higher fees and earning less because of their fees. and because of the tax situation. Which also wasn't that big of a deal, though, right? We've covered this in the past. Like, if you want to be in active mutual funds and you outperforming and perform,

that is much less of a worry than the Fed is going to crash the market and, like, behaving that way. Yes. You could have been in a suboptimal mutual fund over the past 10 years. I've done great. And actively managed long only and done pretty well. But if you would have followed someone with a tinfoil hat on to get out of the market because it's going to crash every other day, you did much worse. So also, along with bubbles, doesn't there have to be euphoria? So how could there be euphoria in people thinking that it's a fool's errand to try and beat the market? Like there's a bubble, there's euphoria in data and humility? Right. Right. Yes, people are actively saying we cannot outperform the market. I don't understand how that, I mean, I guess certain people will say, well, people don't understand the risk involved in these, but I don't know how you couldn't understand the risk involved in index. next funds. It literally is the stock market, right? I don't know. So this morning, I was very excited.

I was taking Kobe to Sagamore Hill in Oyster Bay where Teddy Roosevelt lived. I wanted to go there for a while, and Kobe doesn't start school until next week, so I've got him this week while my wife takes care of the baby. And we were driving up there, and it's a gorgeous neighborhood, and we get there, and I thought, like, oh, this is great, nobody's going to be there. And it's true, there was nobody there. And the reason why nobody was there was because it was closed. Oh.

Nice job, dad. So we walked around the visitor center, then we got to the house, and I'm like doing these, like, you know, hello, hello. And so I told them that we were going to see the animals, and he was very excited to see the animals, the stuffed animals on the wall and stuff.

And so I called my wife, and I was like, all right, it's closed. I need audible. I need to find some animals. So she told me about this place and I think it's in Melville called the White Post Farm and I just thought it was going to be like goats

and I don't know maybe some sheep, some pigs freaking giraffes and zebras Ah, we've got one of those farms in Michigan too I was blown away. I was like, wait, there's monkeys? Did you get to feed the giraffes? Yeah, he gave it a carrot. So there's this animal

called a Bactrian camel. It's like the size of a dinosaur. I couldn't believe how massive it was. So when I got home, I googled it. You got to see this thing. It's seven and a half feet tall at the shoulder. Okay. I see it now. It's like over, it could be over 2,000 pounds. This thing was one of the biggest animals I've ever seen. It looks like a camel that took Sammy Sosa steroids, basically. Actually, they had brahmables there, which are the lowest type of animals. But it had its neck up in the air, and it was like eating off of the roof. I was just blown away and disappointed that I didn't get to see Teddy Roosevelt's house.

Nice job. Good adulting. I should have mentioned this before my failed Teddy Roosevelt story, but Jayes McIntosh had a piece in the Walsh Journal, how ETF swallowed the stock market. And there is a really great chart showing turnover in equities and ETFs is dwarfed by bets on interest rates. You see this? So this is showing the annual volume by value, and it ranks them in terms of how much money is traded. All interest rate futures basically dwarf everything else. The next one actually is foreign exchange, Eurodollar futures. Wait a minute. 1500 trillion. What is that? What's that number? I'm trying to add the zeros there. Is that a quadrillion? It basically looks like it's about 10 times the

size of the volume in S&P 500 futures. And obviously that's the notional value that is trading. So it's hard to say that that's the total amount. But the idea here is people are making bigger bets on interest rates and foreign exchange than they are on ETFs, right? ETS is kind of a sliver on this chart compared to that. Maybe it's not fair to compare ETFs to futures, but still, this is a good chart. So when you look at those charts that show what people predict interest rates will do during the year, don't you think, like who lights their money on fire more? People who are trading foreign exchange or people who are trading interest rate futures? I mean, they both have to be pretty bad, right?

It's not people. And obviously, there's hedging and, like, a lot of this is hedging. This is 99.999% of this is institutional money. That's doing it for reasons other than speculation. Oh, I don't know about that. You don't think there's a lot of speculation. I think speculation has replaced hedging in a lot of these things. Well, maybe a listener can answer this for us, but I'm going to guess that 15% of this

is speculators at most. You don't think a lot of this is high-frequency hedge funds that are trading these things, they love this future because they get the embedded leverage and it's very liquid and they can trade it. So I think they've taken over these markets, maybe not in the foreign exchange, but definitely in like interest rate futures. Happy to be proven wrong on this. But just so we know, you're wrong. Actually, one of the nice things about the show that we've mentioned before is people send us stuff and correct us all the time, which is great because oftentimes we're just talking off the cuff and pulling shit out of our ass. So it's not uncommon that we

get corrected. Colleen-Avarez, Jonathan Novi, sent me an article, The Curse of the Honeycrisp Apple. So Honeycrisps production of these has doubled over the last four years. It's now the fifth most grown apple. And apparently, they're terrible for growers because they don't make any money on it because it's like four times the price of Red Delicious and Fuji and other apples. And the reason why is it's because it is a pain in the ass to grow. FYI.

Okay. Good to know. But they're so good. People still want them. So they basically have to make them? Is that the idea? That's the idea. It says the demand exceed supplies. So that's the deal. Economics 101. Okay, survey time. This is from the Wall Street Journal this week. They had a story on financial literacy. So here we go. Twice as many women as men in the U.S. have no money in the stock market, Maryland says, according to a survey. And 41% of young women

versus 28% of men say their biggest fear isn't market volatility, but not knowing what they're doing. while nearly 91% of women say they trust their instincts when it comes to having children, only 56% trust them when it comes to investing. That's weird. That's weird. I actually think this is one of the things that makes women better investors than men in a lot of those performance numbers they show. Because if your biggest fear is not knowing what you're doing, hopefully you're trying to remedy that situation by figuring out what to do,

whereas most men just think, like, I got it. I can handle this. Well, if you're not overconfident, you're not trading Forex. Right. And if you're trusting your instincts when it comes to investing, good luck with that, right? That's not going to help you at all. So I think this is actually maybe a good thing. The problem is it says that twice as many women have no money in the stock market, which isn't a good thing. But I think in terms of like figuring out what to do, that's actually the right frame of mind to have. I think this is two weeks in a row where we're sharing good surveys. So a little bit of a change based on a survey. Okay. So Jason, Zweig had a post about target date, a piece about target date funds. What do we figure?

A blog is a post, a piece is in the media. Is that what we came up with a couple weeks ago? Yeah. Column. Column. I forgot. I'm a columnist.

You literally are a columnist. Literally. All right. So they interviewed someone from Fidelity who has $300 billion in target date funds. And so a portfolio manager for their target date funds said, participants are staying the course over time more than we may have expected

when strategies were originally developed in the 90s. This is according to Andrew Dierdorf. And that has given them, quote, unquote, comfort in adding more to stocks in their portfolios. So they're more or less adding more money to stocks because they think that their people are more better behaved, which... No, not they think. It's been proven.

Yeah. Yeah. So, but doesn't that actually kind of make sense? Yeah. In some ways that people just don't fiddle with these things and it's kind of set it and forget it. It's kind of interesting that Targetate funds are probably more popular than these mutual fund companies would have imagined. It's one of the best nudges out there. If it says retirement 2060, why would you mess with that? Whatever the market does, that's when you plan on retiring. I mean, people will probably caveat us with the fact that, well, they're suboptimal and not

everyone's lifestyle is the same. But in terms of someone who doesn't know what they're doing, back to that other survey about women who are worried about not knowing what they're doing, I think a Target Day fund is probably, probably one of the best things you can do, especially when it comes to your 401K or 403B or whatever assets. If you really have no help, I think it makes a lot of sense. So getting to the idea of jumping in and out, our friend Jake from Economic wrote his first blog in like, I don't know, 18 months. It's been a while for him. And he took to task the idea of the behavior gap.

And Morningstar's data that shows how people have a gap. between the investor performance and the fund performance. And the idea is, if you're jumping it out of the fund, it can actually show that investors do much worse than the actual fund they're trying to invest in. And that's obviously, for most investors, the idea of earning alpha is probably a pipe dream. But actually performing in line with your own fund is actually something that is probably a worthy goal for most people. Anyway, he's saying maybe the behavior isn't quite as bad as people think because fund flows are affecting these gaps. And it depends on a stock market crash here, people rebalancing their portfolios, shifting from active to

passive, more advisors using model portfolios. So he's saying it's not quite, it's a little murkier than people may be led to believe. But I think it's probably always going to be hard to tell this in individual fund performance because you don't know what the motivation is for people buying and selling. It could be dollar cost averaging in over time, and it makes your IR look worse because you're buying as stocks go higher or something. So maybe your returns are lower. But don't you think that it's always going to be that way in individual funds, but the overall allocation from asset class to asset class will be the one that shows the true sort of behavior gap where you see a shift from stocks to bonds or stocks to money markets or vice versa? Isn't that where you see

the biggest issues? It's not necessarily from fund to fund. I wonder what the behavior gap is. individual stocks. That's an even better one. Is that even much worse? So I think it's, I agree with him that it's really hard to understand the impact and the motivation and what people are doing because of things like dollar cost averaging and people making actual smart decisions of their portfolio when maybe the timing is a little

weird because of performance. But I think that from the asset class level, you can always, that's when you see, especially at the extremes, that's when people make the biggest mistake. So unfortunately, the behavior gap isn't something that happens like in an exact amount every single year. It's

something that happens in a big way at the worst times. Yes. And I guess Jake's overall point was that the behavior gap can exist for reasons that have nothing to do with investor behavior. I think that was just main point. Yes, which is good to, yeah, which is good to understand and give people sort of an out saying like it's not all investors being dumb and mom and pop don't know what they're doing. Some of it is actually intelligent and sometimes just badly, it's just bad luck. How's this? I think that the gap between what people can earn and what the market offers is way understated. Okay. Explain. Well, I just think that most people have, and this is, I have no evidence to support this, but I think that most people have a way, way, way. Famous last words right there.

I think that a lot of people have way too much money in cash, like 20% at all, 20% at all times. Yes. Okay. That's pretty, that's actually pretty good. Because if you look at like the total assets worldwide, they sometimes try to add these up, and it's like $300 trillion or whatever. It is a huge amount in cash, bigger than you would think. That actually probably is, so you're saying cash on the sidelines means this bull market lasts another 12 years. I said, uh, did I say that?

I might have said that. So CNBC gave a huge, huge sub tweet to Michael Batnik last week. They were talking about the Peloton IPO. And it says, Palaton's IPO shows the company is, serving the wealthy, but not making us healthy. Sorry, I guess that wasn't really a that bad of a sub-tweet. But there's shit. I like the rhyme. I've actually, I've sweat more in the last four weeks than I have in the last four years. So you're, you're giving the Peloton a thumbs up. Two thumbs up. So their whole point was they said they have 500,000. And the reason they're

talking about Peloton is because they're talking about going public. It has more than 500,000 customers using its page subscription service up from 245,000 a year ago. Revenue climbed a 915 million. million up from 435 million in previous year. And then they interviewed this guy and he said, we've inadvertently designed a society where it's hard to be healthy. He works for the Robert Wood Johnson Foundation. So many of the solutions aren't available to most people. So the idea is Pelotons are pretty expensive, even though we cover this a few weeks ago, that's not as bad as you think. And it's another inequality thing. I don't necessarily agree with this. But don't you think that, so I heard, I read somewhere, I think in the S1, people were writing about it on

Twitter. Pelotin has 45% margins on their bikes. What does that mean? So they're, that's how much money they're making per sale. It's kind of like Apple has huge margins on their iPhones. Right, but what's their actual margins? Forty five percent on the bikes. No, but bottom line. And so Scott Galloway talked about this on Pivot and he said it's about 45% on their subscription thing, too. I don't know what their total margins are. I only pretend to be an IPO expert for this podcast. But just on the bikes, it's 45% anyway. So like the Bezos thing, your margin is my opportunity. Don't we see some competitors come in eventually? But so on the other hand, isn't this in some ways, obviously, this is working for you. You said you've swept more in the last

four weeks than the last four years or whatever. But isn't this for a lot of people a signaling thing to say, I have a Peloton? I have the high. and workout equipment and someone else comes in and takes away maybe the lower end customers and people keep paying for it who have a little money just to show that they they can do it. I don't know that. It's like the opposite end of the planet fitness thing. Yeah, but I don't know that they're, first of all, they take up space. So you need to have space to do it.

And people on the lower income end might not have space for that. So if they're renting, they don't have space for this. I don't know that the market needs to stationary bike with gym classes. I'm just looking at these huge margins on these bikes. But here's another thing. So pivot. Go ahead. I'm trying to get into this stuff of, you know, the difference between a good company and a good stock.

So maybe it is a good company. Is it a good stock? I don't know. Here's the thing I'm trying to figure out. If this thing really is that successful and people are using it and they become the Netflix of health, whatever, I think people are things are way too fatty. Is fatty a word? Yeah. Okay.

there's too many fads in the workout industry, in the diet industry, people's taste changed very quickly. But let's say they are able to be successful. Okay. They already are successful. Yeah, but I'm saying successful enough to make this a really good company and continue this through a good stock. You mean a good stock. So I'm trying to figure out if they are successful, who are the losers in this then? If someone's a winner here, they're a winner, they're taking away customers from elsewhere. No. So who's losing? That's what I'm trying to figure out. These can't be all new customers. They have to come from somewhere else. Hello. I'm a brand new customer. I think you're the outlier here. I think a lot of these

people are like junkie workout heads. You're making that up. You think a lot of these customers are brand new to working out. Yes. Okay. If that's the case, then this is totally a fad. And I'm calling it now because there's no way people who have never worked out before will stick with it. We know this to be true. It's human nature. No offense to you. It's different this time. Okay. No offense. Let's say if it's all new customers, I can't imagine that it is. I'm thinking this has got to be workout heads who would have been working out somewhere else. Look at you with your biceps talking down to us new exercise heads. How dare you, sir? It would be worse if I did something like CrossFit, then I would definitely do. But I'm just saying someone has to be a loser here, another sort of gym

or workout. Maybe it's just people jump from fad to fad and there's always losing it. I'm just trying to figure out who the loser is a pelton is the winner. This is not as a loser. zero some game. All right. You put this piece in here from William Cohen that you wrote an opinion piece for the New York Times saying basically only the Fed can save us. And I thought this was really bad. Did you read the whole thing? Yeah, it wasn't great. It just, it sounded hysterical. Yes, very hysterical. For calm to return to the capital markets, we must pop the debt bubble, the sooner the better. I have never gotten this idea that. If we don't, if the Fed doesn't create a crash, we're going to have a crash.

What? This was, this was. How does that make any sense ever? Like, if we don't crash soon, we're going to crash later. This was light on data and heavy on opinion. I guess it was an opinion piece. But barring these logical measures, we can just wait for the inevitable explosion. But one step the Fed can take now is to allow interest rates, the price of money, to find their own level.

Okay. The Federal Reserve, as we have mentioned, over. over controls overnight rates. They do not control corporate debt levels or 10 year or 3 year or 30 year. Right. The price of money has shown that longer term rates are going down on their own because inflation is low. Let me ask you this. He says the years of low interest rates have also caused debt investors who couldn't get returns on low yield yielding treasury securities pegged to the Fed rate to start chasing higher yields. I'm not saying that this doesn't, that this hasn't happened. Obviously, it has in certain cases. But where's like the data here to support the idea that people that used to buy treasuries

are now buying either stocks or terrible junk bonds? Like, where's the data? Yeah. And honestly, if you were in long-term treasuries, you've made some pretty good money from these lower rates, right? Yeah. So I tweeted a chart today. Pimpco's has an ETF, 25-year-zero coupon bonds. up 37% this year. Jeez. Which is sort of neither here nor there, but. The longer duration stuff is much more volatile. They've seen big losses, too, and rates do rise, but...

But wait a second. I remember a few years ago, I think I told you the story, a wholesaler, probably in 2014, he said, I'm pounding on the table, Michael, and he literally went like this with his fist. On one was higher volatility, which was kind of funny. But the other one was duration. Shorten your duration. Shorten your duration. And that's what we've been heard for years and years and years.

Here's one thing I can say about myself. You will never hear an interest rate prediction from me. It never makes any sense, right? Like, I get the reason why people want to do it. It's, I think predicting interest rates is almost as hard as predicting stocks. And the idea that there is a quote-unquote normal interest rate level, people think that there's, like, if you look at the chart from the early 1900s, it's basically it goes nowhere, it goes way up, it comes way down.

And so there really is no normal interest rate. right? Well, in the early 1980s, it hit the 261.5 Fibonacci extension. But here's the thing. I don't think that this is like necessarily a good thing. I don't think that we're advocating that negative rates are to be praised and that the Fed has done a good job or a bad job. But it's just like these hysterical takes. And the idea that the Fed can, either the Fed can be the only thing that kills the economy or the only thing that helps it. Like that is too much to put on the Fed as well, right? Because Guess what? They've wanted inflation for 10 years now and they haven't gotten it. So maybe the Fed can't do as much as people think.

Wait, what do you mean there's no inflation? Have you been to the grocery store? Wait, what's your grocery store called? You put it on our Instagram account. What's it called? Freeway? No, fair way. And it's not my grocery store. It's a chain. Did you, so in succession, when Logan asks Romulus, how much is a quart of milk? Oh, yes. That's good. I know these things because my kids drink milk. So. But in New York, how much, I'm going to guess a gallon of milk is four and a quarter.

Yeah. I mean, you sounded like someone in their 70s who said four and a quarter. Does that right? Four and a quarter. Yeah. I mean, I'd probably pay $3.50 for a gallon of milk in Michigan. I'd say, yeah, four and a quarter. Sounds good in New York.

So some, a listener sent this to us, so there's a new measure of volatility where these researchers gathered millions of archival news stories from 11 major U.S. newspapers, and they use software to search for keywords related to volatility. They said that it actually does line up fairly well with the VIX, but here's the point that I want to make. They found that trade policy related market uncertainty is currently at all-time high levels. Okay, looking at from 1985 to 2019. So, I mean, doesn't this get back to our stuff about you wrote the piece about how everyone knows everything now, that there's just more information now? I don't get how this works.

What I'm getting at here is that, like I have been saying, headline risk is elevated. Here's my take on this. And the academics back me up. Okay, you got the academics on your corner. My take, uncertainty is always at an all-time high. No, it's not. It's never at an all-time low.

No one ever knows what's going to happen in the future. Okay, can you tell me in 2000, at the bottom. That uncertainty was at a low because stock prices were low. No, people thought the system was coming to an end. Arronious. It was just as high then. Is it as now? No. Erroneous. On all counts. All right. I'm just, I'm putting out there. No one ever knows what is going to happen. All right. Did you listen to the, well, that's true, but that doesn't refute what I said. Did you listen to the Land of the Giants podcast? It's on my list. Sorry, I didn't have

much time to do podcast listening this weekend. Wait, did you apologize? It's quite all right. Well, you gave me a homework assignment. So we spoke recently. Amazon went from two day to one day, and I hadn't noticed until you mentioned it. I was like, wait a minute. Stuff is getting here pretty quickly.

So in terms of shipping over the past decade, and obviously their business has grown, but still, these costs have risen on shipping and fulfillment from $5.5.5 billion in 2010 to $61 billion in 2018, which is now more than a quarter of their revenue. So it said that they spent more than $800 million in the second quarter to go from two-day shipping to one day, $800 million. Isn't that insane? I feel like there's probably an Amazon story like once a week that like the onion could do a story about Amazon and I wouldn't know us from the onion

and they could just make numbers up and I'd be like, oh man, that's amazing. Because nothing surprises me about them anymore. Like the numbers are all for everything they do. It's huge. And so, yeah, it's, it's, it's. It is kind of crazy. I don't understand how they can continue to, like, reinvent themselves this way and just be like, Bezos snaps his finger.

He's like, all right, we're doing one day shipping. And everyone's like, all right, let's do it. It's, yeah, it's pretty amazing. I love Amazon. I'll say it. I love it. So three more tech stories real quick. A life insurance startup backed by Jay Z and Will Smith is now worth nearly $500 million.

Do you think those guys put in like 1% of the money when they say it's backed by them? Yeah. It was also backed by Bobrick Downey Jr. I think he was an early investor. But this article is light on details, but it is really amazing that there has been pretty much no disruption in the life insurance industry. So they say the company uses data analytics to predict a person's life expectancy and claims the vast majority of its customers don't have to take a medical test to be eligible.

All they do is they look at your internet search history and they determine how likely you are to die early. Sounds about right. Here's what I don't get. Why isn't there a credit card company that does something like this? So I get credit card offers all the time. and every once in a while I play the new sign-up bonus game. And I looked at one recently, and the charge was like 17% interest.

My wife and I have, like, not to brag, immaculate credit, you know, we have really good credit. So why isn't there a credit card company that says, you know what, the average credit card rate is 15 to 17%. We're only going to accept people with unbelievable credit, and we're going to charge them 8% or 10%. And maybe the people who... That's not a good business. So I'm saying if they lower the rate to like 8%, maybe the people who have good credit will think of it differently and they won't they won't pay it off as much. And it almost- Terrible idea. You think that doesn't work that they can, yeah, I mean, so they make that much more money on people that are terrible, I guess.

I mean, lending money to people that don't pay their bills is a very good business. Yeah, I mean, it's crazy that it is because there's obviously a default built into that. I just, I don't understand how credit card rates haven't budged when every other interest rate in the world has fallen to the floor. And credit card rates continue to rise. Well, nothing to do with the other. You don't think so? You don't think that it should be pegged to some sort of, no, it's always going to be high no matter what. Default rates have nothing to do with where the treasury, overnight treasury are.

What's the different? High yield bond rates have come down. Isn't credit cards to say like a junk junk bond? I don't know. Yeah, true. The Fed's manipulating. Did you see this story about the Porsche subscription? I believe it's Porsche.

I say Porsche. It's called Porsche Passport. Okay. It looks like there's a few tiers, but I don't understand how this would work. It seems like this type of service might work in the city where you don't really need a car at all times. But like, how would you, how does this work? So it says they have a $3,100 a month subscription. So what? You get to rent it out?

Well, again, the execution of this article was also light on details. It didn't really explain how the service works. Okay. So it has a four-hour minimum that costs as little as $269. So you could rent a Porsche for a day and drive it on a date and drop it off afterwards. Is that the deal? So you can try to look impressive. $30,100 a month? How much does a Porsche cost to rent, isn't that?

Here's an idea for you. Go ahead. You know how we can become bigger influencers? How? Rent a Porsche for four hours, put down our Instagram. page, boom. Animal Spirits Pod at Instagram. I'll even stick one of our new wheel stickers on it, just so people know. All right. One more. So this article did have details. Zero down. So it's a company that I think exclusively works out of San Francisco now.

Here's how it works. The company buys a house with its own funds without requiring its customers to put down a down payment or a super mortgage. And then it leases the property of the customer for a period of as long as five years. And during the time, the customer builds up what's called purchase credits, which can then be used as a down payment when they are ready to buy the house themselves. I wonder what kind of credits they're getting on that. It says buyers qualify using an online approval process. They select the home. The company buys a house. However, the customer doesn't own the house, nor do they have a mortgage payment. So in other words, the company is offering a lease to own option to homebuyers with the

opportunity to save up money for their down payment while living in the house. I think this is kind of interesting. Yeah, it's not a bad idea. And you get to kind of know the house. and know whether you want to live there or not. I wonder if there's a premium on the lease or the rent. Well, it says that even though there's not a quote-to-quote down payment, there's a one-time flat program fee of $10,000. Okay. So that's kind of your skin in the game.

I guess it could make sense without knowing the details, but I guess that's a good thing people are trying something different, especially in these big cities where it's probably getting impossible for most young people to find a place. That makes sense. So we talked about this last week in terms of child care. This stat kind of, it shouldn't have surprised me, but it did a little bit. This is from CNN.com.

33 states in Washington, D.C., a year of infant care is more expensive than a year's tuition in state college, according to the EPA. The average annual cost for infant care is 27% more than the average rent in Washington, D.C. At that price, it would eat up nearly 30% of a median family's income. So this is a really, so I went to the, I think the Economic Institute policy or Policy Institute, and it shows you could do like a drive them box at different states. And basically for every state, it comes to the conclusion that child care is unaffordable for most people. Yes. It's crazy. I, yeah, I honestly don't know how some people pull it off. It's, it's ridiculously expensive. Maybe if Palatana's winning, child care is losing. Yes. Yes. We figured it out. Just so you can be in shape. Yes. Oh, so I had a

mind-blown type moment. Okay. Hit me with it. On Alexa, we listen to kids music. Yes, that's the only thing we listen to, too. The Your Welcome song, which I will say is pretty catchy. Moana's got a good soundtrack. I, so I've never seen Moana. I know it's a staple in the Carlson household. So I saw, I think Rotten Tomatoes tweeted this or somebody did. What is your favorite Disney song?

And it was a bunch of celebrities answering this. And I saw The Rock singing that song. And I was like, wait a minute. What? So I googled that song. I was like, wait, who sings that song? So I googled it, and it's the freaking rock. Yeah, you didn't know that?

I had no idea. I'm still sort of in shock. Yeah, he's actually not that bad, right? How talented is that guy? Jeez. He's pretty, so one of them, we're watching Smallfoot now lately. Channing Tatum sings in that movie. He's pretty good.

I think maybe they can do stuff with the, do you think they can, like, the technology makes some good singers, or are they just, like, underrated singers that we didn't know about? I don't know. Can you take steroids for your voice? Wait, the rock tech steroids? No, definitely not. So you saw Chappelle?

Yes. Here's a thing. If somebody, if you had a dinner table and somebody starts defending Michael Jackson, yeah, that's kind of weird and would make you extremely uncomfortable and maybe force you to raise your voice. But isn't that the entire point of comedy? Like, isn't that what it's for? Yes. To turn things that are really not.

funny at all. There's nothing funny about the Michael Jackson story. Nothing at all. There's nothing funny about Anthony Bourdain's suicide, nothing at all. But that's what comedy is for. Here's what I didn't like about the reaction to that special. This is my point of nothing is properly rated anymore. There were two opinions online, basically. One was, this was the worst thing ever, and one was this is the best thing ever. Why can't it be somewhere in between? Like, you either had to love this thing or absolutely hate it. I thought it was okay. Yeah, I thought it was good, not great.

It was, and some people wanted to be like, he's obviously the goat. This is the best thing I've ever seen. It wasn't that. I thought his previous specials were a little bit better, but I think you like stand-up comedy, you don't want to be outraged, then don't watch this stuff.

I think that's the point, right? He made the point. He's like, you clicked on my face if you're watching this on Netflix and you're upset. Yes, that was pretty fine. But it is, I don't think this was his best work, but it is pretty amazing that like, what is this like his fourth hour in the last year?

Yeah, it's not bad. He has so much content. He's like the Ben Carlson of standard comedians. Dave, how do you find the time? I don't get it. Okay, listener questions. What's the worst thing that can happen to bonds outside of inflation? This is pretty good.

I actually wrote about this on Fortune last week, something similar. I have a question. What if there's a reverse 1987 in interest rates? Oh, I like our heads at. Just saying. Just saying. I think obviously like an over-nud. rates go up 6%. I don't know what would have to happen for that to be the case, but don't you think

the actual... Excuse me. Excuse me. If the Fed would just stop manipulating. Yeah, that's true. If they manipulated them higher, maybe, I think, honestly, the worst case scenario for most people is interest rates stay low forever, because then returns on bonds are always going to be lower. Like, people think that higher rates, like rising interest rates are the worst thing that can happen. that's actually what you want as an investor because your expected returns go up after you take some short-term pain. So don't you think rates staying at one or two percent for two or three decades is the worst case scenario because that means, A, economic growth is probably pretty low, and B, inflation is pretty low. And C, that's not a very good thing, right? There's no say.

What's worse? Rates hover between zero and one and a half percent for the next 10 years, or the 10 year goes to negative 7 percent. negative 7% for sure, right? What about positive 7%. So I just think because the way to understand expect returns and bonds is take your starting interest rate and add a few basis points and subtract a few basis points here and there and that's pretty much what you're going to get. So from here over the next 5, 10, 15 years, you're probably going to get 1.5% in 10-year

treasuries. And I think staying there for a long time means it's probably more predictable, but not going to do much for you and you're probably going to be more volatile too. Okay. All right, you wrote about this. Does the 60-40 portfolio still provide adequate diversification in a negative interest rate world? What was your conclusion? I think this is sort of a cop-out answer, but I don't know what you have to define adequate diversification. I think it's probably the most important thing. My main conclusion was this. Listen, interest rates are at one and a half, two percent. Lower your freaking expectations across the board. I think the first conference panel I saw on the death of the 60-40 portfolio was like 2010-ish. You talk about this. You saw it in 2016 and it's up 10% since then.

A year. Yeah. Right. It seems like something, it'll be like value investing like is a 60-40 portfolio dead. How many people actually have a 60-40 portfolio? Well, that's another point. Three? Right. It's just will stocks and bonds continue to be different assets going forward? Yes. Yeah. Will they earn the same returns they have since the early 80s? No, probably not. I think that's what people are worried about, but it really depends what you're holding your bonds for. And over what time frame? Like I showed, over 30 days, no, all bets are off, but they always have been. Is it possible? I guess the thing that people are really concerned about is that rising interest rates are going to crash the stock market, right? That was the fear for the past few years, that when rates normalize and the Fed stops doing what they're doing, rates are going to go up, stocks are going to go down, bonds are going to go down. And that hasn't happened yet.

Yes. That's the 70s scenario of rising rates, rising inflation, stocks and bonds both get killed. That's the worst case scenario. You know what's kind of funny when like talking about how there's people who think or praying for a recession now to save us from a worse one later, whatever the case may be. When a bear market happens, like a real bad one, if we do get a real bad one, like we're all going down together. It doesn't matter what you're writing about. Yes. Like, we're all going down together. Unless you've been in cash for the last 11 years, you might miss it.

And the people who've been worried about it for the last 10 years, guess what? They're not going to buy the next time stocks crash anyway. And then we'll rebound and then we'll say it's too far too fast and once the next recession coming and we'll be doing this for the rest of our lives. Yes. Guess what? You're going to have a recession a number of times over the course of your lifetime, right? Okay. Any recommendations for the week?

I finished the Bitcoin Billionaire's book. Fun read. Worth a read? It's fun. What is your take on the Winklevoss Twins? Understood, misunderstood geniuses or something else? I mean, I would say that they're pretty much made into a caricature in the social network. Yep.

Probably slightly unfairly. Very unfairly. But it was a good read. Fun book. Okay. Is that it? Pretty much. I mean, recommendation-wise.

Mm-hmm. All right. I started reading the 50s recently. I'm sorry. I do have one more thing. Of course. I have one more thing. That was the longest interruption pause we've ever had on the show.

Well done. Okay. So I'm watching very slowly. I keep falling asleep, but not an indictment on the show. I just, I'm watching it too late. Mind Hunter. Okay. I could never make it through the first season.

People keep saying season two is amazing. Do I need to see the first season to watch season two? Probably, but season one honestly was good enough. It wasn't that great. I'd give season one to 6.8. All right. I tried it getting through the first episode like six times and I couldn't do it. Then move on.

But here's the point. So there was a scene where one of the guys was saying to his partner, they were supposed to go to Atlanta together, one of the partners bailed. So he said to him, I'm going to Atlanta, I'll call you later and tell you how the meeting went. And it just got me thinking like, and I know we spoke about it's in amusing ourselves to death, what was the world like when it's like, I'm going to a meeting, I'll call you to let you know how it went? Right. Like people were just always on the phone talking to each other.

Yeah. Phone calls are the worst, right? hate phone calls. Yeah. You're pretty much the only person I talked to on the phone. Literally, true. Okay, so I'm reading the 50s by David Halberstam. It's a really long book.

I have that book. I never read it. Pretty good. I mean, some of this stuff you can kind of skip out. I think you can kind of pick and choose because it's really long. And some of the chapters, like I can tell right away, I'm not going to be interested. But he talks about how we kind of went to this consumer sort of society in the 50s, but this one kind of blew me away.

No industry suffered more than housing during the Great Depression in World War II. Housing starts fell from one million a year to fewer than 100,000. Wow. During that period of marriage rate, not surprisingly, the birth rate increased sharply to the highest it had been in two decades, but 1943. And so he talked about how this guy in New York came up with like the cookie cutter house back in the day and basically reproduced all the same house over and over again to build neighborhoods and how they fulfilled that demand.

And it just made me think like that seems like something we need now, like more new houses being built. And they figured it out back then. It just seems like we can't really start figuring out. So in 1944, there were 114,000 new single houses started. By 1950, it was 1.7 million. So over six years, it jumped like 10fold. Yeah. So that whole thing about how housing became the American Dream and we became consumers is really, really well done in that book. Succession has been, I think it picked up or left off from last. season, four episodes in. I won't spoil it up front of everyone, but the Greg and Tom scene in the last one just slaughtered me. The stuff with Kendall has been really good this season. I think it's one of the better shows out there right now. I got sucked into the movie a simple

favor over the weekend. It's on Amazon Prime with Anna Kendrick and Blake lively. Okay. It's not a great movie, but it held me in the whole time because I could tell it at a twist coming. any movie with a twist and I'm hooked Like I need to see what the twist is It was kind of like They were trying to make almost like a gone girl Like someone died

Maybe the death is fake Maybe they killed them I had to watch And I couldn't And this movie It had like six twists in it So I think maybe need like Two twists at the most

But I think six is a little too many Because you're constantly trying to guess And they did the fake out twist But really anything with a twist Sucks me right in right Wait did you Did you finish the boy on Amazon.

I'm more about halfway through. Freaking awesome. Very good show. I'm very, very, very happy with the show because I went in with really no expectations at all. Yeah, me either. Like, do you think that you can, I don't think you can control your expectations. Like, when you say to yourself that you're going to movie, ah, it's probably not going to

be good. Like, you expect what you expect, and you can't sort of trick your brain, but I honestly had no expectations with this. And it was, it just kept delivering. So. Yes. It's very good. A full endorsement.

The young guy in the show, you know, he's Meg Ryan and Dennis Quaid's son, right? I don't. I didn't. How would I? Yeah. I don't know. IMDB. All right.

If you're at the Wealth.comference next week, come say hi to us. We'll do an animal spirits live there. We'll be around. And send us an email, Animal Spiritspot. com.