The Compound and Friends - Expected Returns

Episode Date: December 10, 2021

On this week's episode of The Compound & Friends, Michael Batnick, Ben Carlson, Shannon Saccocia and Downtown Josh Brown discuss: unemployment, earnings, expected returns, international stocks, asset price inflation, tech IPOs, fintech, and 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

All right, so Michael will join us shortly. He's just trading the crypto clothes. So he's going to be a while. This kid is so lost in the metaverse right now, like on purpose. Like he wandered in, and we should have tied a string to him because I don't know how we're going to pull him back out. There's like nine million doors to get him out. He is so in deep.

Yeah. I think his avatar is just running wild in the omniverse right now. So I don't know if we're going to be able to save him. All right, Shannon, how'd you get here? You fly? I did. Okay. Where are you staying?

Next door, the park terrace. Smart. It's a good hotel, right? Yeah, it's not bad. We were just talking about how small the rooms are, but that's like everywhere in New York. You forget when you're not on the road all the time. You're like, damn, this is a small hotel room. New York doesn't have big hotel rooms.

Six inches on each side of the bed. But I don't really need it if I'm by myself. It's a place to sleep. What's up, Shannon? Hi. Good to see you again. I get claustrophobic, though, in a small hotel room. The best ones have a radiator in them.

That's when you know you got quality. You came with jokes? You touch yourself. You touch the radiator and your hand's gone. You roll over onto a radiator? I wake up with like the Joe Pesci M on my hand from Home Alone. That's how you know you're in New York. Somebody just texted me.

This is a Bloomberg news article. Ken Griffin's son told him quote, you have to buy the Constitution. What a little dick bag. Wait. He's explaining why he did it? Yeah. He's blaming it on his kids? Why did Citadel founder Ken Griffin... Listen, here's a

quote. Here's a quote. I was sitting at... This is a quote from Ken Griffin. I was sitting at home in New York, and my son calls me to say, Dad, you have to buy the Constitution. His son is like Romulus. Yeah. Right? His son is definitely like Romulus. Yeah. Right? His son is definitely Roman. Roman. Yeah. Wait.

So does he own it? It's over? Yeah. And where did it go? Like Arkansas? Stop it, Duncan. He bought it and burned it. It's an NFT. Honestly, if he did that just for the likes, that would be very Elon-esque.

Yeah. I wouldn't even be mad at it. I mean, I probably wouldn't. I'd be mad. Is his son like studying that in social studies right now in third grade or something? Is that why he had to buy it? Wouldn't his kid call him and be like, dad, you have to buy a football team? Like at that level, constitution, he should be buying franchises.

They're not for sale. That's where the scarcity is, NFL teams. If you're a kid of a rich person these days, there's like a 70% chance you're going to be a troll. Right? Like that's... If you're the child of a... I don't know how that's any different though.

True. Yeah, if you're a rich person, you're a troll. Although, let me just say, billionaires on Twitter. 99% of billionaires want nothing to do with any kind of attention. Right. We only see the 1% that insists. The 1% of the billionaires?

1% of top? I bet you it's less than 1% have active Twitter accounts. So Ben and I were talking about this, that scene in the succession. Hold on. There are 500,000 billionaires in the world. 500,000? I think so. No way.

I think so. Can't be. Why not? I have this thing called Google. What's your knee-jerk reaction to that, Sean? I would have said like 100. 500,000? I think that's high.

Josh, you're way off. That sounds absurd. What is it? 2,700. That's what I meant. So there are 2 2700 billionaires as I was saying Josh loves in the future

he means in 2041 there will be let me put it to you this way do you think there are more than 27 billionaires who have active twitter accounts yes do you think there are more than 270 what is this trying to figure out

because I said 99% of... You think there are more than 200? But they're not shitposting all day? Well, that's what I consider active, shitposting all day. What else constitutes being active on Twitter besides shitposting all day? Oh, Duncan, the sirens arrived just in time. Yeah, I was worried they wouldn't come. I saw a literal fight on Madison Avenue yesterday.

What do you mean? Like a fight in the street. Like three people were fighting in the street. How many people around them were filming? Was it over interest rates? But I feel like, how many people were filming? Like, who are the people that film these fights? I would.

You're a, what's a guy? No, honestly, I was walking on a phone, not important. Eh, kind of important phone call. And I was like, I'm sorry, I'm sorry. There's a honestly i was i was i was walking on a phone on a not important kind of important phone call and i was like i'm sorry i'm sorry um i i'm there's a fight and so i had like i couldn't pay attention so i just kept walking i filmed the fight on long island railroad um not well not a physical fight but like a customer screaming at a conductor and calling him racist like i don't know what caused it. Oh, in case there needed to be evidence, basically?

No, I was like worried for the – I wasn't going to break it up because, like, I'm not a hero. But, like, I felt like something bad was going to happen to this guy. So I started surreptitiously, like, just filming with my phone. But then nothing happens. I deleted it. But, yeah, I am the kind of person that would do that. But then I feel like if you don't step in, if it does become violent, then you're like, you're the guy who didn't step in

and you taped it. And I'm just like... Well, so this didn't seem like it was going to get violent because it was a woman screaming at a man and she was not standing up. Well, you know who broke up the fight? So it didn't look like she was about to hit him. Who broke up the fight yesterday?

It was an old man. Was it? Like a 75-year-old man. That's the greatest generation? Like an old man. I broke up a fight in a while back. It was an old man. Was it? Like a 75-year-old man. That's the greatest generation? Like an old man. I broke up a final wall. It was pretty epic. And wait.

I broke up. Wait, so people can't see Duncan. I got a rash, man. You need to stop. Duncan's 135 pounds. In Park Slope, a cab driver was being attacked. I ran up and started shouting at the person, and they backed off. Being attacked physically?

Yeah, being punched in the face. Are you kidding me? Yeah, they had to pay their fare, and the cab driver was trying to make them pay. Was it instant? Is that when the training kicks in? Hit the applause button. Is Duncan secretly a purple belt? We don't know about it.

I did take Taekwondo as a kid. Were you ready to fight, though? I mean, I was hoping not to. If this person turned on you, would you be prepared? I mean, I guess. Yeah. Not that I'm a great fighter, but I would definitely be afraid for your safety if you got into a fight. No offense whatsoever.

You don't even eat red meat. Aubrey carries pepper spray, so I would have been fine. You don't even eat red meat. Aubrey carries pepper spray, so I would have been fine. You don't even eat red meat? No, like I don't feel like you have enough anger to like sustain the level that you would need. I don't know if you have enough adrenaline for that. Oh, my God. Not even talking about musculature. I'm just talking about like—

Musculature. I feel like you need to be like angry enough to sustain a fight or you're going to lose. Yeah. Right? Yeah, no. I was just trying to keep a guy from getting beaten to a pole. Okay. Was Michael thankful after when you said that?

Was Michael. All right. So congratulations on that. We're really proud of you. John, let's get clicking. Let's get rolling here. Everybody's got stuff to do tonight. Yeah, remember when we used to ride scooters,

when we were riding scooters in Austin? Yes. That was fun. Okay. Ben reminded me of that today. We were riding scooters in Los? Yes. That was fun. Okay. Ben reminded me of that today. We were riding scooters in Los Angeles, right? 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. All right, we're here. Shannon Sikosha's here. I'm here. Shannon, the audience doesn't know a lot about you. It's your first time on the show. So we're going to give you a really nice introduction. That's amazing.

You and I went down to Washington, D.'re going to give you a really nice introduction. That's amazing. Okay. You and I went down to Washington, D.C. two years ago. Yes? Yes. Okay. It was me, you, Scott Wapner, Jenny Harrington. Yep. Who else? Just the four of us?

I feel like there was an Ajarian involved. Always. He wasn't there for dinner, though. He had other plans. All right. We went out for dinner. We went out for dinner, though. He had other plans. So, all right. We went out for dinner. We went out for dinner with Mary the night before the show. But then he was on the show the next day.

He was. Anyway, we had a lot of fun. And what I learned about you is that you're a very healthy eater. And you sat next to me at a steakhouse. And you acted like nothing was wrong. You were totally cool with what I was doing there. So, I wanted to say. Wait, elaborate was doing there. So I wanted to say – Wait, elaborate, elaborate.

I wanted to say that. Josh was dipping his steak in butter. Yeah, I was putting butter in my coffee. There's nothing to elaborate on. Shannon Shikosha is here. Shannon, you are the CIO at Boston Private. What is Boston Private? Give us like the overview.

Boston Private is a private bank. We do wealth management, traditional banking. We were purchased by Silicon Valley Bank in July of this year. So we are now the private bank within Silicon Valley Bank. So we manage wealth, lending, banking, typical private banking. You guys are huge. Silicon Valley Bank is huge. It is.

OK. So there's a lot of wealth for you to manage. I sure hope so huge. Silicon Valley Bank is huge. It is. Okay. So there's a lot of wealth for you to manage. I sure hope so. Yeah. We're really excited about the combination. Okay. That's very cool. When did that close?

July 1st. Okay. So how big is the combined entity, if you don't mind my asking? Yeah. From an AUM perspective, it's probably right around 18 or 19 billion now in assets. All right. Ben Carlson is in the house. Ben, say hello to everybody. Hello, everybody. There you go. All right. Ben Carlson is in the house. Ben, say hello to everybody.

Hello, everybody. There you go. All right. The first thing we were to do this week, guys, and I added this at the last minute, I felt like that unemployment number was pretty, jobless claim number was definitely worth talking about. So initial jobless claims fell to 184,000 in the weekend of December 4th, which is the lowest level since September 1969.

Not nice, Michael. The prior week's level was by the way. All right. So we still don't have like a universally accepted answer at what's going on here, how you can have jobless claims hit a 50 year low and have, and have this situation still with so much unemployment, just generally speaking, um, and people not filing and not seeming to like need something to do.

So we try to explain this, I think through the prism of entrepreneurship, is that enough or is there, is there more to it than that? I think it's just people that were, you know, tertiarily involved in the job market. That's not a real word. I know exactly what you mean, but it's definitely not. If you say it with enough confidence, it's a word. Tertiarily. They were involved. They were in the job market prior to the pandemic. Now, there are people that are no longer on the typical roles. And we talked about this for years about

Uber and all of these kind of ride sharing. I think that there are more and more people that have either left the workforce entirely because they haven't been able to replicate or they don't want to replicate what they were doing prior to the pandemic because of some sort of services job that didn't allow them, you know, really any upward mobility. Or we've gotten to the point where maybe that baby boom, you know, we talked about all of these retirees. Did they really just retire? And they're like, I'm not going back because the participation rate is still lower than it was prior to the pandemic. And there's really no movement there.

But the unemployment rates across different demographics have improved. So it's not like you can still point to just like women aren't going back. Or I just think that a bunch of people fell out of that. But how are we going to sell magazine articles if we don't say exactly we're not going back? To your point, though, like there's 3 million people that drive for DoorDash now. Where do they come from? What were they doing two years ago? Here's another thing.

Is it like 90% of them part-time? Yeah, that's what I mean. So do they have a few part-time gigs? So they do Uber and DoorDash and Lyft. So they're just not W2 and they're never going to be. Did you read Derek's piece on the Great Formation? I didn't, but I imagine you did because he was talking about this.

Well, you also have like the total quits in the US right now is 4 million people. And so people are probably just in between. I think, is it possible? I'm a Jerome Powell stan and I stand with the U.S. government. Take coming. By the way, you're confident in my assertions. That's you.

I made it on the board. Is it possible that all these surveys are just really screwed up right now? This chart is permanently broken. These are initial jobless claims going back 50 years. This chart is now garbage. Look what the pandemic did to this chart. It's completely meaningless. You have to adjust that by not including last year.

Honestly, how do we take this out? So you have people coming into the labor market and going out of it in their part-time jobs, and they're stopping to watch their kids. There's all these different moving parts. Is it possible that it's harder to track this stuff right now and all this stuff is going to wash out in a year? We have to measure it differently. We have to get a different data source than what we used to use.

Yeah, like what? Shadow stats. No, like maybe how much money is flowing into people's bank accounts is what they want to do. They want to start tracking deposits into bank accounts. I don't know if they'll be able to, but the IRS wants to do that. Maybe that's the right data source.

People have money coming in from somewhere. Is that invasive? Of course it's invasive. I don't want it. But like, if you have people not on W-2 and that's what they're tracking, if you have millions of people who will never be W-2 ever again,

then how are we ever going to fix what we think the measurement is? I don't have an answer, rhetorical question. What do you got on this? I think there's inefficiency in the data gathering too. I mean, how many, there's not enough jobs of the people that are supposed to be gathering the data to be able to get good data.

So we have, that's why we're getting all these revisions. I mean- That's not a high enough paying job, data gathering for unemployment? I don't think so. But it's also people that were, that was their second and third job, picking up those second and third jobs. That's where we've lost like a lot of folks.

You know where we're losing people? We're losing people to Bitcoin. There's 16,000 people with over $5 million. You're lost in the metaverse. This guy's fucking gone. There's 16,000 people with over $5 million. You're lost in the metaverse. This guy's fucking gone. There's 16,000 people that have $5 million in Bitcoin that are never coming back to the job market. Michael's answer to every question I'm going to ask today is Bitcoin. I'm just kidding.

I'm giving you that. I'm talking about those people in the mall with the clipboard, and you're talking about crypto billionaires. Yeah, surely there must be a crypto-related answer to this. Am I right? You must be. I can't imagine it any other way. All right. Earnings growth.

Who put this in the doc? I did. Is this you? I did. What's going on here? I'll tell you what's going on. John, do we have this chart? Last decade, real earnings growth?

There's a few things going on. Okay. Go ahead. All right. So what we're looking at is earnings growth by decade going back to the Civil War. And look at this chart. Wait. No, I'm kidding. It's earnings growth by decade going back to the 1900s. Who was collecting the data in the Civil War, please? I'm kidding. By horseback from town to town. So the point is the past decade, 2010 to 2020,

was the best annualized real earnings growth for the US stock market since 1870. Really? How about that? It's almost as if the rally has been justified all along. That really surprised me. John, put my chart of the one with dividends and earnings growth on there. I'm going to skip ahead here a little bit. Okay.

I'll show you because people hate good news. No, no. They hate a stock market rally that's justified by good news. John Bogle has this equation where he says returns are dividend yield plus earnings growth. And then the difference or the delta, right, is the change in PE. So look at the 2010s. Look at the earnings growth. Wait, so because this is a podcast, let's say what it is.

Earnings growth for the 2010s decade. So this is what we're going to talk about. It was 10.6%. The annual returns were all earnings growth, very little multiple expansion, right? So PE change was plus 1%. That's it. So earnings growth was 10.6.

So annual returns worked out to 13.6%. This is a little bit of like a backfill of an equation. The PE is just a filler, basically. Look at the 50s. 3.9% earnings growth, which is very poor. 9% PE change, 20% annual returns. Because earnings were, the PE was depressed, obviously, after World War II. Right. Okay. All right. So that makes sense. So this is a good chart to dovetail into what Ben was just talking about. Let's throw up the valuation chart, Big John. So Urien Timmer, who does amazing work for Fidelity, tweeted, earnings have done all the heavy lifting for more than a year now. The combination of slowing but

positive earnings growth in a sideways to down PE multiple suggests a flattening out of the bull market slope. So what we're looking at, guys, for people that can't see this, listen to the podcast, is the S&P 500 over time rising, obviously. But for the better part of the last year and a half, the P.E. multiple has gone sideways to down, which is a good thing. That stocks are going up despite the fact that the multiple is compressing. It's all earnings growth. This is good. The thing that's so funny is, though, how many people think it is the opposite.

How many people – They think it's all multiple expansion. Their narrative is that the Fed is driving multiple expansion. And we're showing literally it's the opposite over the last – how long? 18 months? Shannon Wann. But it's not – I mean, but this is – but I think this is even more concerning, right? Because we're actually knowing it's not multiple expansion.

Where is the multiple expansion? Where is the multiple expansion? I mean, if we have earnings that are doing this well, they're probably not going to grow at the same pace. Good point. Because if you think about also what's been driving those earnings growth and those businesses that have been driving that earnings growth, are they going to do quite as well in the next few years?

To your point, I mean, isn't the earnings growth all spending from the government basically? Not all. Well, over the last year and a half, yeah, a lot of it. Yeah, this one period. So, all right. So then now you're in a situation where you've probably seen some of the best earnings growth you're ever going to see. Then you have to make a bet on multiple expansion. Is that the point? Like, how else do stocks go higher? Well, yeah, if you think that they're going to go higher, you have to be counting on

that. And then you have to start to get down to what is going to drive that multiple expansion. If we've had all this good news, Michael, to your point, and we haven't seen multiple expansion, what's going to get us there in the next two years? What's interesting is the next chart, which is breaking down 2021 equity return decomposition. I know nobody could see this, but it's a similar chart to what we're showing. So all the way on the left, we've got the US. You see the total return with a black dot, kind of hard to see. You've got the earnings growth, and then you've got the PE multiple contracting a little bit.

So wait a minute, so wait a minute. 30% earnings growth for the US and negative on the multiple. Right, but look at other areas of the world. Like look at Europe. This is universal. This is across every- Every, so Europe, but Europe and Japan, of the world. Like, look at Europe. This is universal. This is across every— Every—so Europe, but Europe and Japan, like, crushed.

The multiple was crushed. Even with—and look at the earnings growth in Europe and Japan. 40%. So, don't you think— And multiples— Japanese stock market had a 30% multiple compression this year? So, isn't this the—like, I'm defending the Fed here again. Shocking.

Everyone always talks about, well, it's low interest rates rates and it's the Fed that is causing stocks to rise. Why aren't stocks rising more in Europe and Japan if they're spending just as much money and their rates are lower than ours? They need a better Fed chairman. Yeah. They need a Fed chairman that wants to focus on more multiple expansion. The transmission isn't as effective there because there's no fiscal policy boost as well. I mean, if you go back to 2011, the reason why all that Fed accommodation, which obviously is dwarfed now with what we've seen in 2020, but there was a huge amount of accommodation in 2009 by the Fed. And then Washington didn't do anything.

So you don't get that. And I think that's why you're not really seeing – I mean, the Japanese haven't played ball in years from the fiscal perspective either. Can we also say there's not as many psychos in Europe and Japan as like – we have crazy – our like gambling spirit, right? We also have an equity mentality here. Yes. They're more about real estate and saving and we're about gambling. They're more about society. We were talking – I think we were talking to Jay's family in Spain or something. Jay?

Yeah. Oh, Tony. Yeah. we were talking I think we were talking to Jay's family is in Spain or something oh Kenny he was explaining something about how like retirees in Europe they know exactly how many dollars they have to spend each week and that's just how they are in retirement like they're not betting on the stock market we're all about play to earn in the stock market in these United States right well yeah

I think there's just more of a mentality like well anything can anything can happen. And then you have people that are retirees in other countries and they're kind of like, nope, this is what I have. This is what's going to be coming in. And this is how I live based on that. So there's some, there's some elements of that. What's this? Skip this. Let's, let's, let's, let's move on to expected returns. Okay. What do we got here, Ben? This is from Vanguard and they gave expected returns for US equities and value and growth and REITs and all these different, and they also projected their inflation. So this is for the next 10 years. And this is not, this is not GMO who's been predicting low expected returns for a while now, for like a decade. Vanguard has been pretty

reasonable with their expected returns. These are really low. So that's U.S. equities, 2.3% to 4.3%. That's nominal, not real. Wait, Ben, this is their expectation for the next 10 years? 10 years. So average annual returns over 10 years. And these are non-numorous growth.

Growth is negative. Value's a little higher. So this is a function of the current valuation. And much higher in developed, you know, ex-U.S. Okay, so Vanguard is putting out there that they think U.S. equities will do something between 2.5% and 4.5% for the next 10 years. Nominal. Nominal, with 16.7% volatility. That's not a good—

And they say—and again, Vanguard has been pretty constructive on returns of late. Now, I wanted to put like, what is the previous 10, Ben, just to show this. And this might, so I used all Vanguard funds. The U.S. stock market has done 16%. This is surprising. What do you think value has done without looking? Annualized returns over the last 10 years. Last 10 years?

11, 12? 13 and a half. People think value is dead. Yeah. 13 and a half is pretty damn good. International stocks have done like 7. Value, which everyone has just been stomping on its grave, is up 13%. Growth

is up 19% per year. That's why it's all relative. So, small claps are up 14% per year. Read your 11. Here's a small clap. What is the difference between the way Vanguard thinks about expected returns versus GMO? Did you read this piece?

I didn't read it yet. Vanguard is, GMO does mean reversion. It's going to come back to this PE ratio. And profit margins. Yeah, I think Vanguard is more in the Bogle camp where it's like dividend yield, earnings growth, that sort of then PE. So they're less, they're less, go ahead. No, I was just going to say,

if they're looking at dividend growth, then that's obviously why you get that delta between global and the US because dividend policy has completely changed for US companies. European stocks are yielding like 4.5, 5. Right. Are they incorporating shareholder yield or like are they thinking about buybacks because we're going to have a trillion dollars in buybacks this year and probably next year? I think they only look at dividend – like actual cash flow through dividend policy, right? I could be wrong about that. I've been expecting lower returns for five years. So. Well, a lot of people have, but yeah, no, I mean, no one is positioned for this, obviously, but don't even think so. I put out some analogies like where we are right now,

everything feels good, but you have people who've had experiences in the market that could go. I'm one of three ways here, which is what people are thinking. So you have, some people say we're going to the 70s, it's going to be stagflation, high inflation. Other people say, wait a minute, I see this big tech boom coming over the next decade. And it's kind of like we had the 80s boom that led into the 90s. And then other people saying, no, wait, this is 2000 euphoria, it's coming to an end, right? Like, I feel like any path you want to take right now or push out there for the market scenario historically, you could make a good case right now. Well, there's just no way of knowing what will be the things that influence consumer behavior in the coming decade.

Because if you were thinking like in the early 90s, you didn't know that mobile phones and the internet were going to come along within five years. You had no way of knowing. Nobody knew. Like Marc Andreessen didn't know. And he was working on it. So you don't know what will be occupying our time and attention and dollars five years from now. What if the metaverse adds $8 trillion in market cap to US equities?

Then what? What if? What if? What if? But what if? The metaverse takes, sucks money out of everything else, like services and and goods and then you're in a completely – that's cannibalized. What if we have a Great Depression because everybody is running around with bunny ears and a rocket pack on their computer screen and they just can't get out of the metaverse? Like I feel as though –

Did we talk about Lawnmower Man a la the metaverse a few months ago one time? That wasn't me. Awful movie. I'm familiar with the film. Wouldn't 6% to 7% annual returns in the U.S. in 2% to 3% inflation? I'd take that. Wouldn't that be the one that everyone is kind of wrong on? It's like, okay, it's just kind of boring.

Yeah. The path to get there probably wouldn't be boring though, right? You'd probably still have a boom bust and then end up there if you look back on 10 years. If you consider like some of the things that went on with, let's just say drug discovery, it's very clear that we're going to have a different path toward developing medicine post-pandemic versus pre. What if all of a sudden that's the next boom? And-

mRNA? The smartest people in the economy working on that. And there being a ton of money to be made. Like we just don't, I, I just feel very, I feel very strongly that we really have no scenario. The boomers live an extra 20 years.

The millennials are all pissed because they don't get the inheritance. And we ride in the streets. Boomers living an extra 20 years. What does that do to allocations? More stocks. More stocks. So every path leads to higher stocks I think is the important – Pretty much. I think we all agree.

I think we all agree on that. What is this chart with all the rainbow colors? I can't see it. Ben, is this you? What is this? We did this. Oh, that's me. Shannon.

Shannon, what do we got here? So I had a conversation with somebody this week and they were telling me how they were not interested in the international markets because they were still excited about the cyclical exposure in the S&P 500 and how we were going to see this cyclical rotation and the true value rotation was going to happen. Then why aren't you buying international stocks? Do you have clients who are just throwing their hands up and saying, why do we own these? Why do we own foreign stocks? For years. For years, for years. But the point is, is that the argument was around why I, they were defending being underweight international with this cyclical argument

about the fact that we are seeing this value rotation. And I was like, you're making my point for me. I don't even have to do this. You're right. You're not going to get the full benefit of it if you're just U.S. stocks. If you're just U.S. stocks. And it's going to be, if you, if you actually think that this is going to accelerate through the second half of next year, you're going to be killed in the S&P 500 as it rotates. This is the IFA sector weight you're showing? This is the IFA sector weight. So it's 17 percent financials, 16 percent industrials. Tech is less than 10 percent of the IFA.

That's unbelievable to me still after all this time. You could easily make the case that we are in the early innings of the growth to value rotation. Well, if we were sitting here talking in 2006, we'd be all talking about how dead the US stock market was. And if I look at this and you're telling me the cyclical rebound is here and it can persist and sustain for a couple of years, I don't know why you're not in Europe, regardless of the growth situation. Do we need the dollar to fall too? It seems like the period of falling dollar is always good for international stocks. Is that like a prerequisite? Or do you think that just helps like as a tailwind? It's generally a tailwind,

because I think if you look at like local returns versus net in USD returns, there's obviously something happening there from that perspective. But I don't actually think, like I've been asked, do I have to have a weak dollar outlook to be an international? No, I just think I need to look at this sector chart and just buy the index and benefit from potential increasing rate, continued outsized inflation scenario. And nobody's positioned for multiple expansion international stocks because it's been so long. Because one of the problems is that emerging markets are such a basket case. You're not going to get this cyclical upturn that you want if China remains in the state that it's in. It has never happened in modern time. like even Europe benefits from trading with China. Like China has

to like, I don't, and believe me, we're not going to, we're not going to arrive at the answer today. It's just hard for me to accept this idea of materials and industrials outperforming if EM remains the way it is. Do I have that somewhat right, do you think? No, I think that's the case. And I also think that then you go back to, well, where does the economic growth that would need to drive investor appetite and interest in Europe, you got to have the rest of the economy globally

has to be firing on all cylinders because they're not doing anything pro-growth in the European Union whatsoever. And I'm sorry, the Brexit situation in the UK, I mean, they can't even get trucks. Yeah. So I think it's been a few years. The Germans have to be able to sell shit to China or else take that whole cyclical value rotation off the table. Like at least there's a long-term thing. Well, during the height of the trade war in 2018 and 2019, people got really excited about Europe because they're like, great, we're going to have this expanded trading relationship with China because we thought China was going to

keep growing. Well, you know, two, three X of the rest of the world from a GDP perspective. Now they're putting the brakes on and saying we might do five, but it's probably going to be more like four. Nobody gets excited about four percent growth. Are you guys surprised that they haven't taken any of those tariffs off in a higher inflation environment? They haven't? Have they?

Not really, right? No. Policy is essentially the same. That seems like a layup to me. Why don't you say, we can immediately help inflation by taking these tariffs off? There was an article, I think it was Musk, right? He was talking about graphite for the SpaceX, and there's

still a huge tariff on graphite. And he was saying, you've got to pull this off because because exactly what you're saying, my cost, my input costs are so high. Like why do we still have all these tariffs on? I think it's a political hot potato. I think if President – I agree with you. If Biden can just stay out of it, he doesn't – it is what it is. But some of these tariffs sunset.

So I feel like they are going to –. Some of them will come off automatically or. There's a group of them that should. Right. But there but I think there's some contingencies on that phase one deal, too, which they're clearly not meeting. Yeah. So Biden can't do it because politically it just it's not a good look. And we all know that we all know that anything that happens in China, it really takes a while to understand what the market implications might be. I was kind of blown away by how angry

people are getting with inflation. So I thought like you pull the easy levers that you can say, like, I can point to this and say, we're relieving cost pressures where we can, because people hate inflation. They hate it. He's at 57% disapprove of Joe Biden and almost all of that. If it's not related to crime, it's related to inflation. Like these are the two things that he's going to get hammered on. Why doesn't he do a U S dollar buyback? What do you want? All right.

So, so I think this is a good, this is a good segue to international stocks sucking – excuse me, to credit-driven asset price inflation. What do we got here? Did you guys read this thing from Verdad? I thought it was pretty well done. Basically – hey, let me go through this really. Let me do it right now. I'll read it right now. Yeah, read it right now while I read it. Here's the TLDR. credit is extremely cheap and extremely accessible that is driving rising asset prices in three key markets public equity private equity and housing in each of these markets rising asset prices are accompanied by decreasing loan to value

ratios falling debt costs and most strikingly asset prices that look extremely high relative to history so he's making the point that now you have both risks at once. You have like a lot of lending with low, you know, low covenants and you have very, very high prices. And his point is the Scylla and Charybdis of investing are bankruptcy risk and overvaluation risk when credit fuels rising valuations, investors should be doubly concerned. It's not a great starting point for 2022. Josh, you're like the Greek tragedy guy.

What is Scylla and Charybdis? So during the Odyssey, during that voyage. I knew he would know this. During that voyage, there's a narrow sea lane they have to get through. On one side is one monster. I forget. I feel like S. On one side is one monster. I forget. I feel like Scylla was like a sea monster. And then Charybdis is this whirlpool

that sucks boats in. I have this. Shannon knows this shit too. Classically educated. That's right. I went to liberal arts school and I know a thing about it. Regional high school, baby.

No, but you're from New England. They like really educate people still there. They do. They do try. Josh was classically trained at Jones Beach. That's right. Can I do a quick verbal meme here, though? Please.

Regular Winnie the Pooh, prices are rising. Winnie the Pooh in a tuxedo, asset price inflation. Winnie the Pooh in a tuxedo with a monocle, Scylla and Corotis. Okay, but don't you think that low interest rates paper over all of this? I know that's kind of what they're saying, but. Well, they have. Yes. But forever? How do rates rise? Rates are never going up. Do you agree with this? Yeah. If you look at the spreads right now, it's actually hard for the

Fed to raise rates that much anyway, even where we are right now. The Fed's not going to invert the curve on purpose. No. Right. Oh, Josh was saying – he's consensus, consensus, consensus. I really am. Josh thinks there's going to be three rate hikes next year. Yeah, I do. Do you believe – he thinks 75 basis points for the Fed funds rate next year. Because I'm bullish. I think they raise and then I think they stop.

Three times? Yeah. I think two or three and then I think they stop. What did they get to last time? What did they get to last time? Do you have like a really big Fed outlook here? Two and a quarter? I really do.

You're a quarter? I've got a Fed outlook, guys. 75 basis points is not really high. To me, that sounds like 75 million basis points. I don't think they're going to do it. Are they just raising them so they can drop them again for the next emergency? Yes, but that's exactly why they did it before. So let's get it over with.

Just keep them low. Yeah, why were they raising rates last time? The market's going to vomit and they're going to lower them. They're going to accelerate the taper and then they're going to get to the point where now they're like, oh, we've tapered. So we have to raise rates. Meanwhile, inflation is going to be coming down because the only thing that's going to be sticky is wages. And then all of a sudden it's going to be like, oh, we did it twice. And look, look what we did. Prices are coming down and then they of a sudden it's going to be like, oh, we did it twice and look what we did.

Prices are coming down and then they'll stop. How important is having a view on where Fed funds rates could go in the next year, let's say, to the way that you're talking about allocating portfolios? It's not important at all, right? It's not that important. Because you can't predict it. No, no, no. Of course you can't predict it. No, no, no. Of course you can't. Of course you can't predict it.

Let's say you could. How much would it really change in terms of your return expectations for a portfolio? It's not going to change my return expectations. And the way I look at it is that you're really keyed on client liquidity. Like do they need liquidity? And so even if they're not going to – if they're not going to make really poor returns in bonds, if I know that they need money in liquid form that is not going to move in value, they're probably going to be in short duration bonds, regardless of what I think.

Duration is the risk there, right? Three rate hikes is not going to change how much you're allocating to bonds. The decision point on bonds is like, how much do I need to have not at risk for whatever my client needs to do? Well, also to Ben's point, if it's under a year duration, no, it's not going to matter. And if you're holding shorter-term bonds, rising rates are a good thing because you can then reinvest at higher rates. You'll never make money otherwise if rates don't go up.

Yeah, you need them to rise a little bit eventually. Okay. Let's get into this Vanguard thing. So this surprised me. I guess probably because I'm not paying close attention. Vanguard total stock market index fund is $1.3 trillion. It is now accounts for 10% of all assets in U.S. stock mutual funds and ETFs. That's crazy. In the whole market. Did you think it was this big? I didn't think it was this big, but like backing it up, I can see how it could be this big because

I think I see enough pension plan, like schools and stuff, and this is always the mainstay of their every retirement plan. So if you want to know why there's $3 trillion in Apple, this goes kind of a long way toward explaining how that could happen.

All that people talk about, and I include us in this, people, is speculating and Robinhood traders. Look at this. This is amazing. This is like, give me an applause on this. This is awesome. I mean, it really is. Right? Because this is the opposite of that narrative that everyone's behaving like a maniac. Yes, this is the, everyone is actually investing like in a reasonable way. A lot of money is going into this and maybe people are speculating on the side.

of money is going into this and maybe people are speculating on the side. So what's funny is the second largest fund is the Vanguard S&P 500, 821 billion, which we can only assume will ultimately end up at a trillion. It's not going to take much. But isn't that the bigger risk for what we talk about, like speculating on retirement money? You know, the bigger risk is that people start to have to speculate on retirement money because stuff like this, when we get like, if we get a bad growth rotation, right, out of tech stocks, and you go back to the Janus Fund nightmare of 2000, 2001, this is where the concern is. Because this is safe money. This is a big index. I don't have to worry about it. But people don't understand that there's things in the dynamic. If we're shifting in the next 10 years, those first couple of years are going to be painful for people potentially in this bucket. But I think that's why

we have speculation in retirement, not because we're different than the Europeans, but because there's so many underfunded retirements in this country that I think people feel the need to speculate. Balchun has tweeted that Vanguard is at $300 billion on ETF flows, which is, so we could potentially be at 350. This year? Yeah, we could potentially be at 350, right? It's early December. The previous record was last year, 200 billion. It's 300 already this year.

And Vanguard took in 300 billion in a year. So do you think that the bad part about this could be getting back to your growth and value thing? This is really growth heavy now. Like the total stock market of the S&P is very growth heavy. Well, it is. The 5 or 25%. But do you think that those big companies, Amazon, Apple, are they even growth anymore? Are they just like in their own category now?

Is it really like – They're like sovereign nations. That's what I'm saying. Is it your – like could you have all these other growth stocks that are already getting pummeled, and these other big stocks, are they their own? That happened this week. When the growth stocks were getting murdered, Apple's making all-time highs. Yeah.

Listen, I feel like people are, like, obsessing over the growth trade, the growth trade. These stocks are not moving with Adobe and Shopify. Like, Apple and Microsoft are not doing what actual growth stocks are doing. They almost seem as though people feel more confident in Tim Cook than they do in Joe Biden. And money is just going into- Well, it depends how you slice growth stocks. Are you talking about growth stocks that are losing money? Like those type of growth stocks?

No, the next 50 down after the top five. By market cap? Yeah. These are in a class of their own. They are not acting like these. You don't think Apple can get cut in half? No, I don't. Come on. No, I really don't. I really don't. I think 20 to 30%.

I kind of agree with Josh. In half? No f***ing way. It's 2.9 trillion. You have to tell me a story then why all of the liquidity sloshing around in the world suddenly disappears. Aliens. I don't know. Okay, fine. If we get aliens, you know how much infrastructure we're going to be spending on?

The Fed is going to juice this so hard. Aliens will be bullish. If we get aliens, we're going to get a whole new round of stimulus. I can't imagine a scenario, so of course it's going to start happening tomorrow, where Apple, Microsoft, Alphabet get cut in half absent a massive recession. I just – I can't picture it.

And the reason why I can't picture it is because what we've basically done in this country is we've tied everybody's retirement to the stock market, and these are the biggest, most profitable companies in the world and the largest components of, I agree. It's not going to happen for no reason. It's going to have to be something extraordinary. So shocking. What are these stocks? What are these stocks to last March? They fell 30. Did they? Apple fell 30.

Amazon is down 20, maybe. Yeah, not as much. But to that point, also, the folks that have made total market index the biggest holding from a retirement perspective, they're not changing their mind over the next two years. Right. That's true. So it's – to your – like Apple is going to sit where it sits because those funds are going to sit where they sit. And the construction of those retirement portfolios isn't going to change overnight. And so we probably can weather if it's like a rate storm because there's a growth scare. But I don't disagree with you.

I look at – Apple for 31. I hate talking about tech because I think that there are clearly two camps and people talk about them as one big group. And I couldn't disagree more in constructing a portfolio that way. So what's so interesting to me, I meet people and they're like, what do I do? Should I buy Apple? Should I buy Amazon? Should I buy Amazon? And I'm like, you own so much Amazon.

You own so much Apple. If you have a 401k and a 529 plan for each of your kids, you have tons of exposure to Apple. Well, we were just talking before this. If you, a lot of people now own the NASDAQ 100 as well. They view that as like a core holding. 50% of that fund is in the top five companies. So that's even more overweight to those companies.

Do you think, so if we're like, you're talking about why these stocks could fall. I don't know if I'm coining this myself, but like, let's look at a white swan, like a risk we can see. Okay. Is the white swan out there just that like inflation goes away and the Fed raises rates to one or 2%?

Is that the only like risk we can see that would, that you could see really bringing the stock market down 20% for a bear market? What's the reason that everybody agrees would drop the stock market 20%? Yes, the Fed gets very aggressive. That's a layup. That's the only one, though. That could easily happen.

Last year, Apple, Microsoft, and Google each fell around 30 amazon only fell 22 pretty oh here's a scenario where apple get cut in half you know we're not a regulation you know we're not sending um any dignitaries to the olympics in china what if china says oh yeah how about no f***ing apple iphones in China? And I wouldn't put that past like if they, if they wanted to put a lot of pressure on the average American, they could start screwing with some of our corporations that need China. Now, fortunately, Apple seems to be the most

exposed to China of the, the Fang names, right? It's not important to Amazon. Alphabet's not even there. Facebook's not even there. If they decided, you know what? All this money that we're making because of Apple, let's just get rid of them or let's put pressure on them. I could see a scenario where Apple falls a lot. So that is a, is that a white swan?

I guess, because it's like in plain, it's in plain sight that they could retaliate in some way that really hurts the stock market. You hurt the stock market bad enough, you hurt the sitting president. Well, you also – it's not just consuming. It's supplying, right? I mean if they just decide like we're not selling to any of these US companies anymore. We're not giving you our rare earth metals. you are rare earth metals. We're not, I mean, the China thing to me is a much bigger kind of long-term concern because I think that it's going to raise costs. I think that there's going to be

this continued, you know, diplomatic tiptoeing that's going to happen. That's going to transcend to my point about whether it's Trump or Biden, it's going to transcend all of these administrations because they don't, they're really looking inward now. This is an entirely different Chinese government than it was 10 years ago. There are so many gigantic companies in the indexes that are so reliant on China for their future growth expectations. Just take three, Disney, Nike, and Tesla. So taking Apple out of the picture, if you understand where they're saying that their future profits are going to come from, and you look at the infrastructure that they've

built in China, and you look at like how much focus has gone into selling into that massive economy. Um, if the diplomatic situation gets materially worse, you absolutely could make a bear case for us multinational stocks. And those multinational stocks right now comprise like almost half the index. So I agree with you on the white swan idea. That's hiding in plain sight. If I can't get a new iPhone, that's like World War III then. We go to war for that, right?

Well, you can't make them here. You're going to buy a $40,000 iPhone. So you know what doesn't have Chinese risk? Bitcoin. See, I knew it would come back to that. You're going to buy a $40,000 iPhone? You know what doesn't have Chinese risk? Bitcoin. See, I knew it would come back to that. You're absolutely right. I would give up my iPhone for a stack of Bitcoin. Why not?

Let's do tech IPOs. Kind of a disaster area. John, put this chart up. So this is CNBC.com. Of the more than 50 US tech companies to go public this year through an IPO SPAC or direct listing, only one is less than 20% below its high stock price. That's wild. More than 20 of the companies in this group have lost at least half their value. I haven't looked at Raven's chart in a while.

Let's go through a couple of these. Robinhood is 74% below its IPO. Last time I was here in this room. You were bearish. No, it's Robinhood's 74% below its IPO. Last time I was here in this room. You were bearish. No, it's Robinhood's IPO day. You were so wrong. Nice job, guys. I sold it the day of the IPO.

I sold it way higher. Very confident in my assertion. I'm just saying. I mean, Coinbase is 40% below its IPO. Rivian is 35%. Roblox is down 20% from its IPO. Could that be right? This is from the peak.

No, from its high. From the high. Okay. This is worse than I would have thought. So I'm looking at this in terms of what does that mean for the next couple of years? You guys talk about kind of democratizing access to private investments and, you know, giving people access. I think that that's going to become even more important because nobody's going public in this market. Can you blame this on SPACs kind of where they just oversaturated the market? These are not SPACs.

But I'm saying the SPACs took up like sucked all the oxygen out of the room. Yeah. I don't know. Yeah, it's a combination of that, too many deals, expectations that were too high. And these companies probably should have gone public before. Three years ago. And so by the time they actually did, the expectations were so high because they were mega cap companies already. And Ben and I were talking about this. The expectation was that once the tide turns on these high flyers, that sentiment would shift and it would drag the rest of the market down with it. Not the case. Not even close.

Can we really say that Rivian should have come public earlier? They still don't really have the capacity to make a lot of cars. What was their market cap when they came public? Here's the IPO ETF, that Renaissance IPO ETF. The S&P is up, what, 20? It was slaughtered. S&P is up 25%.

This year, this thing's down 10 on the year. Awful. And it's in a bigger drawdown. Rivian got as high as $153 billion on its fourth day trading. Come on. So what were you saying about VCs booking outside returns? Because they still are, to my knowledge. No, they are.

But I think if this – a if you're like a first or second fund vc right and you're looking out and you're like listen i was already looking at eight somebody tweeted today i forgot the tweet already but somebody was tweeting it was like nine years and we finally like we finally got a return on our capital i shared that with michael today same one did you yeah so i think that this just pushes that out even further. But I think it's at the same point where more and more people are going into private equity. I think it's a really challenging space right now because we can't get into Andreessen Horowitz, but we can get into some of these small funds that are now going to be pushed out to like

10, 12 years before they're making a return. I'm not saying the returns aren't there for those VCs that are monetizing today. I'm saying that it creates, I think, more of a hurdle over the next few years as you're trying to price out what your expectations are for these new funds. And it's hard to find things to invest in. Like, Michael and I have talked to people in the last few months, like founders, who say, we're beating away investors with sticks. Like, the people who started in our seed round, they want to give us more money.

We can't even take it. There's nothing we can do with it at this point. Especially if you're looking in the typical environment. Like I talked to a VC that focuses on Latinx-run businesses outside of the United States. They're like, we got plenty of opportunities. But we're playing in a completely different space that nobody – people know, people aren't going to make that their first foray into BC. Speaking of,

how did this new holdings do today? Oh, that IPO, that Brazilian bank? You know the shut up and take my money gif? Like,

no, I can't take your money. Oh, wait. What's that? Siri is answering my question. But I want to hear your answer. China's listening in right now

through your watch. New holdings. It looks like it was not a very exciting day. This is the Brazilian, it's a neobank. Is that what you call it? Okay. So this is the bank that Berkshire Hathaway puts $500 million into, open for trading today at a $40 billion valuation, raised like $3 billion and change. Not a great reception. Not terrible. I think it went up a little bit, but you didn't get a huge IPO-like opening for it.

I think this is probably the last big one to go this year. Year's over. Year's over. Are you buying any of these IPOs as they come out? What do you guys do with them? No, we don't buy them until at least six months after just because just trying to see things flush, especially now with so many – Being part of Silicon Valley Bank though, can't you just call the West Coast branch and be like, hey, guys, hook me up. I have rich people in Boston who want to invest. Yeah.

I mean I think the opportunities are going to be a little different going forward for sure, especially with SVB Capital. I mean they have a whole VCPE credit arm. And you are going to call Ben and I and Michael? Absolutely. OK. All right. No, but that strikes me as like a very big trend that we're going to see next year because if you look at like Goldman Sachs, Morgan Stanley, everybody is gearing up to offer pre-market, a pre-IPO venture-backed startup funds.

Well, NASDAQ private market has been around for years. And Silicon Valley Bank and Citi and Goldman, they just infused a whole bunch of capital into it to make it work better because it hasn't really had a lot of volume on it. So they're banking on this trend towards longer to monetize. People need liquidity. This is a philosophical question, but if thousands of people have access to companies before they come public and can invest in them,

are they actually private companies? Well, let me ask you this. If there's 500,000 billionaires that want to take a bite out of this apple. There aren't that many, it turns out. We learned today. But no, but seriously, the lines have become so blurred. Why are we even calling it private market? Like if- I actually think the lines are going to become way more blurry than they are today. But no, but seriously, the lines have become so blurred. Why are we even calling it private market? I actually think the lines are going to become way more blurry than they are

today. Don't you? Like they won't even exist. Yeah. Well, that seems to be where all the attention is going from all asset managers. Think about how many 40-act funds are now investing pre-IPO. That won't stop. And maybe the SEC will pivot and pay attention to that instead of just crypto. Not until everyone loses a ton of money. Well, there's so many more startup employees now too, to your point about taking eight or nine years to see some returns. All those employees want to get money. So these secondary liquidity markets are being created by a ton of different firms that want to make it happen. Let's hit on this.

Berne Hobart tweeted something like, I found my short thesis for fintech. And somebody posted a screenshot. We've got FTX Arena in Miami. That's Sam Bankman-Fried. They spent $135 million for 19 years. I'm not too familiar with sports arena contracts, but that seems outrageous. Crypto.com Arena, we all know, $700 million for 20 years. I'm not like too familiar with sports arena contracts, but that seems like outrageous. Crypto.com arena, we all know 700 million for 20 years. SoFi Stadium in Los Angeles, 625 million for 20 years. Intuit Dome, Climate Pledge Arena, PayPal Park, Ball Arena, Fiserv.

Is that Milwaukee? Fiserv? Yes. I mean, that's not even on this list. Fiserv Forum or whatever. Yeah. What's interesting here is how many obvious bankruptcies and blowups there had been shortly after a stadium got named for a corporation. And that's really all they're buying here. The most defensible one on here is the highest price. Staples? SoFi. $625 million for 20 years it's an obscene amount of money but they have both nfl franchises playing there so they have today does that mean they have 16 games but every season plus all the concerts i don't really know the economics of how that works but staple center

formerly staples center now crypto the camarader, 700 million for 20 years. The prior rights, so Staples paid 116 million from 1990 to for 30 years. Okay. So Crypto.com is getting 20 years at seven times the price. That's only crypto mentality. Would that make sense?

Where do they get $700 million from? I don't know. Why not? No, but seriously. Where does it start? $650? No, $7. I mean, I know they didn't have the right to check today. I'm sure that's amortized over the... But I don't even know where a company like that gets $700 million

just for a stadium name. It's 20 years. So what is that? $35 a year? Yeah, but to Michael's point, how does the stadium even start? And LeBron is 61 years old this season. That's a bad, that's a, sorry. But I would love

to be a fly on the wall for the negotiations of that. It's crypto. There is no negotiation. It's all on the chain. Well, listen, I guess we don't know if that will ever pay off. It just doesn't seem like it's the kind of thing that can. Who put this better.com news in here? Did everybody see this video?

I mean, that was- I didn't see the video. So let's set this up. Better.com hired 7,000 people during the pandemic. They just raised a billion dollars at a $7 billion valuation. And then the CEO goes on a Zoom call, only invites the people he's about to fire and

he fires a thousand people uh we're in we're in a new we're in i've heard of hiring people on zoom firing uh 900 people at once my favorite clooney movie up in the air yeah where he goes around he goes around he fires people and then an Anna Kendrick comes in and creates a way to fire people over the internet, basically? Yes. Here's the thing I don't get. How has the market changed? Like, refinancing should be just crazy right now for them. What does Better.com do? They refinance homes, right?

They help you with refinancing and get you lower rates. That's it? That's the whole thing? Those are the ads I see. I'm sure they do more. Why do they hire 7,000 people to do that? Because. Because the rates are so. I'm sure they do more. Why do they hire 7,000 people to do that? Because the rates are so low. But there's nothing more inefficient than we're going to try to meet this demand and then rates go up like 50 basis points and the number of refis is halved. If you've been following monthly or even weekly housing data, it's literally quarter basis point, no refi. That consumer gets spooked by nothing.

Nothing. Right. So 20 basis points. Ah, you know what? I'll hold off. No, but everybody already refied. Right. A few times.

Yeah. I did it twice. It does sound like this, the CEO here backtracked and said, wait, the people who are working for us, they're actually stealing time. They're working two hours a day instead of eight. But there was a piece from Forbes about this guy. I guess he's got a lot of lawsuits going on about misappropriating funds. But he's raised a ton of money. So this is from Forbes.

So take it for what it's worth, but they say this is an email they found from him. This is before this happened. Hello, wake up, Better Team. You're too damn slow. You're a bunch of dumb dolphins and dumb dolphins get caught in nets and eaten by sharks. Shut up. So stop it.

Stop it. Stop it right now. You are embarrassing me. This is an actual email I found from this guy. Who's anti-dolphins? Dolphins are like the coolest animals in the world. Wait, you're a dumb dolphin? Yeah, he said dumb dolphins get caught in nets and eaten by sharks.

That's better than boar on the floor. Is that a reply all? That's the whole company? He sent it to his team and then someone leaked it. I kind of don't believe that there's a reason. This would have been leaked a long time ago. This is in a Forbes article from two years ago. No one had ever heard of it.

Someone pulled it up and said, this guy's got a history of His last name is His first name or last name is G-A-R-G. Garg, yeah. Garg? So he doesn't have a great reputation is what I'm saying. Ongoing lawsuits accuse Garg of or entities he controls of improper and even fraudulent activity at two prior business ventures and of misappropriating tens of millions of dollars.

In fact, Goldman Sachs, which has invested in three of Better's funding rounds, spent two years accusing entities controlled by Garg of flagrant self-dealing. All right. So he obviously – maybe the truth is somewhere in between, but he doesn't sound like a great guy. But he is saying that 250 of the people fired are basically clocking in and not working. Can he actually know that? I bet he can. There's probably some truth in that. But he just, he ruined his brand.

That's the new economy though, is clocking in for eight hours and doing two hours of work. Well, and I don't know. I mean, you know, even in the pre-pandemic economy, you know, there were a lot of people who sat in front of their desks

and really didn't get a whole lot done. So yeah, definitely me. All right. So I think we could all agree nobody wants to work for this guy yeah i'm out uh but is there something inherently wrong with firing people on zoom no no it's just the way he did it and it was so disingenuous he goes i think i might cry it was just such bullshit the way he did it because it was 900 people at once i'd rather have an email than a zoom with 900 people on it. And can they all see each other? Probably not.

No, no, no, no. Probably just him. They can probably just see him. All right. So it's his way of doing it face-to-face? Maybe he thought that this would be better than an impersonal email? Whatever. I think he wanted to make a point. I mean, I think he wanted to be seen as like, you know, you mess with me.

Like, look in my eyes type of thing. Even though the tone of it, he tried to make it seem like he wasn't doing that. But why else would you do it? Do you think he thought this would be impressive to his investors? Yeah. I think he learned this in the art of the deal. Oh man, did that backfire?

If he was doing this to, if he was doing this to stunt for like the people that just gave him a billion dollars, this did not, this did not go as intended. Gave him a billion dollars. This did not go as intended. How do you fire people in this current labor situation if not via email or Zoom? You just turn the paycheck off. They'll figure it out. Just turn it off. Take away their login information.

Unfollow them on Instagram. All right. So that didn't go well for this gentleman. Tell me about what happened at this restaurant. What was going on? Oh, so I was here on Tuesday night, the day of the AWS outages. Where were you trying to get into? Bubba Gump Shrimp in Times Square?

No. Where were you trying to go? Castle Lieber. Oh, okay. All right. We go, and you have to show your Vax card. I know you guys know this because you're from New York. Yes.

But this is not, for those of us who aren't, this is new. Proof of COVID before you get in. So they're all using this app, Clear app. Is that what it is? Nobody could get it to open. So they're just standing outside this restaurant and they're like, well, we can't go in because I can't get my proof of vaccination to come up. What were the people at the door doing? They were like, sorry?

No, they're just like, well, just keep trying. It's been happening all day. And I was like, oh, it must be hosted on AWS. And so, again, you get to this point where I saw a couple posts on Twitter. Somebody was like, hey, so-and-so, having trouble with your service today? I'm like, clearly. Did you read? Obviously, it's hosted by AWS.

My kids' preschool, their whole system for checking in and stuff was down all day because of AWS. You couldn't get into the – they had manual let people in the building. Did they let you in? They eventually were able to get it to refresh, but we were standing out there for several minutes, and I was like, I have my card, so I'm gonna go. When your whole house is wired, I'm worried. Turn on the lights, open the door, all that stuff.

When everything is wired, your fridge and your oven and your microwave, when you know what goes on, you're screwed. Well, it's exactly what happened with cars already. I mean, now something, you get a car and you're like i don't know it's all you know it's the it's it's everything electronic and so i just thought it was funny because i was like well what do you do now because essentially the internet went down for x number of hours stops now well now when the internet goes down life stops like there's too much relying on the internet to not be down.

So this is- But it's concentrated. It's too- What was it? 33%? Yeah. So here. Some of Amazon's delivery operations

ground to a halt. Third-party sellers couldn't ship products. Colleges that rely on software to host content had to postpone exams

during finals week. AWS controlled 33% of the global cloud infrastructure market in the second quarter, followed by Microsoft at 20 and Google at 10. So that's three companies have 50% of all the cloud infrastructure. Imagine if two of them go down at once, even for an hour. Well, you talk about like cybercrime, right?

Which might be another white swan we didn't talk about, right? Michael's brain is going to be trapped in the metaverse someday when the cloud goes down. We're going to lose him permanently. His body is just going to be in a coma and he's going to be trapped in the metaverse, his brain. He's going to lose his whole identity. Is 33% too much of global cloud infrastructure to be controlled by a bookstore? This is like a – it's not a monopoly, you're you're not gonna have a uh a dozen players here no you don't need it i said trump base overall but in like corporate risk right when

you say oh we're hosting we're moving it to the cloud it's much safer than hosting it on a server in our office and having potential business continuity. Is it? Because now- That's a great question. We have client data stored in the cloud. They don't want us to have this stuff written down on paper. Right. In the eyes of the people who are monitoring what financial services firms are doing, they would prefer that this stuff be in a secure cloud rather than in a file cabinet.

Okay, that makes intuitive sense to me. Then the concern is like, okay, but what happens if the cloud provider, like are they backing that up somewhere? And is the company that's backing up the cloud provider backing that up somewhere? So this seems to be something that maybe we're all too calm about, but you have a lot riding on Amazon not going down. I just thought it was funny. All the articles were like, packages are going to be late for the holidays. I was like, whoa, whoa, whoa. I think there's a way bigger question here.

Yeah, yeah. Right. You might have a hospital relying on the Amazon cloud. We'll worry about packages another time. All right. I got nothing else to say on that. We're going to go into favorites and then we're going to go show our vaccine card somewhere. Who wants to go first? What do you have for us, Ben? This seems like an altruistic one. Yeah, I'm trying to pat myself on the back here. No, I like it.

I think – so I used to – my charitable giving used to be like I had zero plan. And I would always think about it around the holidays. Like, oh, I should give to my food bank or whatever. And you posted on your blog you're raising money for that. And I think I started this last year where I said, like, why don't I have a better plan for this? So I found, like, all these organizations that I could give to. And it's so easy now to click give $25, $50, $100 a month and just have it automatically taken out. The same way you put money in investment accounts.

Yes. It's like dollar cost averaging for charitable giving. And it's like so much easier. And you know what? How thankful these places are. I get letters from these places all the time. Obviously sometimes they're asking for more money, but like Tyrone Ross got me onto this like no kid hungry. He's trying to feed people who... Me too.

I do that too. I found this. I had someone actually reach out when I talked about this last year for like this rack it up club in Detroit where after school and some of these kids in the city have nowhere to go they go learn how to play squash at like this after school place they're saying like why is squash only for like rich white people yeah let's have let's have have it be more inclusive it's so enjoyable everybody should play squash wait so what can you do you can donate rackets or you donate cash you donate money to help and so i'm just saying like it's so easy these days. You click on any charity you can find,

your local homeless shelter or food bank, and you say, I'm going to give 50 bucks a month. And you can increase it over time. And it's so easy to set that and forget it. They could budget based on that if they know how much they have minimum coming in because people have set a dollar cost averaging.

So my thing was, it's like, oh, and we're on the holidays or if some tragedy happens and you give because people are, but it's easier to just do it, hit it once and do it all year round. Like you said, I think that's an easier way to do it. Well, Josh makes a great point because they actually get a ton of holiday donations and then they try to have – like figure out if they can make it last for the rest of the year.

So if you sign up, I do that with our local food bank and they're – to your point, Ben, they're so appreciative. You're doing this show? I get like handwritten letters from them. What do you do? You connect your bank account to No Kid Hungry? Tyrone put me onto this. NoKidHungry.org, you can automate your giving. So when you give the first time,

it says like, do you want to make this a recurring thing? So every month I give. Okay, I love this idea. I haven't done it yet. I'm big on, like around the holidays, I'm always like, all right, I should probably do something. Yeah, that's what everybody does. That's what everyone does.

Yeah, yeah. All right. It's pretty cool. Shannon, what are your favorites for this week? It's a podcast that's run by Stanford. Who's that? The firm? No, Stanford, like the school.

Oh, Stanford. Stanford, okay. Yeah, and it's Think – Talk Fast – what is it? Think Fast, Talk Smart. Think Fast, Talk Smart. Yeah. Well, this is my concussion coming back. Think Fast, Talk Smart.

They did a great podcast on the – Let's pause. You didn't have a concussion though. I did. So you broke your neck in one place? Yeah. I fell down the stairs and I got – Do you know about this?

You got a concussion. I saw you yesterday and I wasn't sure what to say because I wasn't sure if it was a medical condition. Yeah, she fell down a staircase. No, but I wasn't sure if it was anything more serious. So thank God it was just an accident. Yeah, so I ran into a banister. I cut my head open and passed out. So I got a major concussion.

So for three weeks I'm sitting there like word salad. It was so disconcerting. Hold on. You altered like your mind? Yeah. Oh, my God. What are your kids on. You altered like your mind? Yeah. Oh, my God. What are your kids? Like were your kids freaked out?

Yeah, they called 911. Jesus. So they saw it. Yeah. My son called 911, my 11-year-old. Were you conscious? I wasn't at first. I woke up.

Oh, my God. Who was your husband? He was. Right behind you? No, I'm just kidding. They definitely asked. Okay. Was he going at home?

Exactly. No, was he at work or something? No, this was just kidding. They definitely asked. Okay. Because they were going at home. Exactly. No, was he at work or something? No, this was like Saturday night. I went upstairs to get ready for bed, and then he was in with my daughter. Oh, my God. And they heard me fall down the stairs. But I'm doing much better. But anyway, this podcast is about leadership and utilizing theater arts to be a better communicator.

And utilizing theater arts to be a better communicator. So the whole thing is about how you relay power as if you're an actor and knowing the roles of the people in the room. It's a short podcast. It's like 20 minutes. But I love it because Stanford does this great series on communication skills and being able to bring some different parts of your skill set forward. And this was from one of their theater arts teachers who teaches people to communicate as leaders and show power without being overbearing. I never heard of this podcast. Do you like it in general or just this one specific episode?

No, I like this in general because it's quick and it's really about being able to, unlike right now, concisely communicate. That's so underrated, think fast, talk smart. Like being able to convey things quickly and effectively might be one of the most important skills you could have in the current environment when nobody has any attention span left. Well, especially in investments, right?

Because people use a ton of jargon as a power play and it actually doesn't help you connect with people at all. Okay, all right Okay. All right. I love it. We're going to check that out. Michael favorites this week. Uh, fair. Well, succession.

I mean, they have the best writers on TV. It's not even commenters on YouTube are asking you guys to stop geeking out over succession. I don't know. What do you mean? I don't know. I, I, I moderate all the mean comments about you so you don't get upset. And, uh, they're like, is there any way you guys can talk about something other than Succession? We don't talk about it that much.

Duncan's laughing. Did you see that comment too? What did this asshole say? Were they mad about spoilers? No, they just said something like basically like, yeah, everyone that would watch Succession is already watching Succession. Everyone that gives a shit is already watching it. Wait, does he think we're getting paid to watch – to promote Succession? No, he's not accusing you of anything. He's just like, all right, already watching it. Wait, does he think we're getting paid to promote Succession? No, he's not accusing you of anything. He's just like,

alright, we get it. I think they're saying to be more original or something. It's consensus. Original? We're not like contrarian TV pickers. What an asshole. Block that guy. By the way, I bet the viewership for Succession is probably a tenth of what people used to watch with Cheers or Mad About You

or something back in the day. I feel a responsibility to evangelize over succession. I think not enough people are watching it. It is so damn good. So I will talk about it until the cows come home. Did you like the episode in Italy? I thought that was insanely good. So good. It was the best TV episode of the last year, I'll bet.

It was so good. It was so good. I watched like half hour of Casino last night for the 90th time. It's like, it never gets not good. You find new things every time you watch it. It's so big.

So here's what I saw last night. You know when Joe Pesci's in the casino, when he first gets into the casino and there's two guys at the teller waiting to get their money back and he's like,

I'm over here now. You over here now? You want to go across the street? And then the teller goes to give him, like, oh, they forgot to sign. And Pesci goes, yeah, they don't need it anymore. Like he throws as toothpick.

Oh, because they're extorting the casino and then they see that he's involved. Yeah. It's so great. All right, mine is the Larry Hoover concert. Do any of you have any idea what I'm talking about? Duncan, you definitely do. No.

None? No idea what you're talking about. No idea. All right, it's tonight on Amazon Prime. I think people in 240 countries are going to be watching this live. This is going to be bigger than any television, anything. What's Larry Hoover?

Larry Hoover was the founder of the Gangster Disciples in Chicago, and he's been in jail for like 30 years. He basically has grandkids at this point. He hasn't seen. And finally, they're getting him out of prison or they got him out of prison anyway there's a huge prison reform movement underway it's been going on for a while uh kanye and kim have been very involved with this tonight uh kanye west is having a concert live from the la coliseum it'll be on amazon prime live so it's 8 p.m west coast uh which i guess 11 o'clock here so i don't think you're gonna stay up that late are you you're

gonna stay up but the point is that drake is going to be on stage with him which two months ago it seemed like these two wanted each other dead but they are doing something very positive and they basically squash their beef and they're going to perform together to help raise money and awareness for prison reform. This is, I think, going to be a major event, and I call it a favorite even though it hasn't happened yet just because I hope our listeners get a chance to check it out. So I think they're going to keep it on Prime for the rest of the weekend and then maybe get rid of it. So try to check it out, I guess. I guess. I don't know.

Amazon did concerts. Is that a new thing? I think this is a first for them. But they can, listen, they can, I think, reach a lot more people than HBO can. Normally, this would be on HBO, like the Rock and Roll Hall of Fame induction ceremony. So this will be a much, much bigger event because Kanye chose to give it to Jeff Bezos.

And so people are going to be watching on their phones, etc. All right. For the latest in financial blogger fashion, don't forget to check out idontshop.com. Is there still time for Christmas, Duncan? I mean, I would assume.

But yeah, I don't know. What's today, December 9th? Yeah. Get your Christmas shopping done at idonshop.com. I can't believe Duncan broke up a fight. A fist fight. Yeah. I can kind of believe it.

With words. Not with physical action. He's very conscientious. Don't forget, if you want to watch this episode on YouTube, check out youtube.com slash the compound RWM where you can see all the charts that we've been talking about as well. If you love investing podcasts, check out Michael and Ben every Wednesday morning on Animal Spirits. And you guys are Monday mornings too.

Monday, Wednesday, sometimes Saturday. Sometimes you'll drop a Saturday episode. Special thanks to Shannon Sikosha. Where can our listeners and viewers follow you? At Shannon Sikosha on Twitter. Yeah, but nobody can spell that. We'll link to it. We will link to it.

Spell your last name for us. S-A-C-C-O-C-I-A. All right. Listen, we really appreciate you coming in with a broken neck and a concussion. You were not as incoherent as I was hoping you would be. You were very, very on point, as you always are. Happy holidays, Shannon. You excited to go back up to Boston?

Absolutely, but not till tomorrow. Not till tomorrow. All right. So have fun tonight. All right. Listen, we appreciate everybody who tuned in we will see you next week alright you feel warmed up now

let's do it for real I'm gonna turn on the recorder you good? yeah that was alright right? that was great yeah that was good that was great

how'd you get so smart? were you always like were you always like like one of the smart kids in school and stuff?