The Compound and Friends - 2021 Surprises

Episode Date: December 17, 2021

On this week's episode of The Compound & Friends, Michael Batnick, Tom Lee, and Downtown Josh Brown discuss: the biggest surprises of 2021, the resiliency of the market, 2022 outlook, record buybacks, junk bonds, and much more! Thanks to our sponsor Cadre! Invest in a portfolio of professionally-curated commercial real estate in minutes, check out: http://go.cadre.com/compound 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/disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

So, yeah, the scares are everywhere. And it's like we're doing this all over again. But the good news is it seems like people aren't getting as sick as last year. Is that the way to think about it? That's right. I don't know if you saw what happened with Cornell, but they closed the whole campus. Yeah. They moved everybody to online.

Yeah. They will not be the last. Yeah. But they said a very high percentage were fully vaccinated students. Which is what's freaking people out. Yeah, but no severe cases. Do you think you can just slide down a little bit? Sure.

But then, like with college kids, you wouldn't expect severe cases anyway, though, right? So I had that right? You know what? If they have a pre-existing condition, then it's still going to be severe. Like if they have a weight, like obesity is still 38% of the U.S. Yep. So that means basically 4 in 10 will have a severe case if they're not vaccinated. Are you surprised the market's not reacting more to this, like this uptick?

I mean, I think it's kind of been holding a lot of the travel related stocks back so i think it is so it's not reacting overall you know it started rallying again uh clorox so yeah i was looking at it today this is the first close above the 200-day moving average since January 21. Wow. So for 11 months, the stock has been in a downtrend until today. And, you know, I think because COVID doesn't have fulmite, you don't really need to use Clorox. Well, we don't even think that does anything. Yeah.

So meaning you don't really catch it from services. Right. Yeah. So it think that does anything. Yeah. So meaning you don't really catch it from services. Right. Yeah. So it doesn't really matter. Yeah. So we're done wiping down the groceries this round. I know. That was really silly.

Did you do that? Did you do it, though? I never did. No. Oh, I did. You did? Oh, yeah. And full-blown Purell addiction, like carrying it with me everywhere I went.

I did carry the Purell. Yeah. Like I did the hand sanitizing. I have the little mini Purell hanging off the back of my bag, multiple Purells in every car. I mean, that's smart because that way you don't catch a cold. Right. Right.

I also haven't been sick with anything else uh in the last in the last two years i wiped down some groceries did you yeah but there's like a couple weeks there where i was like yeah but for how long were you not not long for like a couple weeks and like the the worst of things i think we did four weeks something like yeah it was about that that doctor that did the video should be like what i don't even know what video. There was some doctor that showed that you should be wiping down groceries, and that's why people started to talk about it. But that guy should be.

That's like medical malpractice. Do you remember the first two weeks when Fauci was saying no masks? Yes. I think that blew so much of his credibility because it was a moment where everybody was watching no masks. Yes. I think that blew so much of his credibility because it was a moment where everybody was watching. Yeah. And then I think it led to mask resistance. People were like, well, I thought you said they don't help.

Yeah, and it just shows you that there's a lot of misdirection by policymakers because his motive obviously was to try not to get people to hoard masks. But it's such a – it just shows you it is hard to trust policymakers. It was Al Brooks hoarding all the masks. That whole time we found out. Tom, good to see you. That was the justification was like I didn't want everybody to go buy out all the masks.

Yeah. Yeah, bad idea. I still think that we would have had a very different outcome if they would have named the vaccines after Trump and they would have replaced Fauci with somebody that they respect on the right. I think it would have been a different vaccine outcome. I think it would have been just people more willing to go along. What if they called it the big, beautiful vaccine? Yeah, whatever. They called it the big, beautiful vaccine.

Yeah, whatever. No, but if like the Moderna guy was just like, we are calling this the Trump vax, I feel like vaccination rates would have been much, much higher. And then like Democrats. What if we just called it the MAGA vax? I think you're right. I'm saying. And then Democrats would be like, yeah, I'm getting the MAGA vax, LOL.

Like I'm playing along so that my neighbors don't die. You know, I know it getting the maga vax lol like i'm playing along so that my neighbors don't die you know i know it's not the trump fax but whatever like i feel i feel like this is why you should be a policymaker no branding is very important i'm very good at branding they could have made two versions they could have made uh the red vax and the blue vax you go which pill do you want even more galaxy brain when did you get red pilled i mean vaxed yeah which one do you want? I'll have the red, sir. I'm like a purple guy.

I'm like right down the middle. If you put an American flag or an eagle on the red one, like on the syringe. I mean, these are very obvious things. And the blues get the snowflakes? The snowflake vaxx. I love it. I'll take one of each. That's the purple vaxx.

Yeah, exactly. You undecided? Yeah. All right. That's the purple thing. Yeah, exactly. The undecided. Yeah. All right. John, light me up. By the way, Tom, this is John. I know you've met Duncan before. Our media team is growing.

Yeah. What if we just keep getting bigger and bigger people? The next person we hire is twice as big as John. Twice as big as Duncan. Twice as big as John. Yeah. They keep growing. hire is twice as big as john twice as big as duncan twice as big as john yeah so growing so instead of like yeah it's it's the same dna you're just doubling the weight instead of right instead of two social security numbers it's one i don't know if we i don't know if hr will

approve of that type of hiring all right we're ready to go click it up big guy let's go three claps coming in where's the music come on guys duncan duncan where's my. Let's go. Three claps coming in. Where's the music? Come on, guys. Duncan. Duncan, where's my music? Let's go. I can't go until I hear the music. There we go. There we go. But louder, though.

Mike likes his already loud. Welcome to The Compound and Friends. All opinions expressed by me, Michael Batnick, and our castmates are solely our own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's show is brought to you by Cadre. Cadre is a next generation real estate investment platform that provides accredited investors with access to fully vetted institutional quality commercial real estate assets. Cadre has closed more than $3.5 billion in real estate transactions

across more than 22 markets, and they report an impressive track record in the high teens on their website. They are bringing commercial real estate to individuals, allowing them to invest alongside some of the world's most prestigious institutions. And they are backed by some of the biggest names out there, like Andreessen Horowitz, Goldman Sachs, and the Harvard Management Company. Ben and I recently talked to Ryan Williams, the founder and CEO of Cadre and Animal Spirits, so check that out. The talent that they have is a who's who in commercial real estate. To learn more and for key disclaimers and risks, please visit go.cadre.com slash compound. Oh my God. Big show that almost didn't happen. We'll talk about it.

Tom Lee is here. Tom Lee, you know and love. You've seen his many appearances on CNBC. He was on the Halftime Report with me today. And Tom is the founder of Fundstrat. Tell us, give us like the elevator pitch on what Fundstrat is. Fundstrat is a research advisory firm. Okay.

We have two kinds of clients, hedge fund mutual funds. Yes. And that's Fundstrat. Yes. We also have like a family office, RIA, individual high net worth research business called FS Insight. Okay.

And that's more of a web-based business. How different is it to get research to that audience versus like the hedge fund audience? Like what are you giving or not giving that separates that service out? The Fundstrat is a high-touch service. So it's like a concierge level. We do a lot of bespoke work for people. Our research team is essentially an outsourced research arm.

So people give us projects. The FS Insight is more of a push product. Because they're not coming to you for bespoke research, the family office, are they? Well, if they are, then if they need a higher level of service, they should be Fundstrike clients. Okay. Yeah. So FS Insight is more of a web-only business. All right.

So what are we trying to promote today? Let's promote the FS business because that's probably our audience would be most interested in that. Yes. Okay, so where do they go if they're so dazzled by your appearance today? They go to fsnsite.com? Okay. And there's a couple of tiers of services if they want crypto or not. Got it.

But they'll have access to our research team, which is quite large. I think 24 research people. 24 is a bit. We're trying to hire our first staffer for our research group right now. So we've got five people on our investment committee and we're trying to bring in somebody, probably from this audience or from Animal Spirits.

Had an interview today? You had an interview. How'd it go? Not well. Not well? Nice person. Send that person to Tom then. So, all right.

I'm so excited to see you. It's been a while, obviously, but you've been on the show before. You've been on the channel before, prior to us doing this podcast. Yeah, Duncan's been nervous because you were like a big, big guest, right? Didn't the video went nuts for Tom?

Yeah, yeah. It was a big video. How big was Tom's last video with us? Like 120,000 views. big guest right didn't the the video went nuts for tom yeah yeah it was a big video how big how big was tom's last video with us like 120 000 views uh i think drove in thousands of new subscribers when was it we don't think any of that is because of me we think that's all tom what i'm sure it's a mix it was a mix 120 000 views on youtube is a big video for us yeah yeah yeah because we're not like doing pranks on people or whatever. Yeah, we're more in the 20 to 30,000 million. All right, shmoosh.

What? Yeah, go easy. 20 or 30 million? Yeah, a million. All right, so Tom's here. Tom, we're going to start with what you thought was the biggest surprise of 2021. And by the way, not that you were very surprised by this year

because you seem to have gotten this year mostly right from the outset, which we're going to get into in a second. But what would you say was the thing that was most surprising to you? I would say if I went to the highest level and was trying to look down at the market, I think the resilience of the stock market is the biggest surprise. But where was your target in January? Might have been to like 4,600. Nailed it. And where are we as of today? 46.

So that wasn't a surprise to you at all. You're like a wizard. Yeah. You nailed it. But that's a double, that's a 20%. Like we're of 20% kind of year. Okay, so was that like a stretch target for you or you felt really good about it? So I'm working on my 2022 outlook.

So I've been looking at what we said for 2021. No spoilers. No, we're all going to spoil that. But it turns out that the base case is 24% year. Okay. Because the biggest reason is that we expected volatility to collapse. And that was the case for most of this year. We got two VIX spikes, but they were both kind of baby spikes.

Yeah. So the VIX averaged in 2020 at over 27. Most of that was from Q1. Correct. It stayed elevated, though. Didn't it, right? Yeah, it didn't drop. It was the third highest ever for delivered vol.

And so in the two prior instances when vol were, you had a 25% average gain. Okay. So that was our base case this year. Okay. So, so you were looking at it like, look, we know we're not done with COVID. We know we're not done with a lot of the, the, the problems of reopening, but it's unlikely to have an average VIX as high as the one from 2020. Yeah. So you'd have to really keep the level of anxiety high enough to keep an average VIX

of 27. And this year, we're probably averaging 16 or 18. And that drop is a re-rating of the stock market. So volatility plays a big role in your forward-looking analysis. In certain moments, like now where we are are here for next year, volatility is not central to our thinking now to how markets can perform. Okay. So how do you know when to take that into account or not?

It's like it's sort of a signal from noise thing, which means it's the same thing with like AAII sentiment. It doesn't mean anything until it gets to an extreme. One way or the other. Yeah. Okay. We're going to talk about sentiment a little bit later. What's your big surprise for this year?

I've got a few. I don't want to hijack too much of this, but I'm surprised at how quickly everybody was right on the ARK story. ARK had all of the attention in 2020 outside of COVID, like just on the stock market side. Sucked all the oxygen out of the room. And I'm surprised at how quickly it gave a lot of it back and that everybody, all of the people that have been on Wall Street for more than two years were waiting for the young people to have their comeuppance, and it happened so quickly.

And so obviously, it's like indisputable at this point. What are the stats on ARK? How much is it down from its peak? A lot, 40, I think. And there are some individual stocks in there that are down like 60. So one other thing surprised me, and maybe this shouldn't, but Carl Quintanilla tweeted this the other day. The percentage of total household assets and equities is like so far above what it's ever been. And given where we came from last year, this is an interesting chart. And that's with housing prices way higher too.

That's true. That's a good point. Which makes it even more pronounced. For context, this peaked in 99 at around 21%. And I don't know exactly how this is measured, but we're bumping up against 25 percent. Indisputably, and this chart goes back a long time, indisputably, it's not bullish when households are this aggressive. I do think you could easily make the case that it's different this time. Well, yeah, and I would say that my only issue with charts like this is it's based on assuming you have to do a forced ranking, like a forced allocation.

What do you mean by that? That means when you do percentage to 100, right, this is percentage in equities, then households don't necessarily make a conscious asset allocation decision. Right. So equities can become a large percentage because they never sell. And they've gone up a lot. Yeah. But they don't have to necessarily allocate more. Equities can just compound.

Okay. So if your equity is compounding faster than your net worth, it's going to actually rise. So what this is not showing is like flows, for example. This doesn't necessarily show people getting all bowled up. Yeah. So they're not necessarily forced to rebalance. Like nobody every year says my household net worth, I need to reallocate out of stocks. Yeah.

I'm going to trim some of my house and buy some more stocks. That's a good point. People don't write. People don't look at their household net worth, their household total assets, whatever this is showing and say like, I'm underweight stocks relative to where I want it to be. Relative to my primary mortgage? Nobody says that.

And then if you throw crypto in there, like then you're going to automatically say, well, crypto has already broken the scale because it's never been this high. Well, so the other thing is, the other thing is, isn't this just a concurrent indicator? It's like margin debt.

Yeah, like, yeah, of course stocks are higher percentage, not because people got more bullish, but because they like margin debt. Yeah. Like, like, yeah, of course, stocks are higher percentage, not because people got more bullish, but because they went up them. Correct. That's exactly what I'm saying. What's your biggest surprise? Do you have one? Uh, my biggest surprise is that we got through that Delta variant without having to like do the whole great depression conversation all over again. I really did not think we would be able to shake that off to the degree that we did. And none of the work from home stocks worked during Delta. Like they started to crash prior to that.

When was Delta? Was that spring? Was that May? July. It peaked in September, but it started in July. You're looking at the chart. You don't even see it. Like if you were like, everybody's selling off these work from home stocks, they're going to be wrong.

COVID's about to make a comeback or a new wave. So that did happen. And those stocks just continue to get killed. Yeah. I think one difference is with each variant, there's an expiration date. Like the Delta burned out. Yeah. And Omicron will burn out.

I mean, Delta did a lot of damage. More people died in 21 than 20 from the pandemic in America. And I'm not sure if that's true globally. I know it's true here. So yes, it burns out, but like not before it burns. It takes a lot of people with it, yeah. Here's another chart I want to talk about. Throw this one up from Katie Greifeld.

This is a quote from J.P. Morgan's Clinton Warren. We have clients calling in historically when the market pulled back 10%, and then those clients calling to buy in at 5%, and now it's 2%. Any 2% move or so, clients are getting in. Who's Katie Greifeld? She works for Bloomberg. So just the relentless nature of clients waiting to buy the dip. It seems like, again, to this point, it was 10% will get in.

Now it's 5%. I mean, the dip buyers are relentlessly showing up. That's been surprising to me the dip. It seems like, again, to this point, it was 10% will get in. Now it's fine. I mean, they are just, the dip buyers are relentlessly showing up. That's been surprising to me as well. Yeah. I mean, that's a 1990s phenomenon because I was at Smith Barney in the 90s and Smith Barney is wire house plus institutional. And Quinton Stevens, who was head of equity capital markets, we'd have like a weekly huddle. And every time the market was down a little bit, he'd just tell us how much money came in from retail. And yeah.

Josh, a week or two ago, we were like joking, like, is this it? Like, did the stock market just bottom? And the S&P was off 5%. The Nasdaq was off 7%. Now, of course, a lot of the high flies were down 70%. But that was the bottom. And the market just made a new high yesterday. Two questions.

Did the stock market bottom or did Apple and Microsoft bottom? It's two entirely different questions. And one of them has more importance to the S&P 500 than the other. So we've had this phenomenon now, I think, for six months with deteriorating breadth. There is a rotation. There is a new group of stocks that have led in the last six months, but they're not that important or big. The only thing that really matters, if you're talking about, quote unquote, the market,

is Apple and Microsoft. For how much longer can that continue? But, and the giant financials. That's a big piece of the market, too. And those are working. What's the biggest financial? Berkshire is $600 billion. Okay. Goldman is $150 billion. You're going to tell me that matters? That piece of the market too. Those, and those are working. What's the biggest financial Berkshire, 600 billion. Okay.

Goldman is 150 billion. You're going to tell me that matters. JP Morgan, JP Morgan, Berkshire bank of America. They do matter. Okay. Combined.

They matter. Fair. All right. So do you think that this is just a learned behavior, this automatic buying of the dip after 2% because it's worked for so long and people don't know anything else? after 2% because it's worked for so long and people don't know anything else? I think that for the last 20 years, stocks were considered a sucker's game, right?

Because people invested in alternatives, bonds, and thought great blue chip companies were just a sucker's game. Well, whenever they went up, they were riskier. Yeah. Right. And they'd crash anytime. Um, but I think covid showed uh the these companies aren't killable they we might be in a period where pe's go up a lot in the next decade so here's another that was kind of the thesis behind the dow 36 000 book which i think came out in 97

or 98 where they basically said no it's not it it's not that stocks can just become overvalued forever. It's that they've been undervalued for too long. And not that they were proven right or anything, but that was that same idea, which is that we have systematically been pricing blue chip US companies at too low of a multiple for the history of the stock market, given how much return we've gotten from them. And that was their big idea. Is that like pie in the sky thinking?

You know, like that's not a great timing thing because you never, I mean, he was right, but it took 20 years. He doesn't get a victory lap for that. Yeah, that's right. He had two 50% crashes right after. If someone's already having grandchildren before he's right then it's it was too early but you know after gfc credit knowingly mispriced uh instruments because i don't know if you you know cds people don't follow as closely as they

used to but if you took a company like cisco and the cds was actually fairly tight after the GFC, but Cisco had no debt. So it was a net cash company. So technically, it could actually have no default on its debt. But if you looked at the assumptions and how Goldman, Morgan Stanley, J. Morgan were pricing their CDS, Cisco, if you thought the recovery rate was 98% of a bond and they have no bonds, then the probability of Cisco defaulting on its debt was over 50%. No, but it was priced as if it had a 50%. The CDS market was pricing as though that was a one in two shot. Correct. For persistently.

How do smart people, the CDS market is professionals. Yep. How do smart people do that? So, but this is, so I talked to our, when I was at Jay Morgan, our desk about this. They're like, well, you have to remember, Tom, in the CDS world,

you only have to worry about a contract if the company defaults. So your rules get broken. That's why you have to price it this way. But the point is, Cisco is a net cash company. So in other words, if you believed the numbers, you should just be writing CDS all day. Right.

Because you'd actually just scoop up the premium. Oh, at that implied default rate. Yeah. In that situation, of course. But nobody was really on that side. So Cisco had pretty wide CDS relative to its actual fundamentals. Cisco had pretty wide CDS relative to its actual fundamentals. So my big surprise I wanted to just throw out quickly was the IPO market. 399 IPOs in 2021 raised a combined $142.5 billion. Worth now a combined $90 billion.

Well, we'll get to that in a sec. The busiest year by deal count since 2000. Even though a lot of those are SPACs, they're still deals. The biggest year for proceeds of all time. of those deals were billion dollar plus um the biggest one being rivian which raised 12 billion which is the largest since alibaba seven years what else was big this year i can't really remember that many uh i think coinbase robin hood uh those are 21 these are 21 vintage. I mean, Rivian is so enormous.

But were you surprised at all by the strength in demand for new issues, or does that just go hand-in-hand with an upmarket? Is it just as simple as that? Well, the companies you described are actually in growth areas. So I think it would be appropriate that – there's going to be big deals because these are like, you know, if you remember like the Philip Morris, like the deals in the nineties,

which is big conglomerations. Yeah. That's a different kind of capital race than growth companies. Right. I don't know if the EV space is overcapitalized now, but there were a ton there. You know, crypto,

I think is still early. So I don't think you can overcapitalize crypto at the moment. Do you notice that the same people who were wringing their hands about too much private equity take privates? Like, they're taking all the stocks off the market. This is terrible. That's too many. Then you flip the switch. You get 400 IPOs in a year.

And I don't know what last year was, probably 250 or 300. It's like, oh, no, there's too much deals. Well, Goldilocks, when would you, how many deals would you like? What would be the optimal amount? I'm sure you hear a lot of that chatter or get asked questions about that kind of thing. Yeah. I am struggling with some of these high level math numbers because the numbers are just so big now. You know, like household net worth is 600% of GDP. Yeah. But it's not as if household net worth

is overcapitalized. It's just that's how rich Americans are. Yeah. That it's... 600% GDP is so big, you don't actually need capitalism anymore.

Wait, household net worth... To GDP. So deduct mortgages, deduct credit card debt, just the assets themselves. Yeah, so if you took a... Net of. Yeah, so U.S. economy is let, just the assets themselves. Yeah. So if you took a whatever – Net of. Yeah.

So U.S. economy is let's say $25 trillion. Household net worth is $143 trillion. How is that possible? Crypto. So that – Do it. Say it. Blockchain.

Crypto is like $2 trillion of that. OK. But that number is like a real – like that's actual residual book value. What was that number in the 60s or the 80s or sometime? It's never been this high. Well, I don't know if this is exactly right. This is household and nonprofit organizations net worth divided by GDP. Is that sort of the chart you're talking about?

No, because if it's updated, it is all-time high. I'll pull it up on my phone. Yeah, while he's doing that, this surprised the hell out of me as well. The S&P 500 was up 18% last year. Yeah. I think it was up 30% the year before that. Yeah. It's up 26% this year.

Does it, not only does it not feel like that, guess what? The equal weight version of the S&P is up the exact same amount. It's not just mega cap stocks. They're each up 26.4% as of today. I would not have guessed that. That's a big 2021 surprise for me right now. 26%. That's a raging bull market.

Yeah. I mean, there are very few years way better than this. Yeah. Right? 2019 was an amazing year. This is coming pretty close. Yeah. So here, guys, this is a household network to GDP starting in, oh, sorry, this is 1980, but we GDP starting in – oh, sorry. This is 1980, but we actually have it from 1950. But you can see – We're rich.

It's an explosion. We're rich. Well, but not only are we rich. That basically almost never goes down. When does it go down? The GFC? GFC, probably dot com. Yeah, it did go down a couple times.

Right. But you don't need capitalism anymore, right? What do you mean? Because now there's so much saver capital. You don't need capitalism anymore, right? What do you mean? Because now there's so much safer capital, you don't need an economy. We're self-sufficient. It's centrifugal force. There's enough capital around already. Yeah. It's like oil. Imagine if we have the reserves. We don't have to import oil anymore. What if you just had endless?

Yeah. So the US essentially could be a supplier of capital to the rest of the world now. Well, aren't we kind of already? Yeah, so this is why I think people should be quite optimistic because essentially the capital that's accumulated

now will be used to generate returns anywhere in the world. Do you think most people feel that way? Or do most people feel that the capital that's around now, it's only a matter of time before it gets destroyed in a bubble? Wait, before you answer that, I also want to ask to dovetail off that. How have you been so bullish for so long?

Because you've been optimistic and I've been watching you for a long, long time. And I know it's very difficult. In person, Michael's been following you. I've been stalking you. No, we call it following these days. It's been very difficult to to stay optimistic especially in public right you get a lot of shit for that how have you stayed how have you kept your eye on the ball uh some of it's just a lot of it's our work because uh there is i think like sort of larger structural factors at work that support the bull market you know um you and I talked about demography last time you were on.

That's right. That's a big one for you. Yeah. And like just a simple observation, like most major companies are founded by people in their 30s. Right. 20 or 30s, like whether it's Costco, Blackstone, Bloomberg. Is that true?

Yes. I have a chart that shows the age of the founder. They're all in their 30s. Wow. But what about the majority think most people expect that. What about things like valuations and peak profit margins and all the things that can go wrong? I'm not saying that you're not worried, but how do you remain optimistic? Sorry, but let me just finish.

So if you have more people age 30, then you're going to have more innovation. Okay. And in fact, so we found that there's a relationship between the number of people age 30, 50 and the number of patents filed. Is this just an American phenomenon or do you see this elsewhere? So the US actually is one of the few developed countries with a demographic tailwind. Okay. Everyone else is going the other way.

Like Japan, China, Europe are going. Well, most amount of people in this country at a common age is, what, 31 or something like that. So we got them right where we want them. Yep. Okay. So that's a, so I would say to me if I was just relying on demographics

that means we have a bull market through 2029 or 2035. But there are other people that study demography that would look at this, the same data that you look at, and they would say the baby boomers are going to sell all their stocks and sell all their houses. And that's going to depress the economy.

But you know, that's bullshit. Well, we know now in hindsight that that's not how things played out. But I, I guess my point is arguments from demography solely can almost be made – like you can almost tailor your argument using the same data based on what you want to – It's a reality distortion field, right? It is, right?

But can we have peak earnings for millennials without peak earnings for companies? Well, the in-between is really how companies allocate capital. And so that's – like if companies get too optimistic, then profit margins will collapse. But they're doing the – I know they're not collapsing. Yeah, because companies are actually overly cautious. So profit margins will keep expanding. What do you got there? Okay, so this is the number of people aged 30 to 50.

Duncan, you have to get these charts from Tom later. Yeah, but do you see the – Yes. Where are we now? We're where the orange line is. So it's turned up. By the way, the Nader, see this Nader?

2008. Oh, wow. Interesting. That's very interesting. So we turned up when? Yeah. Five years ago? And by the way,

the Nader here was 67. Yeah, so it turned positive 2016. Yeah, because these aren't people. These are consumers, right? Like, let's call it what it is. This is a growing number of people who are in the household formation phase when you spend the most money.

I guess what peak earnings- And that's most productive in a way, right? So peak earnings, peak spending, how is that not bullish for companies? So personally, I don't think I'm at peak spending. I'm definitely at peak productivity. Like I'm just like, I'm just putting it out there. I'll probably spend more in the next few years,

but I don't think I'll be any more productive than I was this year. I can't imagine. But take a look. See, this is the same chart below, right? Yeah. See the chart above? Yes. That's rolling S&P returns.

That's crazy how nicely that lines up. Yeah. So if this plays out, S&P is 19,000 wait a minute what would what would 65 or 19,000 S&P uh correspond to on the Dow is that 80 that's a triple so 100 100 well S&P's like five so like 4,700 so this is oh wait what did I are you saying? Oh, it's closer to quadruple. Yeah. And that's by the time the people who we just cited as being 30 now are like closer to 50?

Correct. But let's just stipulate that you're right and that these are structural forces. How do we survive bear markets? Because they're obviously going to happen. And are bear markets going to look more like they did in 2020 because there's going to be such a quick fiscal and monetary response? Or was that just a one-time shot in the arm? And demand for stocks.

And demand for stimulus. No, demand for stocks. I need more stocks no matter what. So when they're down 5%, that's like them being down 15% a generation ago. I'll just take them down 5%. Are multi-year bear markets a thing in the past? I know it's a ridiculous question, but what do you say to that? Oh, I think there is going to be a horrific bear market, but it may not be for a while. And does it have to last an average of 13 months, which I think is the historic peak to trough? Like, can it be three months and we say, okay, that was a horrible bear market? Yeah. When I was at Chapin Morgan, we wrote a report called The Guide to Bear Markets.

Yeah. I probably read it. Every major bear market is actually a retracement of the bull market. So 127%. Every bear market is 127% of the bull market. Really? Yeah. So – It has to be that severe?

Well, in other words, if you rallied 100 points, a bear market is 127 points. Down. Yeah. So you always – you go below where you started and then you're 27 percent. That subsequent bull market is then 500 percent of the bear market. Correct. Yeah. Historically.

That's why it works. Correct. OK. But that level of wipeout, that drawdown wipes everybody out. That's why. OK. So we'll have a bear market like that. Not till 2024 though.

Or 2029. Yeah, maybe not till 2029. Okay. At the lows in 2020, we were back to late 2016 levels. Yeah, so that's a huge retracement. But yeah, so I mean, I think we'll eventually have a huge bear market.

So I want to get into your outlook for 22. So you don't see that on the horizon in the next 12 months, which let's hope you're right. And I know, when do you publish this? When is this? It's going to air tomorrow. Okay. So when do you publish next week?

On the 21st. All right, so let's hold off on that. Let's get into the streets outlook and then you could tell everybody why they're wrong. Our friend Sam Rowe is out with the usual suspects. I don't know how closely. Do you follow other strategists or not really? People ask me all the time what I think of what someone else thinks.

No, I don't mean like what do you think of them personally or if they're smart or not. Oh, no, no. I know what I'm saying. People ask me about their forecast, but I don't actually get people's research. So I know what people are saying, but I don't know their rationale. Not even Barry Redholz's? I'm just kidding.

So wait, so do you do that deliberately? Do you want to make sure that you don't get colored by other people's opinions and just keep that out of your purview? You know, the reason I don't do it is I don't want people giving my research away for free. So I don't want to read someone else's research. I heard you have huge beef with Brian Belsky.

Brian? Oh, you mean, yeah, in the dark alley? We fought it out one night at an Irish pub. Not strategist wars. All right, so Mike, what is this showing us about prior year returns versus next year returns? I think you threw this in the dark, right? No, I did not.

Oh, was this me? Okay. My take on the strategist outlook is they're always kind of the same. And I'm surprised more people don't go bigger to one direction because stocks are almost never up or down a few percent. Yeah. And I'm kind of seeing a lot of that. Like just eyeballing this, the biggest upside target that I saw was like 13% higher. Is that your DNA?

Yeah. I mean I can tell you what some of the simple math I know that probably informs how we would think about next year. I think you're more likely to be up 20% than up between 0 and 10. Yeah. So the plurality of outcomes is double digit. Like in other words, even if it averages 7, it's usually like – The plurality of outcomes is double-digit. Like in other words, even if it averages seven, it's usually like – But most people that sit in this chair, the strategist chair – Predict eight to ten.

Like if you predict 20 and we're down five, you look like an idiot even if your prediction was closer to a historical outcome. Yeah. If you predict eight and you're down five, all right. Yeah. So last year, or at the start of this year, I would have told you the base case would be 20 because of the volatility collapse. But next year, the base case, if you do midterm math or returns after 20% year, it's actually like 11%. Okay. Does it matter that this year was a 20% plus year? Yes. Well, maybe it matters after an 18, after a 31. We're just stacking monster years. Does it

have to pause eventually? I mean, I guess nothing has to happen, but- I mean, internally, as Josh was saying, it's already happened. I mean, a lot of stuff is peaked in February. That's true. So, right. You go back to the market of stocks argument versus the index. Well, JC will say investor enthusiasm peaked in February. He's probably right on that. So how do you disagree with, so how do you take it,

do you take issue with this from Michael Malbison? Quote, this is via Sam Rowe, if weak returns one year begat strong returns in the next and vice versa, then you should see a string of dots somewhere on the chart that slopes down to the right. Do we have that? Yeah, we got it. So meaning we should go down next year?

So basically, this is showing that total shareholder return and then total shareholder return over the next year. So it's just showing pretty much total randomness, more or less. Yeah. It's brownie in motion there's nothing there so how do you how do you respond wait hold on i think i see something yes sure

buy it i would say yeah well let me finish wait let me finish sentence historically there's been no discernible relationship between the returns during any two years as reflected by very low correlation. If there were anything to draw from this chart, it's the fact that most of the dots are clustered in the upper right quadrant. And most of the time – In other words, annual returns tend to be positive. But there's probably more context that we could put on here, Tom. What do you think? What do you think?

A lot of context. I mean I would put recession versus non-recession and business cycle. OK. I would put midterm, like election cycles in here. Are you writing a lot about the midterm for your coming outlook? Yes, to an extent. I think it's going to play a role. Okay.

I think it's going to be absolute f***ing chaos. Correct. That's why in midterm years, the market doesn't do anything in the first half. Usually it's down. It shouldn't this year. I don't think anybody should be making bold bets, year-end bets in January because- Yeah, watch me. Okay, besides you.

All right, but that does play a big role historically in the midterms. In what way, besides being back-end loaded, like what else does that tend to do to markets when you're in that year? Well, in this case, there's just so much at stake, right? There's the virus policy response. There's infrastructure, there's taxes. So it's going to matter to consumers and to the markets. And as you know, these days, markets, because of scraping and alternative

data, markets now react to what consumers do. Yes. Like before, consumers could do one thing and the markets would do now. Now they do the same thing. Like before, consumers could do one thing and the markets would do another. Now they do the same thing. Like, you know, you saw Omicron panic and consumers and the market wobbled. Also, so much of consumption is based on stock market wealth. Probably more, the wealth effect from stocks

is almost rivaling the wealth effect from houses. Yeah. And I don't think that was the case five years ago even. Yeah. So I think that's a big change. Tom, do you spend time thinking about like value to growth rotation type stuff? Yeah. Josh and I were just talking about if you look at a chart of like Berkshire divided by ARK, like that's a chart.

That'd be kind of cool. I haven't looked at it. That's interesting. It only looks cool if you're on the Berkshire side this year. How big of a role do you think buybacks will play going forward? So it looks like this year in the third quarter, we had $ role do you think buybacks will play going forward? So it looks like this year, in the third quarter, we had $234 billion in buybacks, which topped the previous record quarter, which was Q4 18, $223 billion. And this chart is ridiculous.

Yeah. So it's a trillion dollars for 2021 plus. This chart is what pisses people off a lot about our capitalism and how corporations allocate cash. In 2020, obviously, rightfully so, buybacks collapsed, right? There was a lot of fiscal stimulus. The company's got a lot of money. And then boom. Right back out. Right back to work. All time highs. I am not a buybacks or evil type of person. Far from it. But I understand like from a person who doesn't really know how capital gets allocated, why this pisses people off. You know, I don't think these are accurate charts either. Oh.

Because I – Shout out Howard Silverblatt. What's up, man? Tom's starting beef. No, because I think 80% of the proceeds of buybacks is then issued to employees. Yes, they were offsetting stock option related to compensation. Yeah, so it's actually, this is essentially

a funding, it's actually, it's compensation. It's a measure of allocation to employees. But not everywhere. Like, tech buybacks are probably a lot more offset by stock-based compensation for employees than airlines let's god knows what they're doing with the airline buyback that shouldn't even that that

shouldn't even exist in one sentence um but when you see a buyback authorized by i'm just making shit up but pfizer do we think that's as much offset by employee compensation i bet you it's more than you think yeah it's actually a very large- Because the C-levels, they get paid in stock, a lot of it. And their compensation plans are based on price performance. So if you look at, like, share county S&P isn't shrinking. So you know that the buybacks are just used to fund- That's how you know.

Issuance, yeah. Right. So how much of your thinking is driven by what you think of dividend and buyback policy for the forward year? Does that even enter into how you're coming up with what you think stocks will do? It does. It's just the buyback is a weird math because people treat it as if it's taking supply out, but it's actually a transfer of the stock to the employees. Like JP Morgan, I think 25% of the shares are held by employees. Right. And it's, it's principally through this mechanism. And then people also tend

to think that companies are buying back stock instead of paying their employees or instead of doing R and D and neither of those are true. Yeah, that's correct. Yeah. And R and yeah, so R and D is an, is a necessary spend and it's get, it's, it gets a poor treatment because it's expense not capitalized. But R&D is a chart that is just up and to the right only. Yeah, and for tech – because that's CapEx. That's CapEx for the tech industry. The minute they stop, they're dead in that space.

Yeah. So I would argue these days in every space. Yeah. We tried to see if there was a factor base like you buy companies with high R&D spend because they should be better companies. Innovation-weighted, like a – you try to see if that was like a smart beta factor. Yeah, and it's because guys like Philip Fisher used to talk about it like in his – in the 50s, like how he would find great companies that way. But – This is Apple's R&D. It's just up and to the right.

$20 billion. What's so amazing about Apple is that they can do it all. R&D, buyback, dividend, CapEx, hiring, innovative. It's this whole Swiss army knife. Google looks exactly the same. Yeah, and remember how long people said Apple was a hardware company, give it a hardware multiple. Can't innovate.

Well, they were giving it a hardware multiple for so long. Yeah, but isn't it amazing? And they were doing all these things, but people just kept saying it was a hardware. In 2012, you could buy Apple at 10 times trailing 12 months earnings net of cash. Yeah. You know those Google trends, like the Google searches? I bet like back out the cash would have coincided with Apple

because that's all people were talking about, back out the cash, Apple's cheap. Well, now there's even more cash and even bigger buybacks. One other thing we're going to pivot to in the category of surprises, but maybe this isn't a surprise.

Junk bonds. No defaults. Yeah. Basically yields like a municipal bond used to yield. Let's up this chart, guys. This is a good one.

How much longer can this go on for, Tom? I'm not saying mean revert, but you can't have zero defaults in junk bonds for more than a year, especially if stimulus is going to go down. If there's no recession, you can. Yeah, this is a really important market to watch,

because as you know, the fundamentals are doing one thing, but the spreads are doing something else. So can you explain that to the listeners, what you mean by that? Next chart while Tom's talking. Yeah. So this is actually a very accurate chart because the fundamentals in high yield are actually quite strong. Like they're improving the EBITDA.

I think if you look at the aggregate universe, the EBITDA is above 2019 levels. Okay. And so they're fundamentally healthier companies. But the price of the high-yield bonds is not nearly tracking what's happening with the fundamentals. We'll get to that. We'll get to that. But you know what's amazing? Look at 20.

Look what fiscal policy did. The spike in 2020 was nothing compared to, say, 2009 and after the dot-com bubble burst. So you had about, it looks like a 13% or 14% default rate in 2009 in junk bonds. And last year, it was just over 5%. So, John, let's open the next chart to what Tom's talking about. The difference maker is fiscal and monetary policy, basically. Yeah. Reacting faster.

Correct. Okay. I mean, this is a chart. What are we looking at here? Junk bonds are one of the most distorted parts of the market. Most negative real rates in the last 30 years. Yeah, negative real rates in junk bonds. What is the buyer thinking?

So there's two things. There's the negative real yields, which Tom could talk about, but also the spreads to treasuries. You're not getting paid for these. Yeah. Yeah. There's a chart in here. Let's see if I can pull this up. So right. So you're taking

way more risk but you're not getting that commensurate additional return based on where yields are. What were we talking about Coinbase for their 10 year? What were we talking about? Was it 6%? I can't remember. Probably like 4%. It was like nothing. Coinbase priced some debt?

A couple months ago. It basically looked like free money. They priced it in US dollars, which is meta. They didn't price it in Bitcoin, but it looks like free money from the perspective of a company that is not really around that long to be able to sell debt at that level.

Yeah, that's amazing. Wait, closer to the mic or we're going to lose you. Oh, sorry. Okay, I don't think I have this. Oh, I do have this. See, Duncan, I'm like a pro. See how I jumped all over that? Yeah.

Good job. Low 4% range for 10-year for Coinbase. That was in September. Coinbase sold $1.5 billion in debt. Low 4%. 4% used to be like New York State. And I don't mean used to be 20 years ago. Low 4%. 4% used to be like New York state. And I don't mean used to be 20 years ago, three years ago. Low 4%. So what does the buyer think? Is the buyer just a blind asset allocator

that doesn't care? They're starved for yield. I don't think rates are going to rise because people are so starved for yield. What do you think, Tom? I mean, credit is mostly spread buyers. Fine. So people don't have absolute return bogeys. Like imagine if people didn't care what stock prices did but they played only on relative yield. Oh, the earnings yield relative to the 10-year treasury. Yeah, that's credit. It's mostly a spread market. People –

OK. So they're not consciously making this decision and saying, I know I'm getting a negative real yield. No, they're comparing it to what's out there. So look at this. These are high-yield spreads going back to 2012. We see the blowout in 2020, and they're on the floor again. 3.3%. Yeah.

Unbelievable. Do you think that could persist for three years, five years if the environment stays the way it is in terms of liquidity? Yeah. I mean here's food for thought. So this chart is this real yield from 1870. So when it's gray, positive real yield. When it's red, it's negative real yield. We're just about to go red, meaning even if the Fed tightens, CPI is probably going to

run above the 10-year. Okay. 26% of all years since 1870 have had a negative real yield. On what? On a 10-year bond. On a 10-year bond. Which means it's much more common than you realize. So that's – since when?

1870? So what is that? About 15% of the time, real yields on a 10-year are negative. 26% of the time. 26% of the time. I'm very good at math. Yeah. So one in four years. So I don't think most people know that. Are those periods of time, are those years clustered? Yeah, so they're epochs.

They tend to be epochal. When was the last one of note? 1942 to 58. Okay, that makes sense to me. We're rebuilding the country coming out of World War II. 1917 to 19 58. Okay. That makes sense to me. We're rebuilding the country coming out of World War II. 1917 to 1928. Okay. Which is the same thing. Fairly notable. 1906 to 1910. Okay. So in those periods of time, people that held 10-year bonds were actually losing money relative to what prevailing inflation was, but they probably also own stock. Those same investors probably also own stock.

Those are all massive economic events. So here, the below part. Look how long that goes for. Yeah. The below part is the S&P, or sorry, the Dow Jones return. And red is, this is 10-year return, rolling return of the S&P.

Actually, it's concatenated with the Dow. The red is during the periods of negative real rates. Right. of the S&P. Actually, it's concatenated with the Dow. The red is during the periods of negative real rates. The stock market has always gone parabolic. Have we had that already? Is that something that could... This is where my brain's breaking.

The market's up 26%. It doesn't feel parabolic at all, does it? This actually ties into the demographic thing. That plus this negative real rates means S&P could go to 20,000. So you really do feel like the best could still be yet to come? Yeah. I would say that's the base case.

I'm looking for reasons it wouldn't happen like when you talk about profit margins. But as you know, companies are managing capital. So profit margins surprise, which means it's more fuel for it. There's so many weird demographic cross currents because we talk about millennials peak earning years. And then also there's 10,000 baby boomers retiring every day. And now more given the gap. Let's get into this thing about millennials supercharging the housing market. There seemed to be this, a lot of people were talking about this piece of the journal this week, basically the generation that nobody thought would ever want to own anything,

which I don't think you ever bought into. I never did either. But just this idea that, hey, all of a sudden, not only are millennials interested in houses, but they also have a lot of money out of nowhere, right? After 10 years of us hearing about how student debt was going to keep people out of being able to buy a home. Well, it looks like that was just delayed. Is that the way to think about that? Yes. Okay. And now they're inheriting almost $2 trillion a year. A year?

From dying boomers. Yeah. It's concentrated. Right. We know. Right, because there's a couple of big families. But wealth isn't as concentrated as you think. The top 20 families' wealth in America is only 1.2% of all the wealth.

Okay. So this is from the piece. Rarely has the for-sale home market been more heated than in the past year. The median price of an existing home in October was nearly $354,000, close to a record up 13% from a year earlier. Prices have climbed from a year earlier for a record 116 straight months. So this is about more than just stimulus. This is about demography back to what you were saying. Yes.

Like that's a, that's a bigger part. So was this inevitable? Was this always going to happen? Yeah. Yeah. I don't, let me, I don't think I have all the charts, but you know, you could even say a motorcycle demand follows demographics. What do you mean?

When you get, when you turn 40, you have to have a bike? Or 50? So motorcycle demand skips generation. So every other generation likes motorcycles. Okay, mine didn't give a shit at all. Yeah. I'm an ex. I'm a very young exer.

So that means millennials are more likely to be in motorcycles. You know what's funny about that? I was looking at Harley Davidson stocks. Oh, yeah. Stocks sucks, right? Or am I wrong? You're wrong. Yeah, so hogs should do really well.

Do you see this? It's hard to see. This is annual sales of motorcycles. Why would millennials... Okay, here's a question. Culturally, Easy Rider was a very, very big touchstone for the boomers in 1969. Dennis Hopper and Peter Fonda and the soundtrack.

Was there a moment like that, that millennials will come back to when they get older and fatter where they all of a sudden need motorcycles? Was it fast and the furious? Like what is, what was their motorcycle touchstone or is that not necessary? Duncan, you ride a hag?

Yeah. You're a, you're a millennial. I've never been on a motorcycle. No, I don't think so. You don't see this happening? I mean, they are releasing an electric one that looks pretty cool, but no, I'm not. Harley?

They already have electric bikes. Oh, did the Harley on Sunrise Highway, did that go out or is that still there? No, it doubled in size. Did it? Yeah, they added a Triumph dealership next to the Harley dealership. What's that? It's like another, you know Triumph bikes? Yeah.

So what's their scene of Triumph and Harley? I have no idea. I just know that I've seen the logo many times. Yeah, not a big motorcycle show. Okay, but so what are you saying about that, Tom? What's the significance of that, do you think? It just shows you every generation turns into their parents. Whether they like it or not.

Tom, I'm eating avocado shoes with pineapple in it. Like that's totally my dad move. By the way, these Triumph bikes are nice. Yeah. I mean, remember, like boomers were more woke in the late 60s than anyone today. Yes. And then there was a period of time when nobody really cared that much, right? Probably.

Remember, they canceled the Vietnam War. True. I mean, that's big. Fair. Original cancel culture, you're right, our parents. So are the millennials- And they canceled LBJ. Are the millennials like 50% of the way

into this transition? Or 75% into this transition of like becoming their parents? Yeah, they're, they're pretty far along. And as you know, Gen Z is really into classic luxury. What do you mean? Yeah, all the crypto, all the crypto kids are buying Louis Vuitton. Yeah, like all the stuff from the 90s, like the 80s, 90s luxury brands and styles, it's all coming back. I think suspenders are going to come back soon for men.

You know what's so funny about what you just said? I saw the House of Gucci like two weeks ago and all of the fashions and the clothes, which I think the movie takes place late 70s, early 80s. All of that stuff, if you put that on StockX right now, like all of the costumes, and it was a sick movie by the way, but like all the stuff being worn by the actor, Adam Driver's in it, Al Pacino, all that stuff. You could put that on StockX and sell it in two seconds. So there is like a very big callback or an echo to that period of time. Yeah. And my like my youngest 16, she wants all my old concert T-shirts from like the Eagles and Bob Seger. I hate the fucking Eagles, man.

Millennials were 67% of first-time home purchase mortgage applications in the first eight months of 2021. So that coincides perfectly. 67%? Wow. Well, 67% of first-time. Well, duh. Yeah, yeah. 37% of repeat purchase, though. Yeah, and over the next 10 years, they'll, 67% of first time. Well, duh. Yeah, yeah. 37% of repeat purchase, though.

Yeah, and over the next 10 years, there'll be 98% of the total. Right, right. Obviously. Yeah, the share's going to hit. Tom, we haven't spoken about crypto. I know you do a lot of work there. Anything that you're excited about working on?

Yes. I think the big picture to me is payment rails. Like moving crypto from crypto into fiat or into other like traditional spend is where the focus and the capital is now moving towards. Right. OK. But that means the way investors get exposure to crypto is through crypto companies. Like it's not layer one blockchains anymore. There's going to be layer one blockchains and there'll be NFTs, but actually there's going to be a whole new class of companies

that essentially represent the payment rails. Okay. And will those actually be companies or will they be DAOs, networks or? It could be both. I mean, there's companies like Talos, which Justin Schmidt is involved with. It could be the block, which is, you know, the new name of... Square. Yeah, Square. By the way, these rails need to get better because getting money on an office is not fun. Yeah, and it's highly regulated.

So it's actually a space where you need public companies or companies to be involved, crypto equities. The reason you need companies is because you need lawyers. And DAOs can't hire lawyers. Lawyers won't go to work for pirates. Yeah, the governance is different. Right. So you need legal representation in order to have anything from blockchain interacting with anything from the real banking system.

Correct. That's right. But does that re-centralization negate the whole use case for all this stuff and almost make it like an oxymoron? That's a great question. You know, Bitcoin has gone really corporate. And people don't realize it because mining has become really corporate. You can't operate a mining rig in your house now. That's over.

Yeah. And the good news is that a lot of it left China. Right. But now it's all in Texas, or it's going to Texas. Okay. So Bitcoin's gone corporate, but it doesn't mean it gave up its cyberpunk roots. It just means— Well, Bitcoin has representation in Congress now, too.

Yeah. Bitcoin has a—I don't know if you'd call it a caucus, but there's probably 10 or 20 noteworthy Congress people. There is a blockchain caucus, actually. Oh, there is? Yeah. Okay. Do they ever call you? So Tom Block, our policy guy, knows the folks at the blockchain caucus.

Hold on. Your policy guy's name is Tom Block? That's not his real name, though. That is. It wasn't Schwartz and you like – We renamed it? No. He used to be Jade Morgan's head of government relations for 25 years.

Okay. And he used to run a senator's office. So he's a longtime Washington insider. Tom, last thing I want to say on this because then we're getting close to the end. My opinion and the market could prove me wrong obviously in two seconds is that comparing Bitcoin in 2021 to Bitcoin in 2016, 2017 is like comparing the S&P today to 1930. It's like two completely different markets. So I say that to say that we're in a bear market right now in crypto, a shallow one. We're 26, 27% off the highs. And sure, we could fall 30%, 40%. But I think the days of like the 70% declines are probably a thing of the past, only because of so much institutional demand waiting to buy the dip.

Am I overstating that? What do you think? I would take the other side. I mean in 2018, there was country intervention, right? Because Korea regulators pretty much prevented anyone from converting yuan to crypto. It was small enough that you could still stop it. Yeah. Right.

one to crypto. It was small enough that you could still stop it. Yeah. And so it would be a nation-state action that could create another. Barring a nation-state, I mean, we had one from China, but barring a nation-state action from someplace like, let's say,

United States, Canada, Germany, France, I don't see that happening. That's right. So yeah, if you don't have a nation-state action, then you're just going to have these corrections. Yeah, my point was like a 40% correction is always on the table. I don't think a 70% correction is likely. The Nasdaq fell 86%

in 2000. And I would say that those were pretty established companies at that time. So no matter how establishment crypto gets. No, but my point is the establishment is just starting. That could be true, but I'm just saying like we saw oil go to zero. So there's no reason why Bitcoin couldn't follow 70%.

I'm not saying it can't. I said the market could prove me wrong in two seconds. I'm just saying my thinking is that a 70% crash is less likely than it was in the past. That's all. Okay. But isn't also a doubling in the price of Bitcoin also less likely? Or does it not work that way? It's a network value asset.

You know, the fastest way for Bitcoin to double is for everyone to start quoting it in Satoshi. Okay, why? Because then more people can afford to transact in it? Yeah, because a lot of people think they can't buy Bitcoin because they can't afford $60,000, but they don't realize you can buy... You can buy $5,000 worth of Satoshi

and not worry about what percentage of Bitcoin that is. Yeah, it's 1,100 million. 100% right. If we quoted it differently, it would skyrocket. So we're back to the red and the blue vaccines. We're back to marketing. I agree with you, by the way. Josh, let's move on to your last topic.

Yeah. Well, I think that's it. We're going to do favorites because Tom's got a hard stop. We're going to help him get out of here. Just imagine real quick the start of the times. That is hilarious. Did you see this thing that I put in the doc?

Blockchain entrepreneur pays $12.5 million to buy Colorado mansion from former Dollar General CEO. That's perfect. It's a drop-dead gorgeous house. Did you see the house? I did. Do you have pictures of this, John? He probably said, where's the Dollar General guy's house? I want to buy it.

Just to make a statement. Look at this fucking house. Oh, my God. This is like drop-de I want to buy it. Just to make a statement. Look at this fucking house. Oh my God. This is like drop dead. This is in the outskirts of Denver. The guy's name is Jonathan Yantis. Wait, is this a digital house or is this an IRL one? This is not an NFT.

This house literally could live in. Wow. What else do we have on this? Could you scroll down? So first of all, how did the guy from Dollar General get? I bet the average dollar general shopper has not seen the inside of the ceo of dollar general's uh oh my mansion which entrepreneur are we talking about jonathan yantis do you know who that is no i don't know how he

made his money but this is like one of the most beautiful homes i've ever seen good grief this is in 45 000 square square feet, 11 bedrooms. The guy who sold it is 81. He bought it in 2002 and built it. It was incomplete. Well, see, there you go. That's the boomer to millennial. That's the boomer to millennial. There it is. Now, this guy, Yantis, probably 23 years old.

He probably made most of his wealth selling crypto on TikTok. All right. Let's do favorites. Did you bring us anything today? Something that we should be watching, reading, listening to? What do you got? Mean books. Anything, man.

What are you into? What are you reading these days? There's a book that I'm trying to read, but it's way too, it's above my head. This is one of the first books that I actually don't think I understand. Good Night, Moon? No, it's called Bernoulli's Fallacy. Okay. I've not heard of it.

So it's actually quite instructive. It's basically the guy's premises were using statistics wrong today. Okay. And so a lot of inferential things that we take away from statistics, basically like quant models, are making incorrect inferences about the future. So we're trying to use them to do predictions about the future when it's actually – we should be using them to make probabilities. So I have been struggling to read this. I even tried to listen to the audio version because I think it authentically explains why a lot of people get market forecasts wrong. Okay, Duncan,

what did you think of it when you read it? Yeah, I haven't heard about it. You got it immediately? No. So why is it above your head? I mean, you're one of the smartest people I know. So who is this book written for, if not you? Actually, the guy said it's actually written for someone who's a math major.

So it's designed for people who are studying studying statistics for a living and he's explaining that your people are using statistics. I mean, Tetlock super forecasters, they got into a little bit of that where what we should really be doing is coming up with a range of probabilities and just learning to live with that versus an outright prediction. Yeah. And like for instance – I don't think that's controversial. Yeah. And but a lot of statistics, they'd say things like you don't want to incorporate new data sets, or you have to create a sterilized data set to look at this. And so the idea is that it makes it impractical to use statistic, correct statistical modeling, if you're not allowed to touch all the data. Okay, I think I'm going to wait for the Netflix show of that. Because if it's over your head, I definitely can't handle it.

Did you hear Elon Musk on Dan Carlin? I had no idea. Dude, it's an addenda. It's one of the addenda. Do you listen to Hardcore History? I listened to a few a long time ago. Yes, I love that stuff. I haven't listened to anything new.

I'm going to blow your mind. You got to listen to this like tonight. Elon Musk comes on, hardcore history. They weren't even supposed to tape it. And then like a quarter of the way into the conversation, I think Dan goes, I'm just going to flip this on. Is that okay? And Elon was like, yeah. that okay and elon was like yeah and they spend 90 minutes talking about planes in world war ii and why different countries had different outcomes based on aviation and pilots and then it obviously

comes up to like modern times and uh this is it's mind-blowing to me the grasp that elon musk has about world war i and world war i aviation, in addition to all the other shit that this guy knows. Did they get into the origins of shitposting? No. No, it's a very straight up, like, they're not f***ing around. Like, they're really talking about history. He's like having the conversation that Dan wants to have.

I'll listen. I'll listen. He's not talking about Dogecoin. Like, he's talking about the fuselage on a Japanese zero and why we won certain naval battles and lost other ones. And I just said to myself, listening to it, okay, there's a reason

this is the wealthiest person in the world. Like this guy is on just a different level in terms of his recall and his ability to talk about things that aren't even related to how he made his money. Addendum is a separate podcast feed than Hardcore History, right?

I don't think that's true, but it might be. I will definitely listen. You guys would be very into this, and Elon's great in this, and Dan is great too. By the way, okay, I'm sorry, but this is non-sequitur. Look. Wait a minute. Oh, shit. This is a guy in China.

Chinese man goes viral for looking exactly like Elon Musk. It's like Elon Musk is a clown. That is very weird. My favorite thing of the week, and I haven't even seen it yet, is Spider-Man No Way Home. I can't wait to see that. That's your favorite? You haven't gone yet? I'm probably going to go tomorrow. You're going to go to the theater? Yeah. Yeah?

When's it going to be on the apps? Do we know? I'm a theater guy for that, for sure. Alright. Fair enough. Tom, did you have fun today? I did. I told the audience that we almost didn't get to have this podcast, but thank God we did. We had a minor COVID scare. Well, yes. Okay. But it turns out you only have Delta.

So we were like, fine. Yeah. I didn't want to pay up for the Omicron. You didn't get the Omicron upgrade. I decided to get last year's model. Dude, we're so happy to see you. And thank you for coming by and hope to see you again. And if so, we'll see you next week.

What are you doing next Thursday? Next Thursday. What are you doing? Are you going away? Are you going away for the holidays? Yes, but next Tuesday is my outlook. All right. So we'll be looking for that.

And how do people – I mean you'll be in the media, so people will probably get a glimpse of some of the stuff you have to say just by logging on to the computer. Yeah, that's right. I think I'm doing something on CNBC the next day. All right. So look for Tom Lee revealing his 2022 outlook, which will happen on Tuesday the 21st. Thanks so much to John. Thanks to Duncan.

You guys did a great job this week. I know a lot of the charts that we talked about were on Tom's phone. We'll try to get those for the YouTube version of this. Tom will send a great job this week. I know a lot of the charts that we talked about were on Tom's phone. We'll try to get those for the YouTube version of this. Tom will send you some of that stuff. Thanks to Mike. Mike, you look great. You did great today. Very proud of you. Alright, don't forget. What is

that? More charts on your phone? I'm just previewing the cover. Just hit his f***ing phone. Don't let him leave here with that phone. That's the cover of The Outlook? Yeah. I can't believe you're wearing a bathing suit. Yeah. That's nuts, dude. I shaved my chest, too. I'm not going to say the name of it. Yeah, it's a little play in words, right?

Yeah, alright. We'll let that... We don't want to spoil that. Alright, don't forget. New Animal Spirits every Monday, every Wednesday morning when you wake up. Don't forget to watch the video from today's talk with Tom Lee on our YouTube channel. YouTube.com slash the compound RWM. Thanks for listening. We will talk to you guys next week.

All right. That was good. Thank you. Made it. 427. Look at this. Yeah. Thank you.