Live From Miami (EP.404)

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0:36Try out the AI chat today. And when you sign up for YCharts, what do you get? 20 % off. New subscription only. Welcome to Animal Spirits, live from Future Proof Citywide with Michael and Ben. We did one live show already today. Let's set the scene. Should we rewind? Yes, let's rewind. So last night, we celebrated your 40th birthday party. and Josh went out of his way to pick one of the cooler steakhouses in Miami. Poppy? Poppy. Poppy Steaks and it was an experience. Yes. What was your experience with it? So there was about 20 of us and at one point, like lights come on and loud music. Dinner was over and it was time for a cake.

1:32Right? And all the lights start flashing. The music picks up. And everybody starts looking at me and taking out their cameras. And I wanted to die. So you initially, I think, were very embarrassed, turned a little red. Well, it's just everybody looking at you. It was taking forever. And I'm just like, I grabbed you. I'm like, here, save me. So I sat down and not, it wasn't just our whole group of 20. The entire restaurant kind of stood up. People were filming and there's sparklers going and the people who work there are going crazy and it's this whole big thing and it's it the music was bumping and the lights were flashing and it's like oh there's smoke and and then the surprise the reveal was that it was a steak for another table that was next to ours it wasn't for you so you went from embarrassed to actually like being the center of attention it's kind of cool to it's not for me actually and it went to some other table and we kept thinking like what was they thinking as we yeah they're like why are they celebrating yes everyone thought it was coming to you but then 10 minutes later they did do a birthday thing which it was kind of funny because at that point we'd already celebrated enough and they did do this the sparklers and the big sign that said happy birthday michael it was cool but remember uh mr deeds we wasted the good surprise on you it was sort of like that it was the uh yes total rug pull for you it was just it was perfect so we were moving a little slow this morning, we were lucky enough to draw the 830 slot at future proof, which I'm told is actually a good thing because it's not an instant.

3:06You're a draw, you're get. We want people up and out early. So it's actually a compliment. So we were the very first ones on stage. It was a little chilly. I'd say our brains were operating at 40 % speed. 40 % I was going to say 60, but maybe 40. So how would you grade this podcast that our audience is about to listen to or turn off? was it was it a like okay real talk it was probably like a d plus but i think we we acknowledged it that it was a slow motion train wreck so which elevated it to maybe a maybe a b minus i think the b minus is strong c plus i think the youtube viewers are going to like it better because we did a lot of charts and we couldn't have them on the screen that's true that did slow us down but the other thing is it's interesting when you're in front of an audience and if i say a bad joke to you we just move on right like yes there's nothing like just blank stares especially with if people in the audience don't know us.

3:55And they're like, who are these assholes? Who gave them a mic? What's happening right now? So during the episode, so here's what happened. You know what? I'm going to take the L on this one. My bad. We were a bit underprepared, would you say? The doc was light. We've been busy for the past few days at the conference. So yeah, we didn't have as much as we usually have. The document was light. So about 15 minutes into the show, I'm like, uh-oh. We're almost done. when I was done, Duncan texted us, do your a hundred favorite movies on an airplane. So anyway, one thing that we didn't get to, I think because I was, I think I'm going to, I'm going to blame the 40 % capacity thing, the 40 % speed that we were operating on.

4:38We spoke very quickly about my feelings on the future of the market. And I said this on the show, I have opinions on where the market's going to go. I think everybody has opinions. Like, I don't think I would like, you know, they might happen. They might not. Um, so I said, I don't think we're going to have a bear market. Obviously that might be wrong in a week. Who knows? Um, but I, what I didn't say, which I want to say now is that I'm definitely not like stamping Kong a bottom. Cause I think that when you get a sharp rally off the lows, like we had, not always there's V's, but it's pretty common to roll and retest the lows.

5:13Right. So not a, prediction, just more of a, hey, this is Grand Rapids hedge. That's what this is. Put a probability on it, right? Probability on what? No bear market. Because you like to think in those terms. Yeah, yeah, yeah. So probably have a no bear market. Let's go. I really do believe no bear markets. I'm going to say 74%. All right. That's pretty good. That's like, right? Yes. I just, I don't know how anyone can think that they have this market handicap. I know exactly what's going to happen. Okay. So enjoy our live show from Miami. Now it's time for us to get a Miami place.

6:18Thank you guys for showing up. I'm hungover too. Listen, anytime you can lock down the 8.30 a.m. time slot at a conference, the day after St. Paddy's Day, and the day after you celebrate Michael's 40th birthday, you have to do it. Yep. So Matt said you guys want the 8.30 spot, and we said, no, we need the 8.30 spot. We have to have it. Let's start off with some banter. I, on the way here, I, we walked through the pool and I told you, I want to talk about this today. And I pointed to the water with the cucumbers in it. Okay. Do we, uh. So I, I, I go for a run yesterday, not to brag. And I come back and I'm at the pool and I need some water because it's very hot here in Miami.

7:00And the only thing I see is the water with the cucumbers in it. Who is this for? Me. I think it looks better than it. there's no purpose of putting fruit in the water. No one actually likes the water. If you put a regular water next to the cucumber water, which one gets drank more? The regular water. Nine times out of 10, I think you're right. It's usually a charade just for show. But the water at Lowe's Hotel actually was delightful. There was like a mint and a pink tasting thing. So I'm going to take the other side of that one. a couple of weeks ago Ben was on the podcast talking about how there should be a standard hotel room I think you're onto something and I forgot to mention this last week but I was in Chicago at a hotel last week and I couldn't find the light switch like there was like I'm looking around there's no lights on the ceiling but there's just like a fluorescent light coming out from like the wall area and I'm looking around and I just slept with the lights on I was going to call to the hotel lobby, but a lot of blank stares.

8:12That's okay. A lot of blank stares. See, it's better when we're 101. Ben always laughs at my jokes. Let's talk about the stock market. Whoa, whoa, whoa. Whoa, whoa, whoa. I got one more travel thing. How many people are like Josh, chronic Purell users? That's actually me. Are you? Well, since I had kids because kids are just germ factories. So I use, yeah, I'm constantly using that stuff on my hands. I guess with germs, I'm like a what doesn't kill you makes you stronger type of guy. I'm not afraid of germs. Germs don't scare me. Until now. So I'm in the airport yesterday and we're going to the baggage claim.

8:54And I see a guy, I'm walking into the bathroom. I see a guy running towards me. So he runs into the bathroom with me. and I'm thinking, all right, this guy's about to have diarrhea. He doesn't. He just pees up the urinal next to me, leaves without washing his hands. And then he runs back to the carousel to get his bag. This whole thing is bizarre, but I can't take my eyes off of him. And as the bags start to come out, nope, that's not my bag. And I'm like, oh, PB hands. This guy is touching multiple and he's touching like the handle. Like, nope. So now I think I'm a Purell guy. All right, now let's talk about the stock market.

9:38What do you got, Ben? Well, you were concerned that the market was going to be crashing this week as we're doing the podcast. No, no, no, no, no. No, I wasn't. I didn't want that to happen. It's not like I thought it was going to happen. I was like, uh-oh, guys, I'm telling you. But it would have sucked. Listen, we all serve our clients, and it would have just been shitty to be here. We had that at the first year of future proof. It wasn't fun. We had that, was it a 9 % inflation print? Like one of the highs. And so I, yes, I was not concerned as in I thought it was going to happen, but I didn't, it would have been a bummer if we're here smiling, having a good time and the market's just tanking.

10:15Who wants that? Someone reminded me. So the day after the election, I said, here's what the market is doing. And remember it was a big move. And I tweeted this and someone said, hey, Ben, I'm reminding of this. So the initial market move right after the election, S &P 500 was up big. Small caps were up big. The dollar was up. Foreign stocks got crushed. Gold went down. And rates went up and bonds went down. Wait, is that one more time? I'm just kidding. And so I said, something here is an overreaction. I'm just not quite sure yet. But it seems like everything was. Based on what happened now, all of that reversed.

10:48The S &P is down. The small caps are getting crushed. The dollar is down. Foreign stocks are going crazy. Gold is at all-time highs. and rates have come down for bonds. So literally everything that happened the day after the election was an overreaction. So the MAG 7 is down, was down 20 % at its worst. Severance is down 24 % from season one to season two. I'm still holding out hope that it's going to come back. What's the Ryan Dietrich story here? All right, so we've got charts in the doc, not on the screen, so I'll walk you through them. Ryan tweeted one of the fastest corrections ever. And he looked at what happens 1, 3, 6, 12 months after.

11:32And three and six months, higher 100 % of the time. 12 months, 83 % of the time. Again, it's only happened five times. But Ben, what's your... I feel like you've been bagging this jump for a while, that everything just happens quicker now. Are we ever going to get like a 10 % correction that just sort of, you know, takes its time? I don't, I think investors just, it's the structure of the market now. The information moves faster. The algorithms move faster. And I think if it's like people just want to take their medicine and get it over with and rip the bandit off. I think the market is biased to move higher in this current, I don't know, last 15 years, just with the relentless bid and corporate earnings going higher.

12:11Like the market has a higher bid. It always does. But when something knocks it off its axis, it happens really quickly. And I think a lot of that has to do with structural issues. Josh and I were talking with Joe Terranova yesterday about the news. Greg Zuckerman wrote an article about the hedge funds, Millennium, Citadel, blowing up a little bit and blowing up. They were down 1.1 % for the month. But relatively speaking for them, that was their worst month in, I think, six years. So the de-risking, the de-grossing, the whatever happens just really quickly. Yeah, the leverage comes out. I looked at the every S &P 500 drawdown since 1950.

12:45And I got this cute little table here. Everyone in the audience should see it at some point. So, there's 39 corrections, so that's one every two years or so. But the last time we had three bear markets in a decade was the 1960s. Before that, it happened in the 40s. It happened in the 30s, depending on how you count these things. So, people are saying, well, could we actually get our third bear market in five or six years in the 2020s? And because of the speed of this stuff, it wouldn't shock me at all if we just, again, have a big overreaction. And I think that's the thing is the pendulum is just swinging wider and wider these days.

13:20So this would be, like I said, this would be the first time we would have three bear markets since the 1960s. Not saying it's going to happen, but of course, we're going to have one by the end of the decade for sure, right? Are we using like rolling 10 years or what are we talking about? Fiscal decades? Yeah, just the numbers. All right, so we got a bit of a snapback, which is nice for now. We'll take it. The XRT, which is the retail ETF, equally weighted. ish has put together its two best day rally of the year. That's a Mike Sicardi after the horrific you mish and disappointing February retail sales report.

13:57We're going to talk about sentiment later in the show, but we also had a very nice bounce yesterday. Best day for the advanced decline line since December, 2023. Any explanation for the bounce? I mean, we just went down too quick and people had to come back, right? There it is. European equities. Sorry, we don't have this chart on the stage, but nothing but just relentless outflows for the last three years. Who's this chart from? EPFR and Barclays Research. And investors are, in fact, piling in. I think this has legs. For the first time, I think for the first time, this is, and this is another one of those, no one ever could have guessed this in a million years.

14:40Even after the election, no one said, oh, foreign stocks are going to go crazy. Everyone thought the opposite. So for the past 15 years, it was U.S. stocks go up. International stocks are either flat or go up less. And this idea that like, what could what could happen where U.S. stocks would go down and European stocks would go up? Could you give me a scenario, genius? And it was completely unimaginable. So one of the things that happens during almost every market correction is either So the 60-40 portfolio is dead. Although right now it seems to be alive again because bonds are doing okay. And buy and hold is dead.

15:18And so the Wall Street Journal has this article. The title is, The Days of Set It and Forget It Investing Just Ended for Many Americans. And to be fair, this article is about two Americans that this happened for. But they go through these two. One's an older gentleman and basically said, I'm getting out of everything. Hang on. Don't paraphrase Yarm Aureli. Okay. So for people in the audience that are new to our show, this really tickles our funny bone. Whenever there is an article talking about like this, the days of set and forget investing just ended, they get two quotes from random people. So for example, the foremost authority on investing, Yoram Ariely, hadn't touched most of his investments, preferring to ride the stock market ups and downs.

16:01And no offense to Yoram. Last Tuesday, he decided he had had enough. Jeff, the 82-year-old, unloaded almost half of his stock investments, fearful of the effect of President Trump's economic agenda and tariffs in particular. But get this, he may get rid of more still. He might not be done. He might not be done. One of the times we knew we made it as a podcast is when we were making fun of one of these people in one of these articles. And the guy actually emailed us and said, hey, that was me. I was the one they were talking about. But Ben, it's not just your Marielle. It's also Patton Price. So Patton Price said he expected geopolitical chaos in Trump's second term back when equities were still flying high.

16:44So he sold all the stocks in his retirement accounts around the time of the presidential inauguration on January 20th. And so let me just quote Patton because there's some gold in here. It's not like I have some fancy thesis and I think I know it's going to happen, said Price, a 46-year-old musician and former political consultant. I just don't... I just don't think anybody knows what's going to happen. I could not have said it better myself. So this is the worst part of it, though. It says he doesn't know when he will get the money back into the market. And that's why market timing is so hard, because you go into it with no plan and you're screwed.

17:19So unfortunately, Yoram and Patton say that set it and forget it is over. It died. We'll see. Do you remember coming out of the 2010s crisis? I don't know what you're doing. Were you still a waiter back then? Insurance industry? Like coming out of the GMC. Funny you should ask, Ben. What year are we talking here? 2008? I'd say 2010, 2011-ish was the big push for there's going to be a double dip recession. Remember, that was everyone's parlay was there's going to be a double dip recession. I was at the library studying for the CFA, emailing strangers and day trading the triple leveraged inverse financial ETF, ticker FAZ, shout the direction.

18:00Okay. So you weren't really up on the European debt crisis at the time. What do you mean? I had my trading journal. I was all up on it. So my take is right now we're positioning ourselves for a double dip vibe session. The economy is slowing a little bit, but it seems like all the charts just say the vibe session is back. So we have a bunch of charts from Torsten Slok, who does a good job of this. And he shows there's a sharp reversal in spending plans for CapEx by corporations. And consumers are getting more worried about their jobs being lost. But to me, this is, I don't want to hand wave this away.

18:34No, no. So I got a point here. Give me a sec. Okay. Let me cook. Consumer sentiment is falling. Jobs cuts have risen. So that's a real thing. This is the one that got me though. Record high share of consumers think business conditions are worsening. And this thing shot up. Like this is like the stock market going crazy. I just think these sentiment overreactions are happening faster too. and that's where it's hard to know, does this actually mean anything and are we going to see it in the data? We have to wait for the data still. Yeah, I completely agree with you. So we were waiting for retail sales on, what day is today?

19:11Monday? Did Monday we have retail sales? And we were like anxious that it was going to finally show up in the data. Now, again, like this just started, so it's early, but I totally agree with you that the sentiment shift and people spending plans, I think matters, but you got to, the data has to confirm it. Because it didn't confirm in 2022. Everyone was so negative on the economy, but they kept spending money. Is that going to happen this time around as well? We will find out. But to me, that's it. Like if people pull back, if corporate CapEx pulls back, we will get a recession. So here's the difference.

19:44This is from Neil Dudda at Red Mac. He said, expected change in unemployment is the worst since 2008. No one is asking for a raise in this environment. And that's, I think that's the big difference. unless it turns into deflation, I guess. But people could ask for a raise in 2021 and 2022. The labor market was scorching hot. That's not the case anymore. And so I think that is where the self-fulfilling prophecy thing starts to happen. So if we do go into a recession, Torsten's stock has another chart showing U.S. household balance sheets are in excellent shape. A mild recession? yeah it doesn't seem like we're setting ourselves up for a financial crisis and the the good news is a lot of the wounds right now are self-inflicted right the one of the reasons for the slowdown is is government policy and so can't they reverse it and help if need be you uh who knows but when i say mild recession i guess what i'm talking about is all recessions suck but like if when history looks back on whatever we're going to experience, I think it will have been, if anything, a mild recession.

20:5140 % chance of a recession? Always. Okay. Where are we going next, Ben? All right. Oh, here's one. Mike Sicardi. This is from Goldman Sachs. Number of IPOs. So it was 140 in 2020, which is kind of bonkers to think about in 2020 that there was that many IPOs. 260 in 2021, and then just falls off of a cliff and there was 50 last year. There's been a dozen so far this year. This seems like one of those things that for sure is a sign of never going to happen or not happening for a while. What do you mean? That the IPO window is going to all of a sudden open and the floodgates are going to go crazy.

21:34Like in this environment, I can't imagine that IPOs are going to go crazy. Plarno just filed. So we have a lot of private investment managers here. Does this ever trickle down to where the investors in these funds start getting worried. Like, when am I going to get my money back? I don't know. Don't you think it's happening? I mean, there's been a lot of articles about end investors. A lot more money has gone into private markets than has come out. I guess there's just so much more money there these days that it doesn't matter until it does. I don't know. I got to be honest, Ben. I'm getting a little bit nervous.

22:11Not about the market, but about this podcast here. I feel like we underprepared. The doc is a little bit light, ladies and gentlemen. So we're going to do our best to fill in the time. We're not done yet. We're not done just yet, but let's slow it down.

22:25We're on cruise control. All right. Okay. So I think I put you on the spot. Here's one. Okay. What do you got? No, but like we look back at this in five years and does this turn into a bear market or recession or is this just the freak out du jour and we move on? I told you when this started that I don't think we're going to get a bear market. My opinion hasn't changed, but I'm also like really afraid to say that out loud in front of all you people because I don't really think, I mean, I think that, but I don't believe it. You know what I mean? Like I actually think that, but I don't really believe my own feelings.

23:03I'm always wrong. Take you literally not seriously or? Yeah, no, but no, I don't think that we're going to have a bear market and I don't know. We'll find out. All right. Switching gears here. We've been talking a lot about the inheritance thing. And last week, I made the point that millennials shouldn't count on the inheritance because they're not going to get it until they're like 65 years old. People are just living longer and they're probably not going to get it when they need it to help them. Here's a new report from Bank of America showing that women will be the big benefits of the wealth transfer.

23:32So this is, I feel like the estimated number is different every time you read it. They say 124 trillion by 2048, 80 % of which is going to go to women. How do they figure that? Because women live longer than men. So most of that money is going to trickle down to women. So they say that could drive growth in women's sports, refashion the travel industry and narrow long term gaps in health care provisions. This is from a Bank of America report saying women will control more money than ever before. Is this something that the wealth management industry is ready for, prepared for? The wealth transfer?

24:06No, not the wealth transfer, just the fact that women households are going to be controlling more money. I'm saying from a relationship advice side of things, you don't know what I'm going at here? I don't know if I'm qualified to talk about. Is the wealth management industry equipped to handle the wealth transfer to that micro? Yeah, I think so. I don't see genders. I think we're equipped. I don't know. Can we talk about your hat real quick? Please. So I've told this joke already before, but my kids heard that we were coming to this event and they said, well, what are you doing? And I said, well, we're doing a live podcast and we're doing all this stuff.

24:47And Monday night, we're going out to celebrate Michael's birthday, which we did last night, which was a great family affair for everyone. And they said, how old is he? I said, I was 40. And they said, Michael's older than you? When you put that hat on, you look like you're 80 years old, my friend. you look like you've already i mean you might as well just go on the beach and get the leather tan and uh start looking for get the metal detector on the beach that's a retiree hat right there i'll take it thank you okay um all right hang on i have a real estate thing okay uh so we were in the hotel bar yesterday having lunch maybe sipping on miami vice as one is one to do in miami and there was a mortgage industry, the top 50 mortgage brokers in Miami, they all pose for a picture.

25:37And I was just kind of thinking, how is that even, how are they even celebrating in this environment? Like there's no activity, there's nothing to do. I talked to a friend recently who has been a realtor for a dozen years and said he finally just had to take a job in sales for something else because there's literally no activity anywhere going on in the industry. um does that actually if there's a slowdown and mortgage rates go from seven to five does that help the real estate industry at all yes don't you think there has to be a lot of pent-up demand well it's like a push and pull so i guess what you're saying is if there's a recession that drags rates lower is that also going to kill housing activity because people are not spending money losing their afraid of losing their jobs i don't think so i think people there's such a backlog of people, 35 to 30, whatever, 40, that need to get into a house.

26:30First time home buyers, there's still so many of them. So I don't think so. So this is also where the sentiment piece comes in, because my whole thesis has been, there's$35 trillion in home equity just sitting there. And people can't use all of that, obviously. But I think the number is like 15 to 20 of it is money that people could take out and use for something if they wanted to, for home equity, line of credit or cash out refinance? And will the sentiment of the environment allow that if it's happening because of a slowdown? Will people tap that equity and use it or not? Why wouldn't they? Because it'd be hard to pay back?

27:02I guess, yeah, worried about taking on debt in a slowing economy. Yeah. I don't know. I don't know. Good question. I do think that the consumer balance sheet and the potential for the real estate industry to be like the counterbalance actually is another reason why, to your point, if we got a recession, it would probably be a mild one. Yeah. All right. I want to talk about email etiquette for a second. I haven't done this in a while on the show, but a couple of years ago, I sent, and this is filler, by the way, I sent an email. What happened? I sent an email to somebody. Oh, somebody, somebody sent me an email and I forgot to respond to them probably for about a week.

27:46And I apologized because I do the right thing. I said, I'm sorry. I dropped the ball on this. Would love to talk next Thursday, Friday at these times. This person responded a week later and said, now it's my turn to drop the ball. Dot, dot, dot. can you talk whatever whatever and there was a debate amongst our audience i think you were in the nothing wrong with that right she's just being funny right yeah she was not being funny she was being very rude and my suspicion was confirmed because on the call her body it just it didn't go well she was being very rude um i did another run-in with a weird email etiquette last week here here it is okay i documented this 8 44 i got a linkedin message at 9 14.