Animal Spirits Podcast - Why So Bearish? (EP.272)

Episode Date: August 31, 2022

On today's who we discuss the pros and cons of student loan forgiveness, why the Fed has the ability to talk tough about inflation (for now), the difference between being bearish and being realistic, record high corporate profits, why we're never going to get enough homes built 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 our friends and Y charts. Y charts sent us a new report they put together called which leading indicators best predict market declines. They looked at a bunch of stuff, the Buffett indicator, Tobin's Q, P.E. ratios, CAP ratios, yield spreads between the 10-and-two-year treasury, 10-year and three-month treasury bill, year-over-year earnings growth, all of these. And then they figure out how many of the major declines of these things that are predicted. For most of them, it's 50% or less.

some of them it's more like one-third of the time. And then when they look at the average time between these signals saying everything is a little out of whack versus the time the peak actually happens, a lot of times it's 6, 12, 24 months into the future. So it's kind of interesting. They look at the times it happened and kind of didn't. It's interesting because the one thing I come away with from this report

is that there are no indicators you can use every time all the time that work for you. They're going to tell you something. And also probably... Speak for yourself. That's why I use my own. I use my own. Probably, though, every peak is different.

The one that was interesting to me was that if you look at just like negative year over your earnings growth, it basically never works. It works fewer times than it does work. So anyway, this is really interesting. I think it's just, it's a good reminder of being humble for a lot of these things. So if you want to take a look at this, I'll have to do is give me your email like this. Or it's a good reminder that you've got to work harder. Find a new, got to find your own indicators.

Okay. I think there's a threat about that somewhere from an influencer, how to make your own indicators. If you want to take a look at this, we'll have a link in our show notes. Go to Why Charles Tell me Animal Spirits sent to you. You get 20% off that for a subscription. 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 Ritthold's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Rithold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Look, I want to start off today talking about the student loan forgiveness thing because we

got a ton of questions about this from people. Some people are really angry. Some people trying to figure out why people are so angry. I wrote a piece about this. But I wanted to do a little bullish game here. I'm not saying this is good or bad, but based on this happens. First of all, in bullish household formation, because I think that there are going to be some psychological benefits to this, people who thought that they had this debt hanging over them,

now that they don't have it as much anymore in some cases, that they could go out and buy a house. So I think if we have a median home price of like $850,000 in 2029, we could blame it on this. How's that sound? Fair? Can I ask you a question or do you want to go through your list first? You can ask a question. You're a co-host here. We're on your time right now, so I want to be respectful. Go ahead. This $10,000 forgiveness, I think this matters. Does it wipe $10,000 off the total bill making each monthly payment smaller?

Or if you pay $1,000 a month, do you have 10 months that you're good? I think it makes the bill smaller. You're the first person that's asked this question, though. I haven't heard of seen it. Okay. Thank you. If this was 2020, though. But don't you think it matters?

Yeah. I feel like if you have $10,000 of payment. that are not deferred slash eliminated, that might change short-term spending behavior more so because if you've got, I'm making this up, $64,000 in student loan debt, and that goes to $54,000, does that take your monthly payment down by $40 a month? Does that really change your spending habits? Yeah, it's not changing much. The thing is, it's going to change people who have $20,000 or less probably. Those are the people who are probably going to have the biggest impact. I mean, they said it's going to be 43 million people that this is going to impact. It's a lot of people.

I guess if this was 2020, you could say maybe Robin Hood would benefit, but it's 2022 and they probably won't. Definitely old rich people especially who like to complain about young people. I'm bullish on that because old rich people love complaining about young people. Tell us old as time. I'm embarrassed for people who just paid off their loans. I'm embarrassed that colleges will actually reform anything from this and I'm embarrassed that the government is still charging such high interest rates. I've talked about this before. I had like 20 to 25,000 in student loan debt coming out of college, which back in 2004 when I graduated was pretty high. relative. But my interest rate was two and a half percent. And guess what? The 10 year was way

higher back then. We keep getting emails from people saying my interest rate is 8% or 7%. I don't understand why the government, since they hold the majority of these loans, why they are charging so high interest rate. My theory has always been just cancel all the interest on all these loans. That's the most fair compromise. But no one at the White House... We need reform. We need some reform, some policy changes. I'm happy for everyone that got their loan forgiven. And I understand why people are upset. I believe you me. I get it. But can't we have some real change? This doesn't do anything. My whole piece was talking about some new ones here. And I understand why there are certain people that are very happy about this and why there are certain people who are very angry

about this. And like if you were a person who just sped up your whole thing and paid off all your loans and then this happens, I'd be pissed. I'd be mad. I can see why some people are mad. I can see why some people are happy. I don't think it's an all or nothing thing at all. Here's the one thing though. I think it's nice. I totally can poke holes through this policy. There's a lot of stuff wrong with it. The one good thing I think, when in the last like 20 years have young people ever benefited from the government? There's a high cost of college, there's a high cost of daycare, high cost of housing. Young people have been screwed over for years and years. And old people, especially old rich people, have been getting tax breaks for decades now. I think it's just kind

of nice that guess what? Young people are finally getting their own handout because everyone else has got one. That's fair. Jason Furman tweeted, pouring roughly half a trillion dollars of gasoline on the inflationary fire that is already burning is reckless. Doing it while going well beyond one campaign promise and breaking another is even worse. Now, Jason Furman was the head of Obama's as a council of economic advisor, something like that. So this is not a right-leaning person. Is this going to impact inflation? They've already had the moratorium on since 2020, and they just extended that anyway. I don't know. Again, the biggest thing I could see that would be like a

psychological benefit. If someone would say, I had these two. I mean, we've been the best timing. I get that. I totally get that. But listen, this is politics. No secret to anyone. We've got midterm elections coming up. And so it's what it is. I do wish, I'm sure many sensible people wish that this could actually lead to some policy reform. For example, how many pieces of debt? I don't know why I said pieces of debt. But how many pieces of debt? I eat pieces of debt like you for breakfast. Well done. All right.

How many pieces of debt stay with you in bankruptcy? That's one that makes this so bad. It's like maybe even like making a slight change like that, just saying people can now declare bankruptcy and get rid of those student loans. You're a good audience. You've been laughing pretty good today. It was a good time to play a joke. I just, this is one of those.

topics where there are certain topics that I will pound the table on. For whatever reason, maybe it's where I'm at in life. If I was in my 20, I might feel more strongly about this one way or another. But I feel like right now, I'm not willing to die on either hill for this. That this was a great thing or a terrible thing. I think it's got pros and cons. That's kind of my down the middle way to play this. Oh, you're right down the middle. That's so shocking. I know. Listen, sometimes it's, is it'll say, well, one group is being more. I agree with you. I genuinely understand people that think that this is unfair. If they just paint it off, here's one. through that I will disagree with. I don't know that this encourages, that this changes anybody's

future behavior. I think there's a moral hazard. So now what? Everyone's going to take out debt because there's going to be the hopes of forgiving it. I don't buy that. But you could also say, why just college debt? What about credit card debt? What about targeting credit card debt for people for the lowest quintile income of American, something like that? I don't know. I'm just The thing is, if they canceled $10,000 of everyone's credit card debt up to a certain income threshold, that would be way more inflationary to me than student loan debt. I was to say, and that's a moral hazard. Maybe you do that one time.

Yeah. Yes. Anyway. I've got a new thing for Fed day. So the Fed had their Jackson Hole meeting, which, why does a Fed have to meet in Jackson Hole? Like, is that just so they can change out of their suits and wear cowboy hats and the coats with like a little...

I'll tell you. I'll tell you. That's exactly why. Josh told me this on TCAF that it used to be held in... This is for the Kansas City Fed. It used to be held in Missouri. I figured who it was. Was it Volker?

I can't remember. Somebody wanted to go fishing. And so they went up to Montana. Okay. Yeah. So I was out. Is Jackson Hole, Montana, or is it Wyoming? What was?

Jackson Hole, Wyoming? Wyoming. Okay. Sorry. No. No. I mean, I know Wyoming very well for my CJ box book. I know Yellowstone is in Wyoming, Montana, and a hide-out.

I decided to follow suit since they were going on vacation in Jackson Hole. And I took Friday off, the kids had school off, and we went to to the lake all day. I didn't pay attention to the markets. Stocks were down, I don't know, 3%, but I didn't care. So I caught up later. Here's something from Jerome Powell's speech. Restoring price stability will take some time and requires using our tools to forcefully bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below trend growth. Moreover, there will very likely be some softening of labor market conditions, while higher interest rates, lower growth and softer labor market conditions will

bring down inflation. They will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation, but a failure to restore price stability would mean far greater pain. He said pain twice in there. That can't be good. Here's the thing. I think that the Fed right now, talking tough, is like your friend at the bar who gets a little cocky after three Jack and Cokes, tries to start a fight with someone and then immediately says, hold me back, hold me back. That's the Fed right now. They're the guy at the bar saying, hold me back. You want to know why? Because the stock market is still just in a correction, not a crash. The labor market, is still resilient and very strong. And if you look at, look at this chart I put in here of

Fed funds rates and inflation. Inflation is so far above Fed fund right now that I've got this data going back to 1950 or so. They have a ton of room to work with here. So they can talk tough all they want. Tell me what happens when the unemployment rate starts going up if they're still talking tough. That's when I really want to see, is the Fed serious about this or not? Because they can say all they want right now, but I feel like they're just saying, hold me back, hold me back. True. That is a point that is accurate. Michael O'Roney, who we've spoken to from State Street, said the biggest surprise here is that investors were bracing for Fed Chair Powell to talk tough on inflation, yet are reacting

negatively after he did exactly that. It appears investors were naively hoping for a Powell pivot, but instead he doubled down on the Fed's inflation fighting credibility. Yes, stocks got clocked on Friday. I don't see how you can take one day and think, all right, now I know exactly what the Fed's thinking are doing because of this one day. This gets back my point I've been saying about the Game 7 thing. Everyone wants to read into every little gyration and move in the market.

Sometimes this stuff just happens. It's way more random than people think. Fair? Mostly. Things are so weird that we haven't even really spoken much about the yield curve, which is inverted all over the freaking place. Look at this chart of the two-year treasury rate, which is basically at how many years ago? Is that 15-year highs? I got to throw a yellow card for your chart here.

What a weird chart this is? I'm from a yellow card. Look at the lines on your chart. Which one? The lines that go to the numbers. You can't have those lines on there. Come on. That's a rookie mistake.

Why? Can't have those lines. Why? It looks bad. Come on. No, you know why it looks bad? Take those lines off of there. No, no, no.

It looks bad because by accident, that's an astute observation. I clicked black on those lines. Usually they're faint gray. So they stand out less. You're right. Good call. But look at this. The six-month treasury yields 3.2%.

And the tenure is 305. So normally, when the yield curve is inverted, and I don't know, people talk about maybe the three month is not inverted, the six months, all right, whatever, be that as it may, you've got shorter term rates above longer term rates all over the place. And in ordinary times, and this is anything but all we would focus on is the inverted yield curve. Remember? In 2019, when it inverted, we had Cam Harvey come on the show. I mean, that was like headline news for a long time. We don't even talk about it. There's so much other stuff going on.

I think that's the problem. That's my point. I know. My local credit union for years has offered three percent. checking. And they've used that as a huge selling point for coming over to them. I feel like with the yield curve where it is right now, not a very good selling point anymore. I need five percent checking now. If the six-month T-bill is going to be at three percent, I feel like a lot of these places need to up their game. What's our Marcus now? 1.7 percent? I don't know. I don't

have money Marcus anymore. I'm straight bonds now. New York municipal bonds. Ben, we got an email, and I put this in the dock before Friday, so I'm definitely not like patting ourselves in the back or anything. But somebody emailed us, or maybe this is a comment on YouTube, actually. you guys sound bearish every episode. I don't know if that's true or not. Maybe it's true, but sorry for telling you how I feel. With the caveat, I'm not trying to scare anyone because I'm wrong all the time, more often than not. I'm not doing anything. I'm not saying that you should reduce your stock exposure because I think the economy is in a trickier place and it has been for the last decade. But how could you not sound a little bearish? I mean, the Fed is trying to

soften the economy. And guess what? It's working. What do what I'm going to say? is slowing. Open your eyes. This is the first time I think I've ever been called bearish in my life. I'm unapologetically bullish on the long term. Always. Never bet against America, the U.S. economy, all that stuff. But I think it's okay to like mention when there's things that are bad going on. And inflation at 9% is not a good thing. Yeah, the Fed trying to slow economic growth also not a good thing. Here's the thing. It's not as if stocks are in an uptrend. And I'm saying, oh, just wait. Like, just wait. This is going to end badly. We don't talk that way. But the stock market is in a downtrend

and the economy is slowing and the Fed is removing liquidity and the housing is slowing. The S&P 500 has been below the 200 day moving average

for 99 days. It hasn't done that. It hasn't been in a downtrend like that since 2007. So the market's bearish, not me. I'm not doing anything.

Also, I don't know why I said about there we're getting. This is a good thing though for a lot of people. If you're saving money, it's okay to have bad news around a while

and it's okay to talk about it too. Like you don't have to just close your eyes and pretend. Just because you're a long-term investor doesn't mean that you close your eyes and pretend nothing bad is ever going to happen or nothing bad is happening right now. It's okay to have both those thoughts in your head that I'm investing now for the long term and I think things are going to be way better in the long term and they could get worse in the short term. That's okay to have those two competing ideas in your head.

I don't know if this makes me like if I feel more bad or more bullshit about this data point, but corporate profit margins, maybe stocks are not the economy. Corporate profits are at all-time high still. And I suspect that they're going to be coming in a little bit because inflation is starting to eat into that. I guess you can make the bear case saying that just wait until these come down. But I feel like the market is smarter than that. The market knows that margins have to come in. So, well, we see two data points here from Cal and Thomas. He said in Q2, U.S. corporate profits surpassed $2 trillion mark for the first time. And Lizanne Saunders said, profit margins in the aggregate rose to 15.5% of the second quarter of 2022, strongest since the end of

1950. I don't know why they were so high in 1950, but here's the thing. This is why I think the stock market is probably for the foreseeable future, and it has been for a while now, just better than the economy. A lot of people will say the stock market has to kind of track the economy over the long term. I don't think that's true anymore. I think the stock market is better than the economy because corporations are better at pulling money out and profits out of people. I was going to say the corporation is in better shape than the individual. Yes. I think big corporations can do better than the economy because they have such high profit margins now. This is a great chart from Bespoke.

We've spoken about this many, many times how bonds have not cushioned the blow for stocks to investors with balanced portfolios. So they show a scatter plot showing the year-to-date total return on stocks and bonds. And of course, 2022 is a huge outlier. Never seen anything like this. Weird times in the economy, weird times in the market. So if you look at it, the ag bond ETF, that's just I shares U.S. Aggregate Bond, which tracks the aggregate bond market. It's still down even on a total return basis, 11% this year.

Well, because interest rates are coming back up. Interest rates came in a little bit for a second, and now they're coming back up. It is kind of crazy to see bonds down double digits in a year. All right. So I talked about how the Fed has a margin of safety, and they're just saying, hold me back and talking tough. And I think it's because the labor market is still so strong. The Wall Street Journal had this article, and they talked about two people who got laid off. and basically got better paying jobs within a week or a day of getting laid off.

So here's two anecdotes. This is about this person from Tampa Florida. Within two and a half weeks, the Tampa Florida resident had advanced to the final stage interviews. This is after they got laid off with seven companies and scored an offer from two of them. She accepted a remote copywriting job at Walgreens in late July with a salary 50% higher than her previous job. Now, here's another guy.

Around 1 p.m., the same day he got laid off, a recruiter for Baldwin risk called Mr. Pearson with a job offer in sales management, told him it was a first of a first time he had made an offer to someone the same day, this guy went from a salary of 60 grand to 115 grand, the same day he got laid off. These are anecdotes, obviously. But I think one thing we're seeing from a lot of people is, remember back after 2008, everyone was being told, you're lucky to have a job right now. Why would you want to try to find a new job in this economy?

What are you thinking? I think a lot of people are probably realizing now that maybe they're worth a little more than they thought, especially if they try to go to a new employer. And I think that the Fed still has this wind at their back. I don't know how much longer it's going to last, but this is why they're able to talk so tough on inflation because the labor market is still just scalding hot. And here's another thing making matters weird. We haven't really spoken about this.

I think we spent a lot of time in the back half of 2020, 2021 talking about the shift to work from home, the ramifications that this is one of the biggest shocks to the labor market and all the ramifications of it, which are still unfolding right now. Nick Bloom tweeted a chart, the percentage of paid full days of work from home. And he said, on this chart, steady, steady, steady higher than the massive spike. In America alone, this is saving about 200 million hours and 6 billion miles of commuting a week. Think about how much happiness that gives to people that are not having to drive forever to their job or sit in traffic or sit on a train. How much time are you saving on a train in a month?

probably 20 hours, 30 hours maybe. My happiness is definitely, I don't know, I'm high, not to brag. Here's the thing. I agree that like the work from home stuff, it kind of got put on the back burner for a while because all this other stuff came to the forefront. But I think there's going to be ripple effects

to this stuff for years just in terms of, think about the housing market versus commercial real estate and the values there and this commuting stuff and business travel, all these. Here's another one. So I've been remotes for seven years now. And the thing about business travel now for us is when I come to see you or we go to a different city to see each other,

it's mostly there's a little bit of work involved, but it's mostly socializing time. And so I think more of those business trips are going to be about finding places to go socialize and introduce yourself or have more social time with your coworkers. The last two business trips I've taken, one was to Chicago, and it was basically to go to a Cubs game with a bunch of our coworkers. The last time, I came to New York a couple weeks ago, we had a pool party and a cookout.

I think you're going to have to have more planned social events in the future for this kind of stuff, especially for young people who want to get to know their coworkers better and they're coming into a remote first employer, right? Yeah, I think that's right. What other impacts are going to have to work from home? I mean, we still haven't really, I don't think, seeing the impact, or at least the long-term impact to commercial real estate, office space. I think you're going to see a massive shift from, I feel like there's going to be a pivot point from commercial real estate values going into housing. I think housing is going to be the biggest beneficiary of this in certain areas.

where people have left and decided I don't need an office anymore. We've spoken many times about gasoline and crude oil, and it seems as if gasoline jumps very quickly when crude oil goes up, but when crude comes down, it's not the case. And we've spoken about how and why. But actually, look at this chart of U.S. retail gas and crude oil. Track's pretty good, no? That's not bad. So last week I said, it's kind of surprising, a lot of people probably be surprised to know that crude oil is flat on the year. It's gone nowhere since the start of the year. Exactly, the energy ETF is still up 52% this year, which is kind of wild to think about it.

Oil has gone nowhere, and energy stocks are up 50%. Do you think that has more to do with, obviously, they can make money doing other things like refining and all these other things, but they're not just selling gas, obviously. But do you think a lot of that is more positioning than anything that more money has gone into energy stocks this year? I can't tell you. I mean, I know the fundamentals of energy stocks are, I don't know if they're at all-time highs, but are looking obviously significantly better than they have in the past. Wait, better as in the ratios are up or better as in they're more attractive? Everything. Free cash flow yield, like all of the fundamentals of the businesses are in amazing places. Okay. From bespoke, the price is paid component of all five regional

fed surveys declined in August. And all but one is at least at its lowest level since January right, 2021. So who knows, again, if this is a combination of supply chain's healing, demand slowing, Fed, all of the above. Lumber at a 52-week low? Look at this. It's not bad. This is another thing that is ridiculously volatile. And I guess if you bought lumber at one of the highs and you built a new house, how badly do you have to feel? Like, let's say you bought lumber and locked in a 6% mortgage. Lumber at the high is 6% mortgage. That's tough. Give those people 10 grand. Yes, to offset their lumber costs. You get 10 grand.

We spoke last week, Ben, about median prices of homes and median days of market. It appears as if the median days of market has bottomed. I think we said it was 14 or 17. I can't remember now. It's up to 23 days. But the median price of a new single family home is coming down fairly, at least a year, all these are year over year changes. So maybe that's not accurate.

Oh, my neighbor. My neighbor lowered his price. Did they? How much? Not enough. $6.99. But, I mean, talking about things coming down, this is just the year over year. This is like disinflation.

This is not like negative so far. This is just the growth rate is slowing. Yeah. If Zill offered me the opportunity to bet on this person's house, I'm going to say like, I think he's got 100 to go. I think this is like a 615er. Okay. So they even over under.

You'd say under. I'd put the over under 615. That's tough. I put it over on. I saw the 30 year from Lance Lambert. The average 30 year fixed mortgage rate jumps to 5.95%. The range, the 52 week range of these things is ludicrous. of mortgage rates.

Yeah, you sent this to me last week. It's kind of crazy that those could happen. So the 30-year fixed in the 52-week range is a low of 2.9 and a high of 6.3. That is a massive amount of money in a house for your monthly payment. And Ben, you had, as far as I'm concerned, this is your tweet of the year. This is from at a wealth of CS. My guess is Kevin Durant is locked. When I started my Twitter handle, I was doing it just to share blog post.

I probably started this in 2013. No one told me you have to make a good Twitter handle. Okay? I didn't know it at the time. I can't change it now. It's too late. That's on me. You can change it.

You could change it. What are you? Like, Ben Carlson, 4269? Like, I couldn't find anything now. No, you could change it. What? Do you think there's another Ben Carlson? Probably.

My guess is Kevin Durant is locked into a 3% mortgage rate and simply doesn't want to buy a new house with a higher rate, so no trade. It was a good joke. Not bad, right? Very topical. Bill McBride is something else. He says, divorce is usually one of the reasons people still. their homes, death, divorce, unemployment, et cetera. I spoke with a divorce attorney yesterday, and she told me couples are struggling with what to do with their homes because they have

3% mortgage rates and plenty of equity. They don't want to sell and pay taxes and then buy at 5% rates, and the spouse keeping the house doesn't want to refinance at these higher rates because you'd refinance to unlock some of the equity, I would imagine. They're looking at HELX to cash out, but that increase in mortgage rates makes it more complicated. So I think low mortgage rates, if they were to happen, totally kills the plot of the breakup. Remember what happened in the breakup with Jennifer Anderson and Vince Vaughn? They owned a condo together. Jason Bateman was their realtor. Do you remember this movie or not really? I really like the breakup. Of course. Of course. It's Chicago. Yeah. Then they decide to sell and take the money out. If that

happened today and they had a 3% mortgage locked in because they refinanced, there's no way they would sell that. They would figure out a way to make it work. So at the end of the breakup, spoiler alert, they don't make it together. They sell the house or they sell the condo and they go their separate ways, which was kind of a tough ending for some people. I thought it was okay. At the very end, they pay, yeah, that's tough. But if it happened today and they had a 3% mortgage rate, they would find a way to make it work.

Maybe Vince Vaughn and Janfranes would still be together if mortgage rates were lower back then. So here's the lead in the Washington Journal. David and Melissa Hostetler considered cutting the list price again on their Rockville, Maryland home in June. Instead, they decided to dangle another goodie before prospective buyers. Their low-rate mortgage could come with the house. Whoa.

Mortgage assumption, as a practice. this is no, don't get too excited. Is garnering attention for the first time in years? It is typically allowed in government-backed mortgages like the Department of Veteran Affairs programs. The house settlers used when they bought their house in 2019. So this is an interesting little wrinkle, but apparently like the article, like I just said, it looks like it's only available to a very small slice of the population. But could you imagine that's a game changer? But if you did that, wouldn't you increase the value of your house by like 100 grand to make up for the high mortgage rates now? Like you would say you can have my 3% mortgage, but I'm going to need you to pay a premium.

Oh, you'd pay a dead body? No, you'd ask for a premium. Yeah, of course. But what if then you could then buy somebody else's mortgage? People send us all the time that apparently can do this in like Canada and Great Britain. The housing markets are, or mortgage markets are different there. You can move a mortgage around, but you're, I don't think you can lock in the rate for 30 years there. So you can do this, but not a bad idea. Who is this from? Len Kiefer. While institutional investors and I buyers got a lot of press, they are pretty small share of the overall market. This would surprise a lot of people. So it looks like institutional investors and I buyers are responsible for less than 4% of purchases. It's tiny. It's still very tiny.

There was news this week that Blackstone is pausing their residential real estate efforts in, I think 38 markets. I don't know if that's all the markets are in. What about Vanguard? Are they still buying homes? Ben. Bengar, it's not in the homebuyer market. No more apologies. All right. Let's get into. We're still in the thick of earning season. InVIDIA reported, oh, here's what I want to say.

So I'm listening on the quarter app to a conference call this morning, an earnings call, I should say. And the handyman was hanging a ceiling fan in the guest room, Ben, where you stayed without a ceiling fan. And he walked in and he said, oh, you're a finance guy. So we started talking. He's telling me credit to him that he's got. had a million dollars in a multi-family unit and he's got rental income and his house is paid off. But he doesn't have money in the market because he's pretty risk-averse. And he's asking me, not for advice necessarily, but he's like, what sort of yields can I get

these days? So I'm telling him about the risk-free rate and that's sort of your baseline and you could get more yield if you're willing to take more risk. And he starts telling me that he's- You're giving the handyman, the CAP-M assumptions? No, no, no. I was giving him the risk-free rate. I mean, I'm not giving him any betas, but I'm giving him the risk-free rate. So I said, listen, for six months, no, you can get three and a quarter and then go from there.

He told me that he's big into crypto, which was interesting considering that 10 seconds earlier, he had told me that he's pretty risk-averse. But I kind of thought that it was just Bitcoin and Ethereum, but he went down the list. He goes, I got Bitcoin, Ethereum, XRP, Cardano, those things aren't going anywhere. And I'm like, well, yeah, I'm bullish long term, but these things can. got cut in a half again. Who knows? Interesting that someone would be... Sentiment is in the toilet right now.

Someone would be really into crypto, but not the stock market. That's surprising. If you could handle cryptovoluntary, you can totally handle the stock market. Yeah. He made it clear that he's not too fond of the current administration said that things went to hell. So he's not comfortable in the stock market. As always, just use your politics to invest. That works every time. So there's no precedent of crypto. Anyhow, I just thought that that was... I don't know what I thought it was, but nice guy. Very nice guy, actually.

How many handymen do you keep on your staff? Because you have handyman working all the time. Plumbers, handyman. You got a whole staff over there. You don't have a plumber? You don't have a plumber, sir? What do I need a plumber for? Your house when shh breaks.

Luckily, we built it a new house five years ago. Nothing broken yet. Nothing bad yet, at least. All right. You're in trouble. All right. You should find a plumber before it's too late. So, Invidia.

Invidia, the stock was down 9% I think on the day. The stock looks like shit. It's 52% of its highs, which is basically about the biggest drawdown in the last decade. Quote, right from the open, this was a challenging quarter. Total revenue of $6.7 billion was down 19% sequentially and up 3% year over year, below the $8.1 billion we provided on our last earnings call. That's really bad for the record. Gaming revenue of $2.04 billion was down 44% sequentially. All right, people are getting outside.

And down 33% year on year, reflecting challenging market conditions. Okay, fair enough. But here's the thing, Ben. As discussed in May, we expected a sequential decline in gaming revenue due to softness in Europe related to the war in Ukraine and COVID lockdowns in China. If you're going to blame the specific macro on your challenges, I need regional breakdowns. Tell me, if you're going to blame the war, then say 47% of our business isn't Eastern Europe. Man, have you looked at the drawdown chart from Vividia?

This is a stock that goes back to 1999. Sir, sir, are you listening to the podcast? What? I just said that. Well, you said it's 50%, right? I said this is as bad as a drawdown as it's had over the last 10 years. It had another one. Go on.

Sorry, I'm going back 20 years. I'm trumping you here. We had 80% drawdown in the tech bubble. No, sorry, 90% drown in the tech bubble, 80% in 2008, 56% in COVID, and now 52% now. This is a volatile stock, to say the least. But gains have been massive, at least. Yes, that's the tradeoff. You know what?

with those in the dock, just so the viewers can take a gander. All right, we had dollar stores report last week. Dollar Tree bought family dollar. Remember that? Remember Family Dollar? So I was at a family wedding this weekend and my dad mentioned for the first time in his life, he went into a dollar store and was like blown away. He'd never been to a dollar store before. First time. Yes, which is surprising because my father was a very frugal man and he has never been and he said that he went there because he needed a pair of shorts for the hot tub in his hotel room, his hotel pool and picked up two pairs of shorts. And I'm like, Dad, why did you go to the dollar store to get shorts? He picked up one pair that was a double XL. That's bold. And one pair that was a small

and he said he held them up together. And the double XL and a small were the same exact size. So that's what you get for $1.25. So. Okay. So dollar tree is actually a dollar 25. They mentioned inflation 14 times on the call. They lowered guidance. The stock had been doing actually very well, but it fell 15% in the two days following the call. Here's a quote. Inflation is at its highest in decades as shoppers are experiencing higher costs related to food, fuel, rent, and more. Supply chains have been strained and inconsistent.

Inventory levels are higher across retail and consumer shopping patterns continue to zig and zag. Do they not? They do. Just like inventories or retailers. They said discretionary comps fell four percent. as shoppers continue to manage this inflationary environment, although I got to wonder, I had a dollar store. I guess you are seeing changing spending habits at dollar stores, even though everything is $1.25. They got a 3.3% increase in average ticket, meaning people

are buying more, which more than offsets of 1.2% decline in transaction count. So less transactions, bigger buckets. I am surprised that you're not seeing more people go to dollar stores with inflation being this high. Well, actually they were. Dollar General did quite well. We'll get to that a second. So we spoke about, like, margins have to, there's only so much cost that you could pass on to customers. So here's another quote from the call. Our suppliers are being hit with inflation as well. This along with our commitments to competitive pricing and the value proposition is expected to negatively impact our gross margins in the near term. So they guided down, listen to this little nugget, Ben, dollar tree sales continue to be negative. It really is a global supply chain.

Dollar tree sales continued to be negatively reflected by the global helium shortage. This directly affects balloon sales. How about that? Okay. That's a random one. Okay. So dollar general, again, same store basically. It's bigger, though. They mentioned inflation 16 times. And listening to this, dollar general is way more upbeat. So wait, how are you getting the mention? So this is, you're using the quarter thing where you can search by word that are getting these numbers? I search by word. But you can do now. No big deal. Dollar general, they say we remain committed to offering products at the $1 or less price point, does that mean that all of their products are still $1? I don't know. You listen to the call, not me. You said you go to dollar stores. It's $1.25

where I go. I think ours is a dollar tree. Which one do you go to? Dollar tree. I'm not a dollar general guy. You must go to the tray. Yeah. You must go to the tray. But they sound the way more upbeat. Here's what they said. The quarter was highlighted by comp sales growth of 4.6 percent to slight increase in customer traffic. So bent to your point where people go in a dollar store, accelerated growth in market share of highly consumable product sales, including in both dollars and units and double-digit growth in diluted EPS. They said that as a result of our first half-app performance and strong start to Q3, as well as our expectations for the remainder of the year, we are increasing our sales outlook for fiscal

22. So Dollar General is executing. Dollar Tree is not for whatever reason. But listen to this. Dollar General. They have more than 18,500 stores that are located within 5 miles of 75% of the the U.S. population. Geez.

They're everywhere. It's not bad. They're everywhere. All right, moving on. Toll Brothers, the stock reacted negatively to earnings, which you'll find out why in a second. The stock is 38% off its highs. Here we go, Ben.

We reported earnings of $2.35 per share up 26% compared to the third quarter of 2021 and driven by continued gross margin expansion, which was an improvement compared to last year and better than guidance. However, this is why they fell. Although we achieved record third quarter revenues, net income and EPS, and our revenues were lower than anticipated due to fewer deliveries than projected, the shortfall resulted from combined impact of unforeseen delays with municipal inspections, continued labor shortages, ongoing supply chain disruptions, and a softer demand environment.

We missed our delivery guidance by 336 homes. Due to these challenges, we are lowering our guidance, our delivery's guidance, for the full year. They said, as our third quarter progressed, we saw a significant decline in demand. as many prospective buyers stepped to the sideline in the face of steep increase in mortgage rates, significantly higher home prices, a volatile stock market, and rising inflation. Buyer confidence was also impacted by the nonstop headlines about a softening housing market and by a general sense of uncertainty regarding the future direction of the economy.

All these factors led to a market change in psychology, and buyers remain cautious through the summer month. Well, that's the tough part about this from a real estate standpoint, is that these home builders are never going to want to build a bunch of homes again. Every time they do, they get a slap on the wrist, and they're like, screw it, fine, we'll just build high-end homes for people. And the inventory of houses is just never going to increase again. I feel like these home builders just, it's so cyclical.

Unless the government really does something that makes it worthwhile for them to build a bunch of homes, it's never going to happen. So they said that buyers were on the sidelines, which is something that we spoke about last week, about there just being a huge bid-ass spread because sellers are anchored to the highs naturally. But I think the long-term point, I think, is important. They said, because we've talked about how, like, yeah, home prices are going to come down, but there's probably a higher floor, at least my opinion, than most people think, because there's still so much demand. They said, despite the near-term uncertainty, we believe that many fundamental drivers that have

supported the housing market in recent years remain firmly in place. These include favorable demographics, with more and more millennials reaching their prime home buying years and baby boomers relocating as they embrace new lifestyles. The under supply of new homes over the past decade, which has led to a large deficit and tight supply of homes for sale. Migration trends driven by more workplace flexibility and the greater appreciation for homes that Americans have embraced in the past few years. We believe these long-term secular trends will continue to support demand for homeownership well into the future.

Do you agree? Yes, but only for a certain subset of the population. I feel like the inequality in the real estate market is just going to continue getting wider and wider and wider. And there's going to be no more starter homes being built and it's going to be more high-end homes. It's going to be homes over $400,000 for people to be. can afford it. And there's not going to be enough homes made to get the appellate of people who want to buy homes. And they're going to be priced out. Did you see a mint condition

Mickey Mantle baseball card sold for $12.6 million? I didn't see that. You see like most of the froth coming out of the market, a lot of like these speculative like the collection things. But this was the most ever spent for sports memorabilia, by like a lot. The record prior to this was a $9.3 million jersey worn by Diego Maradona. I don't know who that is. He's, I guess he's a soccer player. Yeah. He scored the contentious hand of God goal in soccer's 1986 World Cup.

Ben, you know about that hand of God goal? I don't know about that. Sure. Here's the interesting thing about this list. So they list the top 10. I've heard of Maritona before. So like the top ones are Mickey Mantle and Honest Wagner. But then you're all these new ones on here.

So there's LeBron James and Luca Donchick and Patrick Mahomes and Mike Trout. It's interesting that some of the newer cards are actually getting on here so quickly. You'd think a lot of it is just old cards and there aren't enough of them so people pay up for them. But these are newer. But I bet you it's the opposite. The new card manufacturers, maybe they same as the old, but they learn the mistakes of the old ones, not over supplying the market. Because of this Patrick Mahomes, one and the LeBron ones, they're probably like super, super rare. If you don't follow Samrose substack, you should be.

He did a post over the weekend talking about higher income household spending is changing. So he's got this chart from Bank of America, and it breaks down spending, total credit card spending over May, June, and July based on where people fall in the income spectrum. And the highest income group, which is people that make over $125,000, their credit card spending was down in May, June, and July. Your thoughts? I guess it had to happen at some point. I don't know. Here's a forecast for you. You are going to be spending more at Disney when you go.

Then what? than you think. All right, did you see this story in the Wall Street Journal this week? About yield management at Disney? This is a new one. Even as the company limits its visitors and keeps attendance at its U.S. theme parks

below pre-pendemic levels, they are generating record sales and profits. The results reflect a major strategic shift in Disney's part where the company's focus less on maximizing the quantity of visitors and more on increasing how much money each visitor spends and approach the company referred to as yield management. Improving the visitor experience.

They just want people to spend more time there so they want to create better rides, charge more for them, and have people spend more money. So the biggest change in the past two years, the most lucrative for Disney is the introduction of the smartphone app feature called Jeannie Plus that costs $15 a person per day on top of the price of admission. But Jeannie Plus doesn't cover everything to skip the standby lines that most sought after attractions, including some Star Wars and Guardians of the Galaxy's theme rides. Reservations now cost an additional $10 to $17 per person. It seems like most of these places are realizing let's just make it good for the people with a lot of money. and they'll spend. We know once they get there,

they're going to spend money. I'm sorry to tell you, whatever you think you're going to spend in Disney at 20%. 20? I don't know. It's going to be a lot. I'm just telling you.

Yes, 20%, at least. Sorry. Your 10 grand just went to 12. It looks like airline spending peaked in March 2022. Even though people are still traveling, that was the peak of it. But you know, it's interesting.

Look at the charts of this airline ETF. This looks like crap. This is the definition of, Ben, what do we call this? The worst industry ever, the worst industry ever to invest in, I guess. Okay. So you and I are both going to California in a couple weeks. What are the odds one of us either loses a bag or has a flight delay?

It's got to be pretty high. We're leaving early, so hopefully not me. The airline stocks almost got back all of their losses for a minute in early 21. And they're not quite near the March 2020 lows, but they're not that far away. See. They're kind of far away. But this looks like crap. Warren Buffett was right.

He was proven right. He decided to wait a little longer. All right, Ben, there has never been a bigger chasm between what the audience, how the audience feels about movies and how critics feel. Lucas Shaw did an article for Bloomberg. And he said, audiences have given the top 10 movies an average score more than 19 points higher than critics. By far the biggest difference in century. The only two of the years top 10 biggest movies where the audience and critics are even close are Top Gun and the Batman. in. So look at this next chart. How interesting is this? What do you think is going on here?

One of the theories, critics are just done with Marvel. They're over it. That's probably. And if you're a Marvel fan, you rate all the Marvel movies high. And if you're someone who actually rates movies, I mean, who are the people that actually go on IMDB and Rotten Tomatoes in the first place? Who are these people? Because... Not me. Have you ever gotten done to the movie and gone, ah, I'm going to go give it a rating on my favorite rating website? Sorry. I said to my wife, that was good or that was worse than expected. That's about it. You're right, Ben, Because look at this, Jurassic World Dominion. Which also, worse than expected.

I'm blaming you for this. Which one? Eyes Wide Shut? What the... No payoff. You didn't like it? Listen, I love Tom Cruise. That was probably the worst Tom Cruise movie ever seen.

No, you're wrong. Come on. First of all, the mummy was way worse. Okay, fair. Eyes Wide Shut is a great movie. The first half of it was good because it's like you're seeing build up, build up, okay, something's going to happen, and then all of a sudden it just sort of ended. No?

All right. Agreed to disagree. Fair. I liked it. I don't understand how Jurassic World Dominion got a 70-something. It's the worst movie ever. It was pretty bad. But you know what I love? I love how when you order something on the internet, you could just do this express checkout. You could connect your PayPal, your Amazon, your whatever. But this caught my eye. Metapay? Facebook is getting in on the game? They probably did a while ago. We just missed it. I think this is somebody probably just missed. I didn't know either. I got new socks this week. When's the last time you bought new socks?

Are you a new sock guy or do you tend to hold on to your socks? I get new running socks I have it on Amazon subscribe and say once every six months and the feeling of putting on new socks is pretty hard to explain it's lovely it's euphoric

I think I've gone two years which is probably a year too long if you've been on the fence about getting new socks I suggest you get them all right let's move on to recommendation buy new socks

because it's probably not something that's front and center it's probably not something to think about too often I'm just here to remind you that's why I put it on subscribe and save if you're like you know what

it's been a while It's been a once since I got new socks. Got new socks. And if you haven't, buy some new underwear. House of the Dragon was already renewed. Probably not surprising. But 20 million people watched the first episode. Surprising a little because the last season of Game of Thrones was a lot of people didn't

like it. It's interesting that this many people are on board. I didn't mind the last season. I just want to reiterate, I know we spoke about Sean's freezing cold take last week. He said he preferred blackmos over the, departed, which I didn't even get into, like, Johnny Deft's performance that was, I don't know if was horrible or just weird, but they made him look unattractive, which just none of it worked. The movie was fine.

It's a fine movie. But Duncan did a poll or Nicole or somebody did a poll on here. Which movie did you like more? The Departed of Black Mass. 92% said that departed. And the other 8%, I don't know what's wrong with them, but pretty clear cut there. All right, Ben, I wanted to hit you with something. On Thursday, I went to see a movie.

And I saw The Beast with Idris Elba. Are you familiar with this movie? I'm never familiar with any movies that you recommend. The last four weeks has been movies I've never heard of. So, no, I've never heard of this movie. How was it? It was phenomenal. So Idris Elba takes his two daughters to Africa, and they're hunted by lions.

The best review, I saw Rotten Tomato's review, it's like Jaws on the Sahara. So I was thinking about this. I'm sure that's exactly how it was pitched to. I'm a huge man versus nature, or not. Nature attacks a man guy. I love when the animals fight back. So with that in mind, I've got my top 10 animal versus man movies. Okay, real quick, this has got a 5.9 on IMDB just so you know.

That's pretty low for my taste. Is that good? Not good. I don't watch anything below a 6 at 5 probably, but keep going. You elitist, you don't go below 6.5? Unless it's a comedy. I don't go above 6.5. Of course you don't.

All right. Give me your top 10. But do you like animal movies? Sure. This is the best box office one that you've had in a while. Brought in $21 million at the box office. That's pretty good. That's actually pretty good.

Give me your top 10. All right. Here we go. Here's my list. All right. Jaws. This isn't going to work because you know a delay. The audience doesn't even know that we're struggling with it.

We're fighting through a delay here. Just give me your whole top 10 and then I'll comment. All right. Jaws Anaconda. Man, I love that as a child. The Revenant. The Grey. Crawl.

Actually, time out. These movies got like a 30, maybe 40% premium, seeing them in the theater. This list is already terrible. The gray, that movie was awful. It doesn't have to see it pop. All right. Okay, because you saw it on your couch.

That's what I'm saying. I saw the gray in the theater and it was terrifying. This sounds like an ironic. This is like an unintentional comedy list besides Jaws, but go ahead. No irony. There's no irony here. With Jennifer Lopez and Ice Cube. Do you remember the ending in that movie?

And John Void. Of course I remember that movie very well. Okay, crawl. Maybe one of your worst recommendations. and the show's history is crawl. Lake Placid. Actually, not bad. Oliver Platt.

Tell me you didn't like Lake Placid. With Betty White. Wasn't it Betty White's pet or something? That's right. Open Water was a shark movie very good. The Edge with Alec Baldwin and Anthony Hopkins. Did you like that one? Yeah, that was okay.

Or is that like a 6.2? Okay, how about this one? This is not good, but I enjoyed it. I started in the theater. The Ghost in the Darkness? Val Kilmer, Michael Douglas? Oh, yeah. It was okay.

All right. And then I'm stretching because these are not. animals. They're more monsters, but the Meg, obviously, is an honorable mention. Another great recommendation of yours. And finally, this is a joke, snakes on a plane. Okay. I actually never saw that movie. I do remember that was like one of the first unintentional comedy movies ever made, I think, though. Yes. Honestly, thinking about this more, could you say Jurassic Park, animals, kind of? Well, literally, I left that off. All right, we got to talk about the rehearsal. Have you been watching this show?

I finished it. Okay. I, four episodes in, here's my problem with this. this show. I get it like this guy is kind of a genius. He went out of his way to make this happen and he obviously has like a very unique mind. I just, as someone who grew up on reality television, like I watched the very first season of the real world. Like the first four seasons of the real world were actually like kind of real people, even though it was a weird situation. I don't believe anything that happens on reality television anymore. And obviously this guy went out of his way to show that a lot of this stuff was pre-planned or just none of this felt real to me at all. It felt like the whole thing was just acted and planned out.

And so I just kind of didn't get it. Like, I got it, but I... Did you think Angela was an actor? Yes. I feel like anyone who goes on reality television has ulterior motives. It's kind of like, to me, like, if you wanted to be a politician today, that like, excludes you from me wanting to vote for you because there's something wrong with you. And if you want to go on reality television today, it's the same thing. Yeah, I don't know that I enjoyed it.

I watched it pretty quickly, so I was just like, what the hell is this? I was not watching season two. I was interested in it, but yeah, I was interested in it, but yeah, I, I, I, I know a lot of people, like, shocked by what happened, but I can't be shocked by something that I think is probably like 97% fake. That's kind of how I felt about it. I'm not for a cynical. But I understand why, like, he deserves props for doing something. Like, I think the best thing he did was recreate that bar in a warehouse. That was probably the best thing that he did. Like, the most interesting thing he did. I can't believe you hated eyes wide shut. I didn't hate it. I just, I was confused by it. It was a very bizarre movie. I don't know. You don't get Kubrick. All right. One more. I got one more here. I think on our Discord channel, someone gave me, I asked for some fiction recommendations. I needed something different. I need to change every once in a while from my detective novels. And someone gave me this book called The Other Passenger. Probably not a Michael Batnik. It feels like it could have been a movie. But it's about an older Gen X couple with no kids who befriends a younger millennial couple. It takes place in London. And the whole, it's affairs and drinking and drugs. And there's like three twists in it. Like someone's missing. it's very mysterious and it's pretty good in that way in the sense that you're kind of always on your toes. But the main premise of the book in the plot is the younger couple is really

angry at the older couple and all most older people because housing in London is so unaffordable that they will never be able to buy a house there. And it's like this generational resentment that you could have bought a house in the past and now buying a house alone made you wealthy. And I feel like that's kind of where we're heading in this country. Because if you look real estate in the UK, it's way, way worse compared to disposable income, any of those metrics than it is here. It kind of feels like we're heading there where future generations are going to look back at people call it 40 and above now and say, if you bought a house, you jerks, you got a great deal and we're screwed. I kind of feel like, well, my handyman, for example,

who is a blue collar guy and I'm sure he has a home paid off and an investment property paid off. All credit to him, but it's hard to imagine a young person, even fast forward 20 years from now, being in a similar situation. I don't know. I think that's going to make young people very, very angry in the future, this kind of thing. Interesting book, not great, but a good little twist book. Look at the end, you kind of go, oh, okay, that was a good twist, so not bad. All right, here's my promise to the audience. I don't know if you could tell, but I could tell. This is a bit of a struggle with it one second, maybe two, a second delay. We're going to look into this. We're going to get to the bottom of this. Ben, do you have a handyman who can come

I'm going to look at your internet. You probably have a three or four guys. Here's the thing. The greatest thing about this is it did not allow you to jump in and talk over me. So maybe the audience will actually like it. I'm not a fan. All right. We'll try to get better next week.

Send us an email, anal spiritspot at gmail.com. We'll talk to you then. Thank you.