Animal Spirits Podcast - Who Owns the Stock Market? (EP.366)

Episode Date: June 26, 2024

On episode 366 of Animal Spirits, Michael Batnick and Ben Carlson discuss: the biggest difference between bull and bear markets, cyclical vs. secular bull markets, what's wrong with Europe, Gen Z is obsessed with the stock market, spending on concerts, everyone is moving to the south, how the Fed can help the housing market, when to honk your horn, spending on groceries, and much more! This episode is sponsored by Global X and CME Group. Visit https://www.globalxetfs.com/ to explore a lineup of more than 90 ETFs, along with insights to help you navigate a dynamic investing landscape. Access CME Group's valuable educational materials and trading tools and learn more about what adding futures can do for you at cmegroup.com/animalspirits Sign up for The Compound newsletter and never miss out: thecompoundnews.com/subscribe Find complete show notes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.   Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

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All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Riddholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Riddholt's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spears with Michael and Ben. Doing a little research this morning, Michael. Through Friday, give us a timestamp. What are we recording right now? Oh, yeah, that's right.

It's Monday morning, 10.30, Eastern Standard Time. We're recording a day early because production team needed some extra help. And listen, we're willing to work with them. Right? Yeah. This is for you, Duncan. 31 new all-time highs for the S&P 500 through Friday's close. And I was looking at some of the stats today because it just, I mean, there's some

invidia stuff that you could point to that's kind of exciting. But in general, it's, bull markets are kind of boring. So we've had one daily gain of 2% or more this year, just one time, 14 days of 1% or more out of like 120 trading days, no 2% down days for the whole year, and just 7 days of minus 1% or worse. So it just got me thinking the bare markets are the headlines, right? Like bear markets just beat you over the face and beat you over the head like with constant pain. This is, look at what's happening. And bull markets are just, for lack of better word, boring.

There's just not much to a bowl. It's like slowly and methodically moves up and there's not a lot of exciting stuff that happens during a bull market. So interestingly, Nvidia is down 10% from its highs, which is not much when you double and double and double again. But still, it's 10% off its highs and the market is right near it all. The market's not budging. Does this get back to the theory that Bitcoin really is like an AI proxy or Riscon proxy? Because isn't Bitcoin down double digits as well? Is Bitcoin just tracking Nvidia? Invita is bringing Bitcoin down? I don't know if I buy that, but. Okay. John Reck and Thaler from Morningstar did this thing where he looked at the last 10 years of returns. And he went back in time to

2014 and looked at what people were saying then about the prospects for returns. Because remember, this is, we'd hit new all-time highs again. The market had already been up a lot since then. Remember 2013 was kind of the switch was flipped. And it was like, okay, we're back on. And then people started getting worried again. So he looked at the mainstream estimates of people for what are returns going to be some expert estimates and then pessimist estimates, which obviously we know who those people

probably are. Where did he grab these? Basically, the research from Wall Street, he said it was, it was Bogle and Schiller and all the people you know probably. Okay. So he went back and what did people say at the time versus what it actually was. And I guess the mainstream estimates would be more like the Wall Street strategists, and that was the highest at 11%. The expert estimates was 7.5% and then the pessimists said 2.5% per year. I have to be honest, I was probably between experts and pessimists.

I remember my first post on preparing for low returns was probably 2015. Probably because we were reading a lot of those same articles, right? That, like, look at the dividend discount model or something. But the S&P blew... Last time I listened to Bogle. Thanks a lot, Jack. The S&P blew away even the mainstream asset, the high end of the estimates. Wait, what did the S&P 500 do over the 10-year period?

Nearly 13% per year. What was the exact number? I'm just curious. 12.7%. What was the exact number? on the chart. 12.69%. Nice.

Just had to go out two decimal places, didn't he? But I just think it's worth remembering how every, no one thought this was possible. There was no one saying, we're going to get like 13, 14% returns. I looked at the other day, since the start of 2009, the S&P has compounded at 14.5% annually.

Damn. Just an amazing run. So I had our chart kid, Matt, put this together. I looked at these various cycles of, really bad returns, really good returns, and you can see it goes back and forth. These things are cyclical. I did real returns here because the 70s, it makes it look, it actually wasn't as terrible on a nominal basis. It was like 6%. But with inflation, it was negative 1%. So you have these cycles where you basically go nowhere for a decade or so, sometimes more than a decade.

And then you have these two to three decade periods sometimes where you have way above average returns. My first instinct is, I don't like this chart because if history holds, it means we've got low returns going forward. But I will say, look how long these periods can last. 1942 to 1965, that's 23 years, 82 to 99, that's 17 years. We're only at 14 years. So it doesn't mean it has to stop right now. The point of my blog post about this was that in real time, you can never tell how long this is going to go. Because in 1987, I've read all the stories, all the books, people thought we were going into a depression when the stock market crashed. Like, no one would have ever thought

we have 12 or 13 more years to go of this bull market at that point. I'm sure everyone thought this is it. And the same thing in that 42 to 65 period, there was four bare markets. There was like 10 regular every day, 10% crashes or whatever. So that's the whole point of it. It's trying to predict the end of these secular cycles is nearly impossible. That's all, yeah, that's all I'm saying.

The median version thing, it's not like trees don't grow to the sky. You have above average returns, and you have below average returns, but good luck predicting when it's going to happen. Right. That's the point. Just wanted a contrast here. I'm talking about the 6040 portfolio. You and I are kind of a 6040 today.

We're very diversified. I'm very colorful. You are more black. So we're good contrast today. It's a great looking shirt. Tropical bros. I have way too many. My wife is, you got another shirt?

She's always asking me. What do you need to need another pair of shoes? You know, I got a text message this morning because I wore my Tropical Bros. beach to the, I wear my tropical bro's shirt to the beach, as I normally do. It's a beach shirt. I got a text message this morning. Hey, what was it, what was it the brand of that Hawaiian shirt? A gentleman love them, don't they? John Arthur is at, at Bloomberg did this, and he did a global 6040 portfolio. So this is taking everything to account is, and the headline of this chart is really funny. It says, somehow the classic asset mix has set a new all-time high. Like,

like, I can't believe it. But this is almost more impressive than the stock. ball market just because of how bad bonds were have been. So it's a new all-time highs in the 60-40 portfolio because the bond piece was so, so bad and obviously hasn't made up for the losses yet. Stocks have been pulling their weight, but this was surprising to me. Which part? That we hit an all-time high? Yeah, just because bonds are still in a pretty deep drawdown depending on what you're looking at.

Yeah. The bears lose again. As always. Maybe not. Maybe they win in Europe. You know, one of these days, one of these, one of these sandblets is going to age extremely poorly. I'm prepared for that. Yeah. I don't know, though. Is it though? Well, eventually. It could be in 2036, but yeah, eventually.

No, because the thing is, we are always open to the possibility of bare markets. The thing is, the people who constantly predict them every single day or every single year, just by sheer logic and averages, they're going to be wrong more than they're right. But if you're someone who says most of the time the market goes up and sometimes it goes down, can never be wrong. So that's the ultimate Grand Rapids Hedge. Most of the time stock go up, sometimes they go down. It's true. It's true. That's a fact. That's, those are words to live by. It's an investor. Maybe unless you're in Europe. Okay. So I got a bunch of charts about Europe. And it's funny. People always try to predict the downfall of like the American Empire. Like this is, this is

Rome 2.0. Why don't they talk about Europe like this? Why don't they say, like... Well, because Europe's not on top. That's why. But I guess no one ever talks about the fact that the European Empire is crumbling before our eyes or has crumbled. So look at this. The market gap of Nvidia, and we've done this before, is now bigger than UK, Germany, and France. This is Deutsche Bank chart, and it's funny how quickly it caught up to those. I wonder, like, a good companion chart would be what are the total earnings and revenue? of those markets versus NVIDIA. I'm sure they dwarf it.

I don't know. Is it 10 to 1, 15 to 1? That's true. Number of employees for all those companies versus the number of employees at NVIDIA. Here's another chart from the economist. GDP and market capitalization as a percentage of the world total for Europe.

Since 2000, market cap has gone from 1 3rd to little more than 15%. GDP has gone from nearly 40% to 25%. Not good, as you would say? Here's another one. This is from the FTA. productivity in the U.S. versus Eurozone in the U.K.

Look at how much that productivity has diverged since the great financial crisis. What were some of the explanations and the replies? A lot of people said, well, we can fire workers here and capital, there wasn't great examples. Is it just capitalism?

I think so. Okay, that works. Hand up. I've never really gotten a good explanation of how to calculate productivity. It's like what's off lower. It's a residual. It's a filler, right?

Finally, here's one more. Market capitalization of venture-back companies valued over a billion dollars, and it shows China and the U.S. China's actually pretty close to the U.S. here, which is surprising. And then Europe is just way, way down at the bottom. So maybe part of it is...

So, again, the point of, like, the Roman Empire falling, how long did Europe... How long were they kings for? How many years? Hundreds and hundreds of years? Thousands. Didn't you watch House of the Dragon? That's true.

Since House of the Dragon in the 1300s. What a show. Unbelievable, right? I think it's better than Game of Thrones. At least to the outset, Game of Thrones, I think people forget. At the very beginning of the show, it is very slow and boring.

I think coming out of the gate, the dragon one is better. It's excellent. So here's what Europe does have. Tourism. This is from the Wall Street Journal. They say Europe has a new economic model, basically. and tourism account, they use Portugal as an example here.

Tourism generates one-fifth economic output in Lisbon and supports one in four jobs. Portugal's gross domestic product grew nearly 8% between 2019 and 2024 compared to 1% for Germany. So it's saying all these places in Europe are just packed with American tourists because their dollar takes them stronger and I don't know, everyone looks on social media for the best places to go now. And it's more or less saying all these like Greece, in Portugal, have grown faster, and Spain has grown faster than Germany, more or less because of tourism. Well, I've done a trip to Europe since 2015.

It's probably going to be another couple of years. Mine was a work one. I mean, can you imagine taking little kids to Europe? I know some people do it. I can't imagine doing that. Doesn't sound fun. No. The time change and the, I don't, do you think your kids would really care about seeing all

the castles and churches and ruins and such? My kids would be over very fast. I know people do it. So anyway, the article is also saying what happens if the dollar weakens and people stop traveling there because of it. But it seems like American tourism spending is kind of propping up the European economy. Without that, that's like the biggest thing they have going for that. You know, you're just taking flamethrowers to all sorts of people. Now it's people who take their kids to Europe.

No, I'm saying good. for them. I couldn't do it personally. Ben's nice, but also mean. Here's my mean of the week. I was just asking the question. Here's my mean of the week. I had an email, I had an email exchange with somebody to set up a meeting.

And they gave me two dates, but warned me that their calendar fills up very fast. It was like a buy now before it's too late for an email. That's a turn off now. Yes. Boy, your meeting etiquette on emails is, like you should have a list of rules. Like, how to set up a meeting with Michael Batnik? I just behave like a proper gentleman.

I don't tell people sign up now or else. I agree. That's very aggressive. Yeah, come on. Yeah. So the point is, though, what needs to happen in Europe to change this? Is that a real question? Do you expect me to have an answer to that?

I live on Long Island. I haven't been to Europe in 10 years. I don't know. I don't know what goes out there. All right. Yeah. They need to pivot to capitalism. Is that the answer?

I guess maybe my whole point here is that I'm surprised by all of these figures more than anything. That it's happened this quick. Since the 2008 crash, basically, since then, we've just gone in two divergent paths. Yeah. Okay. Howard Silverblatt. I think he's at the S&P. This surprise.

He is at the S&P. Okay. He said today, Nvidia became the 12th company to become the largest in the S&P 500 since 1926. More or less companies than you would expect it? It's way less for me. Yeah, only 12, so like not even one, just barely more than one a decade. Yeah, so it's like one every eight or nine years, I guess. So he listed on AT&T, Apple, Cisco, DuPont, Exxon, GE, GM, IBM.

That's a lot of letters. Microsoft, Nvidia, Philip Morris, and Walmart. I would have expected there would have been more turnover. When was DuPont at the top? It had to be like 60s or 70s, probably? Yeah, so I guess because we've talked, so do you think that these stocks, when they become the bigot, do they just kind of become the market? No. When they, what do you mean?

Oh, in terms of returns? No, they underperform. No, no, no, they underperform dramatically. Ned Davis used to have a great chart about this, or was it the Luttle Group? I can't remember. And then, but Mobeson did a piece recently that I highlighted showing that, like Apple bucked the trend. If you had just invested in the largest stock, when it became the largest stock, and go-forward basis, your returns were horrible. Like, really bad.

That's GE. Yeah, G. Really, really, really bad. And Apple broke, Apple broke this. Microsoft, too. Yeah. They've been phenomenal investments since they became the biggest over the last 10 years. The theme of the show so far, Ben is surprised.

I'm surprised is there's not more names that have made it just for a little bit, you know? Yeah. This was a good tweet from Ben Lang. If you joined Nvidia five years ago as a mid-level product manager with an annual $70,000 stock grant over four years, just that initial grant will be worth $10.6 million today. I don't know if these numbers are right, but I guess back of the envelope would have to be pretty close. How many, like, how many deck a millionaire says Nvidia created? Yeah.

Probably a lot, right? Yeah. Yeah, that's wild. Reach out to Ridholt's wealth management if you're one of these people. I'm just going to put it out there. Hey, that's good plug. No. But just life-changing amounts of money in a short period of time for these people.

Yeah. Uh, what is this headline? Okay. Read it. stock-obsessed Gen Z are using astrology and tarot to invest and swearing by the results to the tune of over $400,000. Okay. I can't believe you fell for this.

So a lot of people, I'm looking deeper than the headline here. So they talk about some woman who quit her job as a tarot reader to day trade, and she says she's earning $5,000. You ever go to a tarot reader? I don't think you as a tarot reader guy. No. I think I would just giggle if I went to see one of those people. Yeah, I don't think so.

I have a point. They say something that surprised me, and I just immediately melt and start crying. That's true. How did you know that? Yes. Yeah, it's always very generic. I did lose somebody. Yeah.

You're a genius. So they talk about driven by the fear of missing out and determination to escape the corporate rat race over 70% of the generation owned stock according to NASDAQ. That number seems high to me. I don't know if that's a survey or what, but my whole point here, a lot of people will look at this story and say, this is ridiculous. These Gen Z people don't know what they're doing. They're day trading. They think if this is easy. I think this is a good thing that Gen Z is obsessed with the stock market, if that's a real thing. I don't know what the actual numbers of Gen Z people in the stock market are, but it's got to be way more than millennials at their age. I looked at this. This is how long I've been blogging for. I wrote a piece in 2014 called Millennials and the New Death of Equities. And it was a UBS survey that talked about how millennials are totally skeptical about long-term investing. They don't want anything to do with the stock market.

Yeah, this is better. So this is better, right, than that? In 2014, were you still using your pen name? Or were you out of the closet? With this, with wealth of common sense, I never used a pseudonym. I wish I would have. Oh. Oh, you were always Ben Carlson? That's me. Yes. Duncan just slacked. I'm convinced that Mike's email pet peeves are part of a sci-up to prevent people from ever emailing him. No, quite the opposite. Quite the opposite.

You should see my inbox. It's loaded. And 98% of the time, people do the right thing, say the right thing. So I wish I could drop a Seinfeld reference here, but you are not a Seinfeld person, but you are the soup. You're the soup Nazi of email. Like you have to stand in, it's all these rules to order the soup. That's you for email. I'm really not that particular.

But don't buy now me in an email. Come on. Duncan and John, I'm going to need you to superimpose Michael's head on the soup Nazi with the little white get-up just for the video, please. I did make it four seasons through Seinfeld. Okay. All right. That was one of those shows for me that we, every night we get home from classes. It was on TBS for four hours after college.

Can I give a good plug for a good background show? I'm really into the golden collectibles things on Netflix. Great background show. I don't know what that is. So it's collectibles. It's like pawn stars, but more fun. Reality show? Okay.

Does Pond Stars still make new episodes? It can't be, right? I used to be a big reality TV show person The only one I watch now is Welcome to Rexum All other reality TV shows for me Have kind of gone by the wayside, unfortunately I was a big dating show person back in the day So Robin shares a Netflix profile with me

So I'm a barbell I've got horror movies and reality TV That's what the algorithm recommends for me Okay, for me it's all just shark movies Because my son watches so many But now he's scared to go in Lake Michigan Because of the shark because of the 10 days under Paris or whatever it's called.

There's no sharks there, are there? No, there's no sharks in fresh water. I have to try to explain this to him, but, you know, he said, well, how did the shark make it into Paris, though? Oh, he does have you there. You know? So this is a funny chart for me from Tors and Slack. Households turn bullish on equities when the Fed started talking about rate cuts.

It's a survey of consumer expectations. The average that U.S. stock prices would be higher one year from now. And the average of this is probably 45%. Now it's at 40%. Why are people so bearish? The average is 45%. Yes. This is just sort of watch what they do, not what they say, I guess. Because we've talked about this. The stock market is up 75% of the time on a one-year basis. So if people are saying 40% of the time you think it's going to be higher one year from now, either people are always bearish or they have no idea what they're talking about, one or the other. Yeah. Yeah, 75% of the time. It works every time. Friend of the show, Sam Rowe, is always sharing these really good golden sacks.

and this is one of my favorite charts. Who owns the stock market? I want to show me what, tell me what pops out of you from this because I have something I want to see if we're seeing through the same lens. Okay. So you see this chart here?

I'm looking. It's ownership breakdown by households and ETFs and passive mutual funds and pensions and all these different. All right, so I'm not going to say the obvious one because it used to be owned entirely by households more or less, right?

Yeah, 95% was owned by households in 1940s. I'm not going to do that. So two things jump out at me. Number one, business holdings used to be a much bigger piece of the market. Was that pensions? I know, there's a place for pensions. Okay, so whoops, never mind. So what is that?

Okay, I don't know what that one is. That's a good question. All right, throw that one out. Foreign investors. Okay, foreign investors is big. Here's the one that stood out to me. Passive mutual funds and ETFs make up combined 14% of the market. Oh, that is a good one.

That's a tiny percentage for people who think that that's driving a bubble in the stock market. Okay. That's not a very big percentage, right? It's big in terms of the mutual fund industry, but... No, no, no. But if you look at flows, it's everything. True. But active mutual funds are 12%, passive and ETS are 14%.

Okay. Active mutual funds are only 12%. See, there really are no price setters. That's the interesting thing. Foreign investors are bigger than both of those cohorts. Huh. My whole point is just that the whole passive indexing is leading the bubble. It makes up a very small percentage of the overall stock market.

Right. Again, I counter with it, but it's every dollar flows, more or less. True. But it's on the margin. That's what I'm saying. All right. But I'm just saying flows. All right.

So we look at the market every different way we can, right? Earnings and these companies, and we look at it all. This is just what we do. Vanguard had this piece that kind of puts stuff into context a little bit, into perspective. They showed a 4% rule starting in 1973, 1983, 1993. What would happen if you took 4% per year, adjusted for inflation? Where do you end up in 30 years? And starting in 1973, because inflation was so much higher, you're adjusting for that.

You didn't do very well. No. 1983, perfect. You did awesome. Ninety three, you did pretty darn good, too. these starting points. Oh, they just started every 10 years. Yeah, they were just kind of trying to show and I think wanting to use 2023. Takeaway is what? What are we, what are you trying to say? For as much analysis and breaking down that we do of the markets, a lot of it is really just driven

by luck, unfortunately. And there's sometimes the timing component is the most important thing you can do. Yeah. Nick Majuli had an incredible stat that I'm going to butcher. But it was like from, from the call it 1970 or 19 whatever, if you outperform the market by 10% a year, you didn't do as well as somebody who underperform the market by 5% a year from 1990 to whatever. 80s and I, yeah, right, yeah. Saying the 80s and 90s, just being in that time. Just really showing that when you get started, it's everything. I also want to say that no one actually uses the 4% rule.

Bloggers do. That's not true bloggers do. Don't you think, though, like if you're talking. actual clients who use the 4% or even if you started as a baseline, people's spending fluctuates so much in retirement. It probably is very high at the beginning of retirement. It slows down at the end. Healthcare costs, one-off costs. I'm just pretty sure no one actually uses a 4% rule. I suspect that you have a spreadsheet with a 4% rule built in. I will not be a 4% rule guy. Five? Thanks to your savings? Maybe push it to 6? I'll be a die with zero guy. I'll push it way up.

I don't know. I don't know what my spending rule is going to be. All right. Let's talk about the economy. Money market funds are currently paying $500 billion in interest. That's 2.5% of annual consumer spending. See, I like it when you, he, this is another tors and slack one. He puts a denominator in here for us.

Put this numbers in perspective. So I think it's great perspective. I'll pick a knit here in that. I still believe that money market income does not influence spending. I agree. I'm sure most people are not taking that income and then spending it immediately. Right. You think people are like, oh my God, I'm getting an extra $800 a month on my cash.

I'm going to spend that. Right. I agree. Here's where people are spending. Concerts. I'm not a huge concert goer. I've mentioned this to you. I think I said that you the other day, especially as a middle-aged person.

I used to go to concerts when I was younger. I'm not ashamed to say I probably went to four or five. at Dave Matthews band concerts with my friends. That's okay. But that was an excuse to go somewhere and get drunk, right? There wasn't like I was the biggest fan of them and knew all their songs on a set list. So my wife and I went to see Zach Bryan

in Detroit to Ford Field this week, last week. So we're talking, they must have had three quarters of the space open and behind the stage it was closed off, you know? So we're talking, I don't know, 40, 45,000 people because I think it could hold 60, 65,000 in there. So packed. Here's some observations.

They have about four of those booths set up where you can buy the, you know, I went to Zach Brian tour shirt, right? The shirt of the sweatshirt. Did you buy one? No, you don't buy the concert shirt, but everyone else did. Yeah. The lines to buy the merch were going around the whole stadium, every single line. I couldn't believe how long the lines were to buy this merch just to prove, listen, I went to the concert, damn it. I got my experience and I'm going to show everyone I did it.

I don't remember, maybe this is just me being a hater again on young people, but I don't remember, me or any of my friends ever being like, we need to buy the concert t-shirt, right? True. Like, you don't buy the, although I did have a friend who, whenever we traveled, he would buy a t-shirt over the city we went to. Let me ask you a question. Are you a singer? Are you a head nodder?

Are you a dancer? None of the above? Do you just sit there? Do you just stand there awkwardly? Like I do? Well, I got a little tuned up for Zach Brian. I had some of the tall Budweiser, so I might have been singing a little bit. Oh, yeah?

Okay. But one of the best live shows I've ever been to. He was, the guy was, it was amazing. But here's my other thing. And maybe I shouldn't be surprised, but I assumed that crowd would be, eh, 30s, 40s-ish. And it was not that at all.

I felt old. It was average age 18 to 22, probably. Young, young, young people. And how much were the tickets? Like, get in tickets. So this is the thing, this is my question. We got pretty good seats.

And now, not great seats, but pretty good seats. And we paid a decent amount of money for them. Say the number. I'm trying to think with the fees. Just say the number. Say the number. Don't be embarrassed.

Probably six or seven hundred bucks per ticket. Wow. Wow. And pretty good seats. And all around me is these 18 to 22 year olds. And I'm thinking, how the hell are these kids affording this? They're trading. Aren't you paying attention?

I guess so. I'm going to a Billy Joel concert, the last concert, actually, a month from tomorrow. July 25th. Yes, I use my ticket broker. Okay. highly, highly recommend. The cheapest tickets on Ticketmaster are $900. Now, it's his last one, but I've never spent that much money on a concert ticket in my entire life. But you have to go because you're from all I-owned. Got to do it. My one big East Coast question is always,

who's more overrated, Billy Joel or Bruce Springsteen? See, you are such a hater. That's just how I get people from New York really angry with me. So the Wall Street Journal had this piece about- You also don't like bagels. I'm starting to think that you don't like a certain type of person around today. I'm not going to say, I'm not going to get more specific. specific than that. No, my whole point is just bagels are fine. Donuts are better. They're not substitutes, though. Donuts complement bagels. It's a carb for breakfast, and they're both round. So it's in a round food. So Wall Street Journal had this piece about concert tickets, and they say they've nearly doubled over the past

decade, and the average ticket for the top 100 tours in North America has increased more than 40% over the last five years. And I can attest to this. It's expensive. But they were saying that these people are showing out for VIP. It's like sitting in the box and having these barbecue and tacos and high end. And like they're saying the demand is insatiable for this stuff

to have the VIP access at these tools. I did the VIP experience once or like not a VIP, just a box, a suite at Madison Square Garden for a concert once. Who did I go say? Raging Against a Machine. I don't like Raging Against a Machine. No, they dislike him, but it's not like I wouldn't go otherwise. But if somebody incites me to a suite, I'm going.

I don't care who's playing. I don't care if it's blippy on state. I don't care if it's blippy. I'm going. Great experience. Yeah. I don't know if I could do blippy. I've heard enough of him over the years.

I've had enough. But the point of this like VIP access, so another one from, I can't remember where I still this went from. But the highest income quintuil, we talk about this, accounts like 40% of consumer spending. And that cohort has so much money now.

Oh, you know, this is a great chart. So we've spoken about this a lot. The reason why I keep saying that, like, I don't think that it's necessarily 401Ks or money market funds driving spending, the second income quintile and the lowest account for 22% of consumer spending. That's not nothing. And they're spending most of their income, and their income is up a lot. Right. So that's the... That's a much bigger driver of everything, of everything.

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owned and operated by affiliates of service corporation international. Here's another one to show that people are still spending. United Airlines, Carl Kintaneda tweeted this, expect July 4th weekend to be the busiest on record. Is that a lot? Busiest on record? Is that a lot? Seems like it.

It's a lot. You know, I've never been on a United Flight that has the screens in behind the seat. That always irks me. I feel like Delta is the one that has in the most consistent. Consistently, United and American rarely have the screens for you behind the seats. I'm surprised you're not a Delta card user. What do you mean? Like, why don't you always fly Delta?

Is it because the Grand Rapids? Well, sometimes they just don't have the location. Like, when we went to Charleston a few weeks ago, maybe I did do Delta for that. I can't remember what I did. But remember when we were in Charleston and the woman was giving us the tour and she's talking about just people are flocking there, right? Everyone's flocking to the thought. We've heard this.

We have people who, for Riddle's wealth who work in now. Nashville. And they tell us that the difference between Nashville now and 10 years ago, it's like a, it's like a just, the city's just doubling in size almost. So I don't think necessarily people are flying more because flying is so, so easy. But I was listening to Kevin Costner doing an interview with Howard. Are you going to see an American Horizon, by the way, or Horizon? It's coming out this week. Probably when it's on a streamer, I guess. Okay. I'm not going to do it. You're going to be one of the few people who goes to it, huh? I think I'm going. But he was talking about just, uh, the differences.

between traveling now and traveling in the 1700s or he's like when you said goodbye to somebody like that was you know have a great life i'll see and never maybe in the afterlife and he said on a flight i just flew to new york and uh you put your seat back if you're one of those people i don't we don't judge you get you get a cocktail you watch a movie close your eyes yeah it's easy and you're there yeah and like the 1700s the hardest part like crossing a river was hard like you got all stuff, how do we cross the river? There's no bridges. Yeah, what happens if you got a cold? Right.

Fuck them. So, so the, Bloomberg had an article about how in the South, they call it the anti-growth fervor grips U.S. South after pandemic boom, and someone says, I live in hell. Like all these southern towns, which people decided, I can work remotely,

it's cheaper coming from California, New York. So they say that in Tennessee and the U.S. South, the region's population has increased by 2.7 million people, the size of Chicago. So they're saying like these towns are not big enough for their for all the traffic and their municipal systems are like the water systems are under pressure and strain from all the demand and they say from early 2020 to mid-2020 to the southeast including Texas gone from the two-thirds of all

U.S. job growth almost double its pre-pendemic share. Tennessee's economy was the second fastest growing in the U.S. from that time. They picked out this one county in Tennessee that the number of apartments in the county doubled in the four years through 2020. And it's one of those double-edged swords of, I live in a place with good weather and it's highly desirable, but now other people want to come here and it's ruining the experience for me. And I don't know how you how you stop that. So Lawrence Hamto actually did a whole piece on this. He did a like a white paper on the implications of business and population migration. And just look at the, look at the businesses moving to the south and leaving the northeast and Midwest, that second chart there.

Wow, that's a great chart. And the population going to the south, just, it's insane. And all the people who live there probably are saying, we don't want this. So both of our regions, the Midwest and the Northeast, are in secular decline. Yeah, that means less traffic, at least for me. But they also show, like, the tax burden. So they look at the difference between California and Texas taxes or New York and Florida the taxes in 1980 versus now.

And look at how much that that spread in taxes has jumped. Meaning it makes, so the people who live in California, New York, it makes so much more sense for them to move to these areas in a tax perspective. Got it. Good one. Yeah, that's a good one. Yeah. Ben, we got an email from a listener and the TLDR is, why are we in such a hard-to-cut

rates? Okay. Let me just read a quote from this email. It feels to me like we're addicted to historically low rates, much in the same way that patients begin abusing their once legitimate medications, and frankly, I'm not eager to see the Fed feed into that addiction. In my mind, the case to cut rates should be a much higher hurdle than the case to raise rates. I would agree with you there. Given the natural inclination that lower borrowing costs feels better to the quick gratification sides of us that I want everything

to be cheap. Simply imagining that at some point, rates will hypothetically be cut and saying, why not start now, does not meet that bar for me. I think this person's feelings are felt by a lot of people. Not an entirely uncommon view. I don't know that the hurdle should be higher for lowering rates than raising rates. All right. Well, we could debate that. But I guess one immediate, like my immediate reaction to this was, if nothing else,

and I'm not suggesting that we need to cut from five and a quarter down to two or anything. but let's start to heal a really dysfunctional housing market. That's the biggest case for me, is housing, which is a huge part of the economy. Right. So Michael McDonough tweeted a chart of existing home sales, and he breaks it down by, I'm going to click on this so it's less blurry, he breaks it down by region. And actually, surprisingly, the Midwest is hanging in there. But the point is, if you just look at the total, it's bad.

It's really bad. People are stuck. You got to unlock some inventory. We had the blip in 2020, 2020, maybe 2022 when people started to build because the demand was there, and now it's falling off a cliff. So Bloomberg had a story saying

the new home construction plunged to the slowest pace since June 2020. And I looked at- Sorry, but before we leave this topic, I just want to do one more thing on the Y now thing. I am of the opinion, and this is mine, you might disagree with me. I am of the opinion that at this point

the job is done, inflation is mostly under control, and the longer you leave rates in a tighter than necessary posture, the more likely you are going to cause a recession. And so to me, the risks just seem asymmetric. I don't necessarily see the harm in taking rates from five to make up a number, four in a head, whatever it is. Right. It doesn't have to go back to zero. Right. I don't think anybody's saying that. So that's where I stand on this. Right, Ben. Back to the... Well, I think it ties into this. The stuff in the housing is by them leaving rates higher like this and cutting out...

So look at this U.S. building permits, which had a huge run-up in the first couple of years of this decade and now has crashed again, and they're stopping building homes. This is going to make things worse in the future. So by the Fed constraining the U.S. housing market, they're just going to make things even that much worse in the future. They're putting it off when just having a little bit of a release valve there to open up some more construction. and part of the economy that's 20% of GDP, that makes sense to me as being a good reason to cut some rates a little bit. Now, I don't know enough about the mechanics of how this works. So I'm talking out of my ass here. But if you told me like, well, well, why doesn't the Fed just start buying mortgage bonds again? And maybe that will help to heal the housing market. If that's a legitimate

option, again, maybe it is, maybe it isn't, then that's fine too. But there's got to be, the housing market doesn't need some medicine. Right. That is one thing. If the Fed would say, listen, we want to leave rates kind of restricted, we're going to cut 25, 50, basis points. But we want to narrow that spread between the 10-year and mortgage rates because we're going to buy some mortgage bonds. That actually kind of makes sense to me. Saying like the housing piece is the one we want to target. I'm sure people would still freak out about that, but here's a good one from Judge Glock, which sounds like, I don't know, bad guy in a movie, but good name. He says, I don't want to trigger anybody. The OECD housing ranking of total affordability,

size and quality metrics has U.S. at number one. So again, I don't know how much the quality piece fits in there, but affordability size and quality, the United States is ranked first in terms of affordability across the globe. I just don't think this makes anybody feel better. Nobody gives a shit about what it's like in Canada or France. Like, I don't live there. I live here.

And I can't buy a house. So just because the person in France has no AC and a smaller unit than me, and it was built on like 1600, I don't care. I can't buy a house. Don't care. Okay. It could get worse.

That's my thought. Here's an interesting survey. This is from Goldman Sachs. It's the G-SAM Global Insurance Survey. They receive responses from 296 chief investment officers and senior investment professionals. 42 CFOs and senior finance managers and 21 individuals who serve as both CIO and CFO,

the insurance company surveyed, have over $13 trillion in back. balance sheet assets. So these are real people. Real people. And they were polled, which asset classes do you expect to have the highest total return in the next 12 months? And it's U.S. equities, investment great debt, cash, et cetera.

The whole should bang bang. 53% said private credit. Even more than stocks. 53%. And here's an interesting quote that I don't know exactly how to square this circle, Ben. Insurers' appetite for credit is growing. 35% of insurers look to increase credit risk in their portfolios over the next 12 months, despite 59% of insurers expressing concern that the credit cycle is entering a later stage.

So we think a recession might be coming, but we're still looking to increase exposure there. So to me, this is very, very simple. This is career risk and incentive. and it's the volatility laundering that Cliff always talks about if we don't see the marks. Yeah. And look at the yield we're getting, right?

Yeah. Do you think of the thought process, too, for a lot of people as well, it's whatever, 12 or 14% yields? And even if some of these default, we're still going to get 10 or 12% instead of 12 to 14.

You think that's the thinking? I think it's that. I don't think they would say it's that loud, but I think not seeing the volatility, not seeing the prices on a daily basis, is like, even though we know that's not real alpha, it feels like it. So? Yes.

The need or desire for liquidity is trumped by the fact that we don't see the marks every day. Now, global insurers, like, they do have a long-term time horizon. So if it makes sense for anyone to be using these instruments, maybe it's them. Right. But will these people be complaining if and when they can't get their money out on a fast enough basis when they want to? I mean, I would hope not.

Yeah. But there's going to be stories in the years ahead if this stuff ever runs into trouble. Listen, they try to get their money out and they couldn't. That's coming someday. There was a headline over the weekend that I didn't get to read yet. Pensions piled it to private equity now they can't get out. Again, I don't know if the reality matches a headline, but. Yeah.

Well, such as, yeah, that's what private means. Okay. Here's a great survey. A couple surveys that, again, I'm just not sure how to square all of the, all of these round objects. Per the latest J.P. Morgan, Blake Miller tweeted this, J.P. Morgan Institutional Weekly Survey, there's virtually no risk appetite

to deploy fresh capital into equities. Investors continue to show no love for stocks in 2024. So they ask, are you more likely to increase or decrease equity exposure over the coming days and weeks? And this has plummeted to 17%. And then, simultaneously, now these are institutional investors. They've got Bank of America global research. There's this global fund manager survey, again, institutional investors.

It's global fund manager survey sentiment most bullish since November 21. Ben, make it make sense. I think we have too many opinions out there today. Let me give you one more. Let me give you one more. Now, these are not necessarily institutional investors only, but Dauchun has tweeted, VOO is a virtual lock to blow away the all-time annual. flow record at $44.5 billion, it is only $5 billion away, and it's not even half-time.

This is surprising to me that SPY is going to be dethroned potentially, because that's... They had a big head start. Huge head start, very big brand recognition. Like, you never hear, I don't know, you don't hear people talk about VOO very much, but it's obviously just the expense ratio. What's SPY expense ratio? It used to be nine. Is it lower than that?

V-O-O-O is three basis points. SPY is, did they, what is it? Okay, S-B-Y is, yeah, nine. S-B-O-O-S-B-O-S-V-O is three. Which is funny because that feels like splitting hairs a little bit, but if you're saying, listen, this thing is three times as expensive as this one, we're going to the cheaper one. Yeah.

That's surprising, though. All right. Jeremy Horpidall, this is, I want to hear your explanation to this, because I can't come up with one. I'm asking questions today. American spend on average 6.7% of their income groceries, the lowest in the world. Now, he compared all, this is from our world of data, compared all these different countries. And then my first thought was, oh, well, that's simple

because we spend more on restaurants and going out. And then he did a follow-up saying he included restaurant spending as a percentage of income, and it's still the lowest in the world. So is this just because we have higher incomes? What would be an explanation for this? I couldn't come up with a good one. Why would we spend the lowest percentage on food in the in the world compared to all these other countries that spend way more of their income as a percentage on food. Do you think it's just we have lower costs here because of bigger and more resources, lower energy caught, like lower taxes? What would the explanation be here? I'm going to guess you're right with a denominator thing. It's got to be we have higher incomes. That'd be my way of the

explanation. But again, I color me surprised on this one. Yeah, color me as well. All right. Oh, does the next one show the same thing? Yeah, just with reference. So the first one is just groceries. And second one is groceries plus restaurant spending. Yeah. I don't know. That's a good one. Ben, we got an email. I'd like to remind Ben that car horns were invented to warn others of a vehicle's presence or to call attention to a hazard, not to show disapproval. I don't remember. What did you say about hunking? Are you a frequent? Are you a frequent ? Let me throw an example out of you. This happens all the time. You're waiting in like a left turn lane and it's a longer light. And you know the person ahead of you has got their head straight down,

looking at their phone. Yeah. Light turns green. Way to beat. Yep. Way to beat. Yep. Honk.

Go, a-hole. What are you, you're on your phone like an idiot? What sort of, what sort of honk do you give? You probably give a little toot, right? Let's be honest. Yeah, you give a tooth.

If you're, if you're doing that and you're holding up a whole line of cars, you deserve to get a little honk to, hey, wake up, buddy, get off your phone. But there, agree, there's a world of difference between a respectful toot and an aggressive honk. Oh, yeah, I don't do it. I don't hold it.

I give an it. So I got, I got an aggressive hunk yesterday, actually. Uh-oh. And so how I was, it depends. Now, listen, I guess the thing is, you don't know how long you're waiting for, right? If you're staring at the light and it turns green and you get a hunk immediately, that's the worst.

So I was looking down, guilty as charge. I don't know how long I was looking down for it. Oh, you were the guy I'm talking about. I deserved to be hunk. I did. I did deserve it. But it was a too long hunk. And when somebody too long hunks me, I don't move.

I will roll away at five miles an hour. So you had a standoff. Yeah, I've, yeah. So, but then the person, so, so I'm driving slow and the person is way far behind me. So eventually I drive and they're driving. And it was a half a car. You know those half of cars? I got hunked up.

Oh, yeah. I got aggressively honked up by half a car. And then they were like a mile behind me. That, that really annoys me. If you're going to hunk, at least go, at least speed around me. If you're in that big of hard. Just a little tap. There's probably two buttons, like one nice, one aggressive.

You know how on the toilets in certain states or countries? they have the flush for one, flush for two. That's a great idea. There should be a tap honk in Hong Kong. Yeah. I don't use it much, but just when someone needs a little reminders, there you go. Yeah. Okay.

Matt Bellany tweeted, Horizon, an American saga, Chapter 1, has dropped to a $10 million opening weekend. Not great. That's pretty bad, no? So how much money is he going to lose, Costner? They said he put 30 into it, so I don't know the economics of, you know, margins.

I mean, I'm sure he loved. this to be a resounding success. I don't know. The guy said he got to do what he wanted. I'm sure it was a fun experience. Why doesn't he just sell to a streamer? If Netflix bought this thing, way more people would see it than we'll see it in theater. I'm sure he's probably a theater guy though. Yeah, no, he, yeah. He seems like like this has to be seen at the theater. You know what kind of bombed over the weekend? The bike riders. You'll see that when it comes out. Awesome bought by Tom Hardy. Yeah. I'm a big Tom Party fan. Yeah, 10 million bucks. That's not good. Right? It's pretty bad.

No, not great. I just think it's really hard to get people to go to the theater. But Inside Out is just blowing, blowing up. I think Inside Out has done $750 worldwide. 724. Yeah, it's incredible. Wow. I haven't seen it yet.

Have you? No. I don't think I saw for us. We're waiting for a rainy day to bring the kids. Logan keeps asking me. I watched Monkey Man. It's on Peacock. Dev Patel, who does great work, big fan.

Okay. Looks like an action movie. Yeah, it's like a light John Wick. There was, I'd say, I don't know, it was okay. It was, there was parts of it that were really cool that I really liked, and there was parts that just, like, dragged and weren't overall great. It was, I probably wouldn't recommend it. It was fine.

Some good, some bad. Mixed bag. Is that, are we talking on our movie here, or is it a little lighter fare for my son? Because he likes the action. Oh, no, no. No, it was violent. It was violent. Okay, good to know.

I don't have much, but I realize. It was on Amazon, came up for, like, you might like this. A Guide to Recognizing Your Saints. It was a movie that came out in the mid-2000s. And it's interesting to look back now. It's a biopic of this guy who grew up in Queens in the 1980s. But it does one of those flashback ones, you know, where it's like, here's the guy older and here's him younger with his friends. Holy shit, what a cast.

Look at the cast. So Robert Downey Jr. before he took back off again, a young Shia LaBuff, a young Channing Tatum. all of them, like a young Rosario Dawson before they really took off. Chas Palman Terry is in it. Diane West. Pretty good movie. Eric Roberts.

Yeah. Who directed this? I don't know who this is. The guy who directed it is the guy who wrote it. It's about his life. It's based on a true story. So not a great movie, but a pretty one of those good flashback movies.

I had nothing to watch and it came up as a recommendation for me on the Amazon Algo. They know I like coming of age movies. Yeah. Right? I want to rewatch as I was listening to Kevin Costner. I haven't seen the bodyguard since it came out

and I was seven. I saw it in 1992. Probably a little bit too young to watch it up. Okay. One of my mom's favorites. That's a good movie. The only other recommendation I got since I haven't been consuming

a lot of entertainment lately. I was thinking this. So Tata said of normal returns does all the daily links and just does it every single day. But then on Sundays he puts out the top clicks of the week. And so sometimes if I miss

some of his link fest during the day, he does the top 10 most clicked on. And I look at that every single week on Sunday to find the stuff that I missed. So subscribe to me on normal returns. Still the best in the business at putting stuff together that you need to read. Agreed. Animal Spirits at thecompan News.com.

If you're looking at the end of my calendar, do not rush me. Do not by now me. I'm going to need the list of Michael Batnik email etiquette for how to get on your calendar. I'm a simple man. Just do the right thing. Okay. Have a great week.

Thank you for listening. We'll see you next time. Okay.