The Compound and Friends - What Are Your Thoughts: Is anyone really "middle class" anymore? (with Josh and Michael)

Episode Date: September 19, 2019

On a new edition of What Are Your Thoughts?, Michael Batnick and Josh Brown discuss: * The Repo Rate mini-panic * Are we ready for the Daniel Jones Era? * Does it really take $350,000 a year to live in cities? * Standup comics up in arms over political correctness and "cancel culture" * People got excited about value stocks recently. Again. * More terrible sports takes from Josh * Do you need a car to live in New York City? and lots more. As always, we love your feedback, so let us know What Are Your Thoughts on these topics! Be sure to subscribe to our YoiuTube channel for the video version: https://www.youtube.com/thecompoundrw... 1-click play or subscribe on your favorite podcast app   Subscribe to the mini podcast on iTunes or Spotify    Enable our Alexa skill here - "Alexa, play the Compound show!"   Talk to us about your portfolio or financial plan here:  http://ritholtzwealth.com/   Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer: https://thereformedbroker.com/terms-and-conditions/   #Stocks #StockMarket #MakeMoney #Wealth #HowToInvest #Investing #Money #Trading #RetirementInvesting #FinancialAdvice #InvestmentAdvisor #FinancialAdvice #PersonalFinance Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, I'm Josh Brown. I'm here with Michael Batnick as always and we're about to play our favorite game, What Are Your Thoughts? Michael doesn't know what I'm going to ask him and I don't know what he's going to ask me. Stick around, let's see what's happening. Okay, Michael, I want to get to the big topic of the day first, which is this repo rates thing. Okay, Michael, I want to get to the big topic of the day first, which is this repo rates thing. Long story short, on Monday and a little bit on Tuesday, there was an issue with overnight borrowing where rates shot up. And a lot of people are ascribing technical factors to it. We don't really need to get into what the – Technical factors happen when you have no idea what's going on. I guess.

No, people are saying like it was this confluence of there was a treasury auction at the same time that corporate taxes were due. There was like an IRS something. Yeah. Yeah. So what ended up happening was all of a sudden there wasn't enough liquidity for everything the banks needed. And so the rate jumped up and people took note of that because typically that rate stays within the confines of what the Fed is doing with overnight Fed funds rates. So the fact that that jumped, all of a sudden, everyone wrote 500 articles about it. And I'm not dismissing it. I'm not saying it's not important. Does that signal that the Fed is actually going to raise rates today to keep it in line with that? No, I think it signals that

the Fed is going to have to talk about what they want to do so that that doesn't happen again. And so the way they've dealt with it is, I'm going to get to my question in a second, have to talk about what they want to do so that that doesn't happen again. And so the way they've dealt with it is, I'm going to get to my question in a second, the way that they've been dealing with that is spot operations, meaning they came in yesterday with like $73 billion of liquidity and that rate then backed down. And then the question is will they do some kind of a standing solution where they just say, okay, here's the repo rate and we're going to come with money whenever it's needed.

But I guess my question to you is, the stock market all of a sudden paid attention to this. What do you mean? It seemed to be like a lot of the bearers who have always been hunting for reasons why, you know, there's a canary in the coal mine, we're about to melt down. Now they're seizing on that.

Is that all it is? Well, the stock market did not react. Participants. Participants. But those people always react. So I guess what I'm asking is like is this just another case of it's a dull market. There's not that much to talk about. I don't know anything about this repo market.

But Sentiment Trader had a great tweet. He said all this in only a week. The yield curve will trigger a crash. And it's a meme, of course. No, the shift out of momentum, oil spike, repo rates, wait till Powell disappoints. Right. And then I think it also happened at the same time that we had this oil spike and people are trying to draw a line between the two. But the market did pretty much nothing yesterday and it's doing nothing today. Stocks ended up basically mixed flat to mixed. Nothing. Yeah. Went nowhere. All right. What do you got? So we were talking about this earlier. I actually forgot that I put

this in as a question. Did you see the Bill Burr special on Netflix? I didn't watch it yet. No, it's pretty, I think it's brand new. Okay. So now the outrage culture has gone the other way so far, the other way that every single comedian brings it up in their act. Uh, they bring up cancel culture. Like that's like, so now it's like comedians are outraged that the audience is outraged. And I kind of understand where they're coming from. I think maybe it's just like good father.

How could they not talk about it? But what are your thoughts on this? It's like a backlash to a backlash to a backlash, I guess. Well, I understand the idea that if you stand up on stage and say risky things for a living, you would be on the forefront of fighting back when those risky things you're saying are triggering like these Twitter outrage mobs. And I guess that's like an occupational risk for them. It's no different than an occupational risk for a stock market pundit

is to make a really big call that goes against them. I feel like every career has a thing that makes it hard to do. If that didn't exist, then these guys wouldn't get rewarded for being so risky. And speaking of rewarding... If you could say anything, then how hard would it be to stand out as a comic? Don't you think that there has potentially never been a time, better time to be a stand-up comedian with Netflix just giving money to everyone? Maybe only like the top comedians but –

Yeah, and Netflix is actually giving money to the guys that take the biggest risk. Like they're giving money to Dave Chappelle and Dave Chappelle doesn't care what anyone thinks about what he says. So there's an investing parallel. It's like are you willing to take the risk and if you are, you're not guaranteed a reward but that's how you put yourself in line for a potential reward. So I think it's just like a normal career risk that people doing anything have and bravo to the people that want to go out and fight it. And we're the audience, so we get to laugh. I don't think we take as much of a risk laughing as they take making jokes. What did you think about last week?

There was this huge move in value stocks relative to growth stocks. What did you think about the commentary that came along? Like people are, it's such a desert. It's such a drought for that investing style, that three days of outperformance and people get so excited. But we've seen that over and over again. In other words, like tell me when we get six months of value out. I don't, but I don't, I don't really think that that anybody was pounding the table on this being the end of the cycle. Do you? I saw a lot of people saying what you're saying, that value managers are now doing victory laps, but I didn't see anybody doing a victory lap.

So who's the contrarian at this point? So everyone agrees value will have a comeback. Nobody thinks it's right now. Lee Drogan's been saying value is dead for a while. Like just dead, dead. No, we all agree it's dead. No, dead and permanently dead. Permanently dead.

I hate the word permanently with anything to do with investing. I mean, with good reason. Could there be mean reversion and it still be dead? In other words, could it go on to outperform for a year but still just being a – So that's a good point. If value stocks – like they caught a huge bid last week. And I'm not saying it's going to stick. I have a theory that it has to do with interest rates and to a lesser extent maybe oil.

Like I feel like a lot of the value stocks are in energy right now. It's just because they've been so beaten up. So it's sector. And then banks. But don't you think that also companies have disrupted fundamental analysis or value investing? Like what Amazon is able to do with...

Of course. All those arguments still have merit. But you and I were preparing for my show last week and there was this huge overlap in the Russell 2000 making a comeback and value outperforming growth. Think of what overlap in the Russell 2000 making a comeback and value outperforming growth. Think of what's in the Russell 2000. Especially the Russell 2000 value.

It's like 30%, 40% banks. It's banks. So I'm saying like I think interest rates backing up, like the 10-year backing up, obviously is correlated to it. Is it driving it? Well, because banks have been – banks move with that – with the yield. it, is it driving it? Well, because banks have been, banks move with that, with the yield. Okay. So if you're somebody that's like value is going to make a comeback now, you also have to be somebody that's like rates are too low and they're going up.

Yeah. Well, you can't say rates are going lower by value. Right. Because the correlation is so obvious, at least right now. It could change, but that's what it is. All right. What do you have? There was an article that I tweeted yesterday. I don't know if it's an old article, but it basically said the cost of a living is like $350,000 to live in a city. Any city? I don't know. Maybe coastal city. But is that just like the height of nonsense?

I mean, how many people live in New York City that don't make $350,000? So it's not the cost of living. It's what your annual income has to be. It's two different things. But whatever. To have a middle class lifestyle, which is totally up for interpretation. Yeah, because how much are they saying you're saving? But my point is nobody thinks they're middle class.

Well, middle class is a regional distinction. Meaning, I don't know if I'm phrasing that right. You could be middle class in Tulsa, Oklahoma and not be middle class. Yeah, but you could be but you could be middle class in like our town and be upper class for Long Island and be in the top one percent in New York state, for instance. Well, the New York metro. Let's just look at that in totality. If you live in the New York metro and you're upper middle class, odds are one or both spouses

are taking a train into Manhattan. But if you feel you're upper middle class or if you by the numbers are upper middle class? Yeah, I don't know. And upper middle class is rich. Like nobody's going to say I'm rich. Like you call yourself

upper middle class. Right. But then like, so they just put the capper on Central Park Tower, which is 57th Street. There are 179 apartments in it. That's it to be the largest residential building in the world. So all these apartments are seven million and up. So imagine living down the street from that making three hundred fifty thousand dollars. You know, you're not upper middle class like where you live you're just not i mean

that's an extreme example but that's but that's my point it is it is like the most relative thing here's one of the most interesting things i saw about this they're talking this is in the context of politics they're talking about all of these red states now that have these growing blue metropolitan areas such Such as? All over the South, like Atlanta within the state of Georgia is one example, but there's like 20 examples of this. It's actually turning Texas purple, this phenomenon. So what they're saying is that people earning decent incomes but not high enough incomes

to stay in big cities like New York, Chicago, LA. They are moving to second and third tier cities. 19.15 Michael Munger Phoenix, Vegas. 19.15 Michael Munger And this is having an impact on the electoral map because these are people that have college degrees, they're educated, they're liberal. 19.15 Michael Munger Ben Thompson actually, Ben Thompson just wrote a whole piece on this. 19.15 Michael Munger Yeah. So I think that's a real phenomenon. And yeah, I mean these are upper middle class enclaves within red states that have a lot of rural poverty.

Getting back to my point, the idea that you need to make $350,000 to live in a city is absurd. Again, but it's what city? No, it's not what city. Yes, it is. No, it's not. There's how many? 11 million people live in New York City? Okay, take New York City out of it.

Take LA and San Francisco out of it. Okay, take New York City out of it. Take LA and San Francisco out of it. If you make $350,000, you can live in the city of Phoenix very, very, very comfortably, better than most of the residents. You can live very comfortably in New York City for $350,000. Queens. No. Because this is the – How many kids do you have?

It's a stupid thing where it's like if you have two kids and you max out your 401K and you save this, you spend this, and you do all your savings and spend it and you're left with like $0. Do you have a car? Do you have a garage? Come on. Nonsense. No, I'm serious. Do you have a car? That changes – it costs you $400 a month to park.

That's what a lot of people pay for a high-end car lease. You don't need a car in New York City. Need an N-word. I don't even want to get into line items. The idea is absurd. All right. This is what I got for you. Are you ready for the Daniel Jones era?

Have you thought about the implications for the direction of the team? What should be happening is he should be stepping into the lineup with Odell and Saquon. Okay. Well, that's not an option. Yeah, I know. So Sterling's out. I don't know who he's going to throw to. Who cares about that?

It's just nonsense. Saquon will probably break a personal rushing record. The whole thing is disgusting. But yes, I'm ready. I'm excited. And here's a newsflash. I picked up Daniel Jones in the Ritholtz Fantasy League. I'm not starting him this week against the Bucs.

I'll probably wait until I see him play for a week or two. Is that the dumbest thing I could possibly do, do you think? I'd like to trigger you. You've done a lot dumber things with sports takes. No, no, no. In fantasy, I haven't done dumb things. I don't pay attention to your fantasy. All right. I may start them next year. All right, got it. Ben had a good tweet. This is just like the dot-com bubble, except every high-profile tech IPO is getting slaughtered, and the most egregiously valued private company can't figure out how to go public, and retail investors are indexing instead of quitting their job to day trade.

Yeah. But other than that. Yeah. It's a fucking mania. Other than that, Ben Thompson from Stratechery had a similar tweet. Wait. What? I just said Ben Thompson.

I thought you said Ben Carlson. No. But who is the other Ben from the Atlantic? Oh, Ben Carlson's boyfriend? Yeah. What's his name? I love that guy. I forgot his last name.

Isn't that Ben Thompson? No. There's too many Bens. That's Derek. That's Derek. Derek Thompson. Ben Thompson said he tweeted something about companies that are losing money can't go public. So that makes this just like 1999.

Yeah. So I was there. I could tell you that nobody cared if anyone was making money or not. There were just three IPOs a day. It was like the morning IPO, the lunchtime IPO, and they weren't all dot coms. It was worse. They were competitive local exchange carriers, which were telecom companies that would basically set up shop within a larger telecom company and sell time on a fiber optic network.

And these things were losing like a billion dollars and going public with ease. You also had tons of genomics IPOs on the biotech side. Nothing like that is going on right now. The thing that makes people think it is is how high profile. And how big the company is. Uber, Slack. These are huge deals. So Uber was $68 billion pre-IPO,

I think, at its peak. Now it's public and it's $59 billion. Speaking of which... So you didn't have that. Let me just give a quick little plug. This book is awesome. Oh, you're reading it? Yeah, I'm almost done.

Really good. Can I read it when you're done? Yes. Very, very good. Shout out to Mike Isaac. Very good. Can I read it when you're done? Yes. Very, very good. Shout to Mike Isaac.

Very good. I'm looking forward to that. Is the company as toxic as everyone thinks or was the company as toxic as everyone thinks? Yes. Hard yes? Short answer is yes. All right. Cool.

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