Tech Stocks Are Back (EP.309)

24:37This is so great. It is. I've never seen this. I haven't either. So he shows what happens. Because I was told that narrowing leadership is super bearish, which intuitively makes sense. Right. And the returns have been fine when it's concentrated performance. Walk me through this. So people, well, people always say, If it's just the top stocks leading the way, just wait. When those stopped working, watch out below. And he broke it into lowest concentration versus highest concentration and showed the, what is it, the six-month returns following that. So prior six months, things were high. And I think the ensuing six months and what happened.

25:12And it's not bad. It's not the end of the world at all. All right. So this shows large cap stocks, six-month forward returns by deciles of the share of market returns explained by the top five companies. So from lowest concentration to highest concentration. And look at the one from 1926 on. It was, so it's been a little worse lately since 1990, but still pretty darn good. All right, you ready for some? Yeah, yeah. There's not much to see here. Huh. Yeah, it is surprising. Hold on, I just will say, when there is more broad participation, returns are better. Yeah. But yeah, it's not the end of the world just because it's so concentrated.

25:49All right. How about some optimism here? That was a, hey, Mike, moment there. What do you mean? From old school. When he's working on the car. Which part is he? Oh, yeah. Mike. Yeah. All right. Steve Cohen. By the way, the reference to somebody just, Ben and I are in a glass booth, for those of you listening. Yeah, we're in a podcast. And I just gave a wave. And if you listen to the podcast, this is the week that you should check out YouTube at the compound so you can see the shirts. Yes. You have to see them. They're going to be linked to on our blogs in a wealth common sense and relevant investor.

26:22Do you still have a blog? Barely. Okay. You don't blog much anymore. I, I, no, you know what? You know what? I'm too busy. Too much podcasting. I have, I have too, I, yeah, I don't have time. Yeah. We were really busy today. Drinks by the pool. It was tough. All right. Steve Cohen, I'm making a prognostication. We're going up, uh, talking about AI. I'm actually pretty bullish. He thinks there's a big wave of opportunities coming from AI. and he says, like, good luck standing in the way of this freight train. Now, if AI does what everyone now says it's going to do, is that the next bull market or the next bubble or both?

26:59It has to be a bubble, right? Yeah, we're not there yet. If it does 50 % of what people think it's going to do, then it's almost guaranteed to be a bubble, right? Well, and then by definition, it will be a bull market, right? Which will lead to a bubble. uh yeah we're we're on tcaf we've got somebody this week who's knows way more about this stuff than we do i'm excited to talk about it but uh yeah it's early speaking of people who don't blog anymore remember when jesse livermore used to blog at uh philosophical economics yes i mean we're talking i'm actually happy he doesn't blog anymore because as as incredible as his blogs were it was like all right block off three hours i think the call it 2012 to 2015 15-ish range, as far as I'm concerned, was like, you know.

27:45The golden age? That was the golden age of financial blogging, I think. And he was a big part of it. Yeah, he had some real face blowers. There was some stuff that I read from him where I was like, I couldn't believe the quality of the work that he was putting out. And I learned, I don't want to say more from him than anyone else, but I learned a lot from that guy. So he still occasionally tweets some numbers and stuff. He broke all of this great chart here, breaking down all sorts of different valuation ratios. And you can look at it if you want in the tweet. But he said his investing model for 2020's decade, international over domestic, value over growth, small over large.

28:23He looked at all these different P ratios and capes and small and all this stuff. And it's interesting because that would be pretty much the exact opposite of last decade. and they I mean this is fundamentally based alone so it's it's impossible to gauge where people put their money but it kind of makes sense uh it kind it does make sense and I wouldn't be surprised if it doesn't pan out um that's yeah it's almost like is it too easy well did you see Grantham's not Grantham's Monty's mea culpa I give him a lot of credit I put it in here okay because Because, so GMO, as everyone knows, has been bearish for - I'm not sure I liked his explanation, though.

29:06Honestly, he's - So we talked about this a couple weeks ago. We said, why was a place like GMO so wrong about margins having to come back down to the historical averages? Yeah, we just did talk about that. Anyway, honestly, so his answer, the TLDR, but he gave a full mea copa and then basically said it was the fiscal deficit. He said it was government spending, which - Yeah, and honestly, I'm not smart enough to say whether or not that's accurate or not. Government spending didn't happen until 2020. That's my problem with his explanation. No, no, no. He said even prior, even prior, he said it was – I don't know if the numbers are right, but I don't know if it was 6 % of GDP or 6 % of what?

29:38He gave the long-term average. I didn't – his explanation I thought missed the technology piece. I just think it's tech stocks. It's tech. It is. I don't think it's that complicated. I think these – you've never seen companies this big with moats and margins this large where they could just create new categories out of thin air. So I think that's the fundamental difference. I'm sure that there's, I don't want to throw what he said in the garbage, but I think that's the simplest explanation. Speaking of moats and margins, look, see what I did there? They had a big profile of J.P. Morgan on Wall Street Journal this week, talking about how much bigger they're becoming.

30:09The bank has opened branches in 25 new states plus D.C. since 2018. 4 ,800 locations in every state in the lower 48. Achievement, it alone is unlocked. I back at J.P. Morgan, do you? Yes. Added another 93 this month when it bought First Republic. 13 % of the nation's deposit 21 % of all credit card spending bigger share in each than any other bank investment bankers this is surprising to me bringing more revenue than all their Wall Street rivals including Goldman and Morgan Stanley look at their deposits since 2020 I mean part of that is people holding more cash but JP Morgan is essentially I mean he's like the treasury secretary as it is right now and they it feels like they're like part of the government now they're bulletproof correct does that mean like something has to go wrong with them i don't they seem like they're another arm of the government essentially i mean they're one of the most important companies in the world right obviously i mean biggest bank in the united states but what happens if when jamie diamond retires or does he work till he's like bob iger until he's like 80 or something how old is he 60s he's he was younger than when he was running he was younger than like during 2008.

31:22Yeah, he strikes me as like a worker, but I don't know. I don't know. Is this good? The whole them being this important and big? I don't know. 67 years old. He's not young. The whole thing about how regional banks are the ones that are serving their local community strikes me as something that people say that is true. Right? I do genuinely believe that. Do you ever drive by a regional bank in your town and go like, I'm going to bank there. No. I don't. But you know what's funny? I was talking to Josh. Josh was mentioning that there's a bank near us. I was like, huh, you know what? I'm very, here's one of my weaknesses.

31:59I'm very non-observant of my surroundings. Fair. So I don't notice things as I'm passing them. And I somehow noticed like a citizen's bank on the corner of like my street or something. Why would you use that over JP Morgan? I don't know. They give you better rates or a better deal on business law. I can't see it if you're an individual. If you're a company, maybe. I mean, I have - If you're credit worthy, a bank will loan to you. I mean, I have had accounts over the years at credit unions for loans, car loans and house loans. And they make you open up a checking account. But all I do is move money into there to pay the mortgage or to pay the car payment.

32:35And that's all I use it for. I don't use it for anything else because - I just don't know that 3 ,000 banks instead of 7 ,000 or whatever it is, is that bad. And I don't know the ramifications. I just don't know enough to really have a strong opinion. I don't think it's that big of a deal. That would be my hunch, but I don't know. If you're one of these people who is worried about FTC whatever, and for whatever reason you're worried about that, JPMorgan is the answer, right? Yeah. It has to be. This chart is pretty wild from YCharts. Yes. Okay. So this is U.S. federal government interest payments now, and it's gone parabolic, right?

33:08Yeah. You've got to normalize this for something. Otherwise, people are going to lose their minds. You normalize it to GDP, GDP, and it's not nearly as bad. But my whole point is this is why... Is that a trill? What? Is that a trillion? Is it about to have a trillion? Yes. But I mean, it's gone from 500 billion to a trillion like that. This is my whole thing of why I don't think rates can stay higher for longer. Because the U.S. can't finance its debt? And even if you compare it to something else like GDP, and it's not as bad as it was historically, politicians are going to latch on to this and go, C, look at how much more we're spending in interest.

33:44We cannot keep rates at 5%. I think this becomes a political issue at some point. Yeah, that's an interesting point. Are they going to cut rates not to juice the economy, but to make sure that we can roll our debt? It just seems like eventually that's a political problem. That's all I'm thinking. Why? Because the deficit will just keep widening and widening? Yeah, because you'll say, why are we keeping rates at 5 % just to pay all this money to, I think it's a political issue eventually. Just a thought. From Callie Cox, the S &P 500 has been 10 % or more below its record high for just over a year.

34:22The eighth longest streak in history. That's kind of wild. That is pretty good. Callie says, yes, this bear has sucked, but if you're a long-term investor, this has been a once in a decade chance to buy consistently low prices. And to our listeners, I hope you've been taking advantage. Here, here, Callie. See, an optimistic person, finally. I hope you've been taking advantage. Yes. All right. This was a good tweet from James Thorne talking about the Fed wanting to get back their 2%. They say we don't follow the inflation rate. We follow core PCE, which whatever. Take this out. Add this. I don't know.

34:54After the 1980s, we had two recessions in the early 80s, another one in 1990. Core PCE did not reach 2 % until 1996. So inflation hit 15 % or whatever in 1981 or 80. we did not reach core PCE of 2 % until 96, a decade and a half later. He said Volcker claimed victory over inflation was significantly above 2%. I'm just wondering, at a certain point, won't the Fed kind of claim victory if prices just sort of stabilized? So Atholot the Motoren was on Morningstar, the Longview podcast last week. And he was talking about, listen, it's not inflation itself that's bad, it's the volatility in prices. So if you knew inflation was going to be 5 % on a stable basis.

35:41You can plan for that. That would be fine. But it's going from 2 to 7 to 3, and then you average 5. That's worse because people don't like all the ups and downs. So if we get to a stable 3 % or 4%, at that point, is the Fed going to say, okay, prices are stable even though they're not as low as we want it to be on inflation rate? Then can they claim victory if we don't get back to 2 %? Just can't stop thinking about StubHub. Okay. You know what else I don't like about StubHub? So there was a comment section, like, you know, are you happy or are you not? It was like 140 characters. I'm like typing and then it was like, wait.

36:22It was like one second. They take your piece of paper or whatever you send it out and throw it away, your comments. Thanks for that. Right in the trash, right in the recycle bin. All right. There's a refi boom? Well, there was. Oh, I got it. Liberty Street Economics looked at the refi - So they looked at mortgage originations and how it spiked and came down. The surprising thing to me, though, this is refinancing and purchases. The refinancing boom for billions of dollars, and this isn't adjusted for inflation. It says balances are nominal dollars. It basically was the same thing as it was in the early 2000s.

36:58I don't think people took enough money out in refinancing. Guess what? Maybe we don't talk enough about how stimulative the refi boom was. It was huge. People locked in their biggest monthly payment for a long, long time at a low rate. But also, how about the cash out refis? So one third of outstanding mortgage balances were refinanced during the seven quarters of the refinance boom. An additional 17 % of mortgages outstanding were refreshed through purchases. No, but Ben, I'm saying how much money was pulled out? Oh, I don't think, not as much as you would assume for rates being that low. But out of the$700 billion or whatever it was, was it a quarter of a trillion?

37:36Right there. Home equity extraction. Look at the next chart. It wasn't as high as it was in the early 2000s. It never even got that high, which is, that's pretty surprising to me since housing values are obviously up since then. As a percent. Okay. $430 billion in home equity was extracted. How much? $430 billion. There you go. It's a lot of money. It's kind of crazy because when we refinanced, at least it took forever. Remember how buried they were? Yeah. The banks? Yeah. And now it's – what's the thing that rolls through like in the movies in the Midwest? Tumbleweed. A tumbleweed? Yeah. That's the word I was looking for.

38:10Midwest? West. Out west, yeah. I was thinking like a – what word was I looking for? I mean that's the exact right word. I was going to say something way off. You're still thinking of StubHub. That's a problem. All right. So is there, are iBuyers, so Andreessen has this theory, like there's no such thing as a bad idea, there's only ideas that are too early or something like that. iBuyers too early are just a horrible idea. So what I'm getting at is there's a chart from Mike DelPriate, open door monthly, and I'm not saying his name correctly, open door monthly purchases, and it peaked in July 2021.

38:48And just, you know, it went from around 6 ,000 units a month, if I'm reading this right, to 500. I think. Will this ever work? I think the housing market is as close to being undisruptible as an industry can be. I agree. I don't know how it hasn't been disrupted yet. If it hasn't happened yet, I don't think it's ever going to. There's too many parties. I think that it's too much of a local. I don't think you can make the housing market more efficient with technology. I don't think it's possible. The story that I remember the most about why the iBuyers weren't working is somebody emailed us that there's a house with a really bad dog in the backyard that won't stop barking and nobody would touch his house, right?

39:28It was on the market for a year and it's the dog. It's an annoying dog. And iBuyers came in and immediately paid like 30 % over ask. And then they were stuck with it. This is interesting from Lance Lambert. So we talk about the economy and how it's not homogenous. There are local areas of growth and stagnation and recession and whatever. He said, talk about a tale to housing markets. Most of Connecticut sits at an all-time high, while California remains well below the 2022 peak. Don't show this to Duncan. He's just uprooted and living in Connecticut looking at houses. Good thing he's not listening to this.

40:03Don't watch Duncan. That is interesting. Is the recession done? Mentions of recession and earnings calls be falling. No longer in vogue. Can I do a tweet in podcast form? 2021. Recession is imminent. 2022. We're already in a recession. It's obvious. 2023. Actually, recession is more like a 2024 story. Well, actually, actually, I was watching CNBC this morning. Neil Kashkari was on and he was saying how he's like, remember last year when we had two consecutive cores of negative GDP and everyone thought we were in a recession? I kind of forgot about that. Do you remember that? Yes. We pounded the table saying, no, we're not in a recession.

40:48I'm pretty sure we were on the right side of history with that. Yes, we pounded the table. It was not a recession. I also saw a chart of - It would be the first recession in history where no one lost their job and the unemployment rate went down. Oh, boom. Here it is. Thank you, Sean, for putting this in. Number of S &P 500 companies citing inflation coming way down. So Karl Kittania tweeted, Dear Exec says, second quarter saw the lowest level of production cost inflation since Q1. And then he said, probably not a coincidence. So the number of companies mentioning inflation on earnings costs has fallen to the lowest level since Q2 2021.

41:18So no recession and we beat inflation. Is the landing soft? Is the landing soft? I missed this. When Powell had his speech two or three weeks ago, he said something. I'm looking for it here. Here it is. It is still possible that the case of avoiding a recession is in my view, more likely than not having a recession. You're damn right he said that. I think if we do have a recession now, it's going to be all because of the Fed. If they don't learn to take their foot off the gas pedal or the brake, whichever analogy I'm looking for here, I think they're going to be the sole cause of it if it happens.

41:55We only have this booth for another 10 minutes. We're going to keep this quick. Don't need to spend a lot of time here, but who could have seen this coming? Disney is shutting the Star Wars Star Cruiser Hotel, which costs$2 ,400 a night after 18 months. I thought it was like$5 ,000 a night, wasn't it? Well, they said a cabin sleeping two guests costs$4 ,800. Here's what I'm going to get. What are they going to do with it? Three guests. Well, listen, three guests was$5 ,200. Whatever, whatever. The price for a couple sharing a room works out to$2 ,400 per person for a one-night, two-day stay. All right, here's what they said.

42:29This premium boutique experience gave us the opportunity to try new things on a smaller scale of 100 rooms. So there's only 100 rooms. As we prepare for its final voyage, whatever, whatever, whatever. That's it. Didn't last. You don't go to Disney to sit in your room and experience the room. You go to Disney to experience the parks. Yes. All right. I could have saved them a lot of money if they would have just listened to me. Disney's counterpart, sort of, Netflix, said that 5 million monthly active users for its cheaper ad-supported option. I'm sorry. They said that they have 5 million monthly active users.

43:0725 % of new subscribers were signing up for the tier in areas where it's available. You know what this means? That's interesting. They make more money on the ad tier. So what's that going to mean? Our subscription, no ad one, prices are going to go up. All these places are going to jack up the prices of the no ad version because they make more money on ads. You know what the other thing is? I am getting very, very nervous about my cable bundle. Well, you should. What did Disney say? ESPN is laying the groundwork to sell its channel directly to cable cord cutters at a subscription service in coming years.

43:37Here's the thing. ESPN helps subsidize other cable providers. they're going to jack up the price on my cable bundle now i'm screwed how much is it i pay this is with internet and cable i think i pay 170 a month but this that doesn't sound like that bad with internet it gets me stars hbo showtime yeah that's not a lot it's a great deal yeah and 400 channels okay what would you realistically i mean i guess what there's you the you'll pay 250 I'll keep, yeah. But the thing is, if you, okay, I'm going to, I know a lot of people change to YouTube TV and Hulu TV. They jack the prices up on those too.

44:17Plus you have to pay for internet. So either way, you're screwed. I think the prices, that's what we know. The prices are going up for content. That's the takeaway. I think Netflix ruined everything for everyone. They really did. Because everyone saw how great their stock was. This is how the stock market affects businesses in the economy. Everyone was like, oh, shit, we need to get into streaming. Look at the multiple. NASDAQ dragged Disney down with them. Look at the multiple. And then what everybody thought was like green pastures turned out to be like a hell pit. So everyone followed. It all crashed and burned.

44:53Now the bundle's going away. The bundle's not going anywhere. The prices are going up. Yeah, the prices are going up. All right, my car idea. So just to be clear, here was my idea. People were sending us shit, which by the way, I learned something new. There's a company called Turo, T-U-R-O, which is Airbnb. It's Airbnb for cars, and it is sweet. So I think I'm going to California next month with Chris, and we are definitely going to use it. Do you know about this, Turo? Yeah, people sent it to us. My rebuttal to you was, you're a bald man who wears Hawaiian shirts, and you're trying to drive a convertible.

45:28Welcome to your midlife crisis. Yeah. It's here. No, but wait. But again, just to be clear, here's what I want. I want a subscription service for cars, not for fancy cars where you can have access to. I'm talking about the cars that you drive around your neighborhood or whatever. So there should be tiers. If you want four cars, it's$1 ,000 a month. If you want six cars, it's$1 ,300 a month. If you want the upper end, it's$1 ,700 a month, whatever. You want to pay a single lease fee, but you want to have six cars a year or something. Exactly. So I, I send this to car dealership guy and he goes, fair did this, went bankrupt.

46:07So there was a company that did this again and it went bankrupt. So I would say maybe they just didn't execute because I think it's a solid idea. This sounds like a 2020 idea to me that would have gotten a very high multiple and it would be down 98 % right now from the highs of it IPO'd. All right. Recommendations. I am super, super duper psyched for the Arnold Schwarzenegger it's a doc on Netflix he might be the most interesting man of all time most accomplished, I mean he's got an interesting story, yes did you see the trailer? yeah, looks good looks amazing, there's another trailer that I saw that blew my is he the most accomplished?

46:47no, has anyone ever done more impressions of a person ever than Arnold? Oh, no. Right? Okay. There's a trailer. It's called The Creator. And it's about AI. It's basically, this is like Terminator 2. So you're pretty late on recommendations if you're recommending two trailers. But wait, did you, and the guy that the director did. It looks good. It's Denzel's son in it, right? It looks good. Is that who it is? What's it called? It's called The Creator. Oh, yeah. God, I'm so, so, so here for it. What did I watch on the airplane? All right, you want to. I don't think I watched anything. Because it's all, it's basketball.

47:21All right, I tried two things on the plane. The Fablemans. Oof. Brutal. Oh, I'm so mad. So I, so I, when that came out, I was so excited to see it. And then it just got. Steven Spielberg has given me so much joy in my life. Yeah. And it, did you watch it at all? I'm not going to. It's cinema, right? It's a film. And the parents are Paul Dano and Michelle Williams. Amazing, amazing. Yeah. Great actors. And their characters are horrible. They're annoying. it's a like I turned it off after a half hour I couldn't couldn't do it here's a recommendation for you silo on Apple TV my wife and I knocked out three or four episodes over the weekend a bunch of people you know Tim Robbins is in it a bunch of people you've seen in other movies and that you you'd like five people in the show you'd go this person's in so here's the premise and they give you the premise five minutes into the into the show there's a huge silo that goes down like 140 floors into the earth you can only see outside from the top floor say no more I'm literally in.

48:17The people who have been living there, it's a civilization of like a thousand people. They've been living there for 140 years, but someone erased their history. They don't know why they're there. All they know is if they leave the silo, they die of poison. Wow. And people have, that's the premise. That's my, that's my type of, that's my type of show. It might be a one season show, but it's, yes. And finally, on Netflix, I felt kind of weird watching this last night before I flew this morning, but Flight with Denzel. Great movie. I forgot about, that movie is awesome. It's a great movie. Got a great, it's a great movie.

48:44John Goodman, Don Cheadle along with Denzel. It's a great movie. Here's the thing about Denzel. You know, I only saw the movie once. I don't feel like I need to revisit it. It's worth a rewatch. Okay. I only saw it once too. Denzel is a kind of guy who plays himself in every movie, but you buy the version of himself that he plays in every movie even if it's a little different. I think Denzel is my favorite actor of all time. I would have to seriously sit down and do a proper comparison, but I'm pretty sure he's my favorite actor of all time. He's so good. That's all I got. All right. Tropical Bros.

49:12In conclusion, Yes, tropicalbros.com. Look for collaborations, animal spirits. That guy's got a sweet mustache. That's your next midlife crisis. Look at that guy. Can't see him. All right. Remember, 10 % of all proceeds go to No Kid Hungry. Help kids who are malnourished, under eating here. What else we got? Austin. Austin. Info at RedHoltzWall.com if you want to learn more. Future Proof. Check out our show with Ramit about Netflix. This is a lot of promos. Got a lot going on here. A lot of promos. But these are the shirts of the summer. You have to get one. animalspiritspod.gmail.com. Thank you for listening.

49:49We will see you next time.

50:01This next one's for all you CarMax shoppers who just want to buy a car your way. Want to check some cars out in person? Uh-huh. Want to look some more from your house? Okay. Wanna pretend you know about engines? Nah, I'll just chat with CarMax online instead. Wanna get pre-qualified from your couch? Woo! Wanna get that car? Hey, that's a beat! You wanna do it your way? Wanna drive? CarMax.