⁠Is The Stock Market Overvalued?

0:28Hello, everyone. We've got a lot to discuss today. we get into today's episode, I need your help. We are currently at 17 ,517 subscribers, but my goal is 1 million and I need your help to get there. Make sure you subscribe and let's spread the word. Let's get into today's episode. All right, ladies and gentlemen, it seems like every day someone's sounding the alarm. The U.S. stock market's overvalued, they say. Well, the most recent example was Apollo's Torsten Slock. He shared a chart that takes the S &P 500's trend from 2023 to today, and it overlaid with the trend from 1996 to the dot-com bust in 2000.

1:04Now, do these two trends look visually the same? Absolutely. Open your eyes, take a look. But does that mean history is going to repeat? No one knows. And so we're going to dig deeper into the data. Let's go. Another area of concern comes from WisdomTree's Jeff Winninger. He points out that the S &P 100 now has 27 % of all stocks with a PE ratio of at least 50. And there's only one company, There's a PE ratio below 10. Is that a crazy data point? Absolutely. Think about that for a second. More than one out of every four companies in the S &P 100 have a PE above 50. And two out of every three companies have a PE above 30.

1:40It's not exactly normal. But there's positive parts of the market that are not normal too. For example, Mike Zaccardi shows that this graph from Wee Lee at BlackRock, it highlights that the MAG7 has actually become cheaper so far this year. That's a narrative violation. It isn't supposed to happen in a bubble, right? And it's definitely not supposed to happen when the MAG-7 is driving so much of the S &P 500 return. Or when China, Japan, UK, US, and emerging markets, they're all getting more expensive on a valuation basis as well. So remember, big tech is destroying small cap tech in performance so far this year.

2:14So what exactly is driving this ridiculous growth? Well, there are many factors, but retail investors are a very big part of the story. Goldman Sachs says that these individual self-directed investors, they're now buying more than$3 billion of tech stocks every single day. It's the highest measurement in history for retail investors. So before you mock and ridicule the retail investor, remember that they were buying the dip in April and May. That's when Wall Street was predicting doom and gloom. Retail made a killing in the historic market recovery that's happened in the last few months. And so my guess is retail is not exactly idiots.

2:48And if you needed further proof of retail investor skill, they have much more exposure to Bitcoin and cryptocurrencies. Bank of America is now reporting that the average professional fund manager, their allocation towards crypto is only 0.3 % of AUM. 75 % of fund managers have 0 % allocation. Dummies. Stocks are increasing in value. Retail is pouring capital into the market. And professional investors are sounding the alarm bell. Maybe a big market crashes right around the corner. And maybe the bubble is about to pop. Again, no one knows what's going to happen. But one thing is very clear. Many of the businesses that everyone's critiquing, they are way too busy to notice because they've been beating earnings expectations.

3:29As my friend Jordy Visser recently told me, earnings don't lie. Take a listen to how Jordy explained it. Everyone grew up and at some point, whether their parents said it to them, their grandparents did, or they heard it on TV, a line that every kid hears at some point is, there's no free lunches. So let's just go through this. AI is not some everyone wins thing. It's actually concentrated in the winners. So in that little chat GPT thing where I went through the stages, it talks about the societal impact. So when you hear people that are negative, they're like, well, if we're hiring digital employees, that's great for companies.

4:01But then employees are falling. And so when you see socialism rising in New York City and in the cities and you see kids and not able to afford housing and housing affordability is at all time worse levels, there is a negative side that comes out of this. what Chachi PT says will eventually happen is that there'll be UBI. So here's what I want to tell everyone right now. There already is UBI. It's just in a different form. So if companies are making more money, then the stock market is going higher. So for people that own stocks, they're benefiting. They're not getting it through wages, but their net worth is going higher.

4:40And we've seen that in the country. Now, again, that's very concentrated, but it does filter down to more than 50 % of the people have a pension fund, have something. You have about 30 million people that are no longer employed in the country, but are getting social security, they're getting Medicare.

4:59The transfer payments continue to grow, and I think they're about 20 % of income now, which means we have a part of the economy between the baby boomers who are no longer working, but are getting paid to not work through pension funds and through other things. Plus, people that are at the bottom end that are getting some kind of aid from the government, you've created this weird form of UBI where the wealthy are getting huge returns. The middle group is getting returns through their investments in stocks, through housing prices that are not falling. And then at the bottom end, you're getting a bunch of transfer payments.

5:31It's not UBI the way people think, but it's already happening. I think the government has to find a way, again, to rebalance the economy to some degree. Trump has talked about it. I don't think that game is over by any stretch of the imagination where he wants to do something for the bottom 50%. And that means house prices have to come down somehow because the affordability is out of whack. He can't force wages higher. He can't run the whole AI thing. I think it's a myth to believe that it's going to create more jobs that it's going to get rid of, especially in the next three years during his term.

6:02But that's where this balance comes in. So I want to make sure everyone realizes when we talk about this from an optimistic basis, it's not that there's no, There's never free lunch. There's always a negative to things. And I do think the labor side is a negative. It is going to lower rates right now. And if the Fed has their way, they'll lower them more. But people are going to start to realize that even if you move short-term rates lower, if long-term rates go higher, that doesn't really help people in terms of their borrowing because most auto loans and housing loans are more dependent on the long end of the curve.

6:31And that's where I think the government, whether it's yield curve control or giving tax breaks to people, there has to be something that's going to have to happen. Now, we are living through interesting times. The valuation of the stock market is going to be debated over and over again. But long-term investors are content. They're going to buy stocks today. They'll buy more stocks if the price goes down. And they will simply keep buying if prices go up in the coming months. So shut out all the noise. Just focus on acquiring as much stock as you can. Your job from there is to simply hold on, regardless of where the market takes us.

7:06All right, I've got a very special treat for all of us. I have Eric Jackson, the founder of EMJ Capital and the captain of the ship when it comes to Opendoor. Opendoor has surged in price over the last couple of weeks, and Eric is a big reason why. He went and he found the stock. He laid out an argument as to why it was undervalued, and he has rallied the retail investor base to all go and take a look. This stock now is one of the most heavily traded stocks in the entire stock market. People obviously are debating whether it is worth a higher valuation or not. Eric's here to explain to us exactly how he's thinking about it.

7:40Here's my conversation with Eric Jackson. All right, Eric, I thought a great place to start this conversation is Carrie Wheeler, the CEO of Open Door, stepped down at the end of last week. This is something that you've been calling for for a very long time. What do you think about her stepping down and who do you think should be the next CEO? I think it's the right thing to do. I don't think she was up to the task. I think she realized that after the firestorm that ensued following the earnings call that she was on and some of her casual comments and kind of her slow reaction to the embrace of the retail investor of her.

8:14I mean, it just didn't make sense that she took three days and probably 60 people to kind of craft a tweet saying that she really loved retail. Like it was pretty obvious to me that she just wasn't up for the job. She was a finance person through and through TPG, Goldman Sachs. She sort of stepped into the breach at the end of 2022 when the company was not doing well and the founders departed. And to her credit, the company still exists. So there's that going for them. I think she launched some asset-like programs, which I am totally in favor of recently, namely like Cash Plus. And they tried to show how Opendoor can build an asset-like marketplace model, kind of like an Amazon 3P model instead of just the 1P approach that we traditionally think about with Amazon.

9:09So those are good. But where they need to go is embracing AI, being AI first, thinking about how do we change this company into being the Amazon or the Google of real estate. That needs a tech person, a product person. That wasn't Carrie. So, you know, rip the Band-Aid off, get her out of there. I'm happy she stepped down and let's move ahead and find the right person. So what I think I'm hearing from you and a friend of mine, Mike Gonzalez, I think made a pretty good point. It's like, look, this company was basically bleeding out. There's people who thought it was going to go bankrupt. It wasn't going to exist.

9:42Carrie kind of stepped in into the fire, into the breach, as you described it, and she steadied the ship. She at least stopped the bleeding, which I think that everyone should give her credit for. And she did a good job there. Now, I think your point is, OK, now the next phase of this business is somebody who needs to be more product centric, somebody who can go and embrace this stuff. You mentioned AI. What are the areas where you think using AI could have a profound impact on the business? I saw a tweet that you had where you said, you know, you think that they could actually get rid of a very large portion of the employees and leverage AI to this more kind of capital light model.

10:16Talk through a little bit of the specifics as to kind of how you see this potentially happening. Well, sure. They have 1400 employees right now, according to Bloomberg, working at this company. I don't know what they're all doing, to be honest. I mean, like, honestly, like, and just seeing how slow they were to react to retail and how, you know, obviously they had a lawyer and compliance person and this person and, you know, a comms person, you know, like there's too much fat there at this company. You don't need 1 ,400 people to do this business. So it gets a little sensitive, obviously, when you're talking about AI, because AI is threatening for all kinds of jobs across all kinds of industries and nobody likes to lose their jobs.

10:56But there's no question that this company could be more efficient and drastically reduce its GNA through fully embracing AI. They could do all the, you know, inspections of houses with AI. They could do, you know, plan out renos. They could plan, you know, they can kind of map the whole process, you know, using an AI first approach. But I think maybe the biggest thing, which is sort of at the heart of this, is that they are thought today to be this I-buying company. We need to borrow a lot of money from lenders, put a lot of debt on our balance sheet, go out and make firm offers, cash offers to people to buy their houses.

11:41and then we can get, and then we get stuck with the bill like we did in 2021 where we bought all these houses at inflated prices, the housing market goes south and we're stuck. And that's like high risk. And that's basically kind of been that black cloud hanging over the company. I think they can totally switch to a purely asset light model. Kind of think of like Airbnb, you know, all it does is sort of like sits up here at the top level, sort of takes in anybody's demands to rent someplace, somewhere in the world, but they never actually own the places and run them. They are just the interface.

12:17It's a marketplace. And it's actually happening. Yeah, it's a marketplace. Right. Yeah. There is no marketplace in real estate. This is a$20 trillion market in the United States, residential real estate market alone. $20 trillion,$14 trillion of that 20 is tied to a mortgage. And what's key about Opendoor versus a Rocket is the sellers come to Opendoor. This is all about seller intent. If I'm a seller, I want to know how much can I get for my house today? What's the baseline? What's the cash offer that I know I can get in my bank in 45 days? And you can get that with Opendoor. You cannot get that with Rocket.

12:56You are not going to Rocket for a plain vanilla mortgage if you are selling your house. And seller intent drives all of the downstream revenue for Open Door in this real estate market, just the way it did with sort of a search intent for Google and that market. So talk me through this, right? I'm a seller of a home. I come to Open Door and in the vision that you have from a product experience in this capital light model, I come and I say, okay, here's my house, here's the address. Open Door then says to me, your house is worth$800 ,000 or a million and a half dollars, whatever the number is, what changes about the model if I hit the bid?

13:35If I say, okay,$800 ,000, I like that, give it to me. What would be different about the open door in this capital light model compared to what they're doing now? What open door can do is if anybody is like a Wall Street type, you know, think of like a caller trade, like in Wall Street language. Like it's sort of like the open door sort of gives you the baseline, right? And then it makes you a promise, the seller, we will deliver on this$375K for your home in 45 days, let's say. And you might think, well, it's worth$400K. And Opendoor knows it's worth$400K. And Opendoor knows that in those 45 days, and especially at the beginning of the next few days, it can go to its network of agents, partners, and probably do better than that baseline offer of$375K.

14:24And it will come back to you in all likelihood with something like a$425K offer, maybe through an agent that it partners with, maybe through some other institutional type buyer. And when it delivers that, Opendoor is that middleman and will get paid, will get some portion of that incremental value that it created, that it's delivering to the agent partner through finding that transaction. and the seller knows that that's likelihood. But in the back of their mind, there's an assurance that I know I'm, if nothing else, 45 days from now, I got 375K coming into the bank. They're not getting that experience from Zillow.

15:05They go to Zillow, Zillow, they can do a Zestimate, they can find information and then, oh, Zillow is going to pass me off to an agent? To what? Do I get a firm offer from that agent? No, I'm not getting anything like that from a Rocket. it. If I'm a buyer and I want a mortgage, I want to know what I qualify for. Yeah, then I'm going to Rocket or something. So Opendoor is in this unique position where it can capitalize just by having that kind of trust of the sellers. Now, if let's say in that model, you offer$375, you think it's actually worth$400,$425, they go out to their network and they do not get an offer.

15:42In that case, would Opendoor then say, hey, we step up to the plate, we buy for 375 and now we take the asset onto our balance sheet? No, they, they, they, I mean, they do that now. And so, and that's why the thing was like 51 cents back on June 25th, uh, because the wall street and the investors like just thought that was like too risky a model for them to kind of take all that capital risk onto their balance sheet themselves. So they, they would still make that firm offer. Nothing would change in an asset light approach, but instead of them being the ones to follow through and carry through and do the eye buying of that house, they would have partners behind them that would be ready to step up the plate.

16:17And there's a ton of institutional buyers out there, you know, with looking to deploy capital. And the promise to them is that, oh, I can buy this$400 ,000 house for$375 ,000. I'm there all day, open door. You know, I'm your partner for life. You know, sign me up. I'm there to back you up. So again, but from the seller's perspective, all they care about is that speed and that certainty on price, that they know that that's the minimum they're getting. They know that in all likelihood and after several transactions with Open Door, they know they're probably going to do better than that. But the peace of mind, especially in some parts of the country where you sign up to sell your house and maybe this thing's going to take six months, eight months, 12 months.

16:59I mean, you just don't know. So that speed and assurance is very important to a large part of the market. And so I think the goal for Open Door should be like 10 years from now. Like this is such a massive mark,$20 trillion. You know, can we get to 10 %? Like, I don't know what, they're like half a percent right now nationally. Like Tesla's goal was always 10%. They're there. They're there after like whatever it is, 15 years. There's no reason, you know, who's going to be the platform that gets that 10 % level. That's going to be a massive opportunity. So it sounds like value creation comes from being able to operate with speed, operate with certainty to the seller.

17:37And then there is some transformation in terms of the financial structure of Open Door rather than taking this onto their balance sheet. They have partners. They're really now in the broker or kind of the platform marketplace model rather than actually taking this stuff on. I've seen you also talk about assumable mortgages. And I know the guys over at Rome, I've spent a good amount of time talking with them. Keith Raboi, who is one of the Open Door co-founders, is an investor in Rome. There's a bunch of people who are paying attention to this. And I personally think the assumable mortgage space is very interesting, given that we have high interest rates at the moment.

18:13So talk through kind of how you think assumable mortgages could potentially play into this whole story. Well, I think you and I are kind of in simpatico in the sense that we both want to see rates come down. We think there's a little risk of inflation. But I mean, we have to acknowledge that that is a risk of like if we dropped the interest rates to zero again, ZERP, you know, like it would be a matter of time before we're facing the same kinds of, you know, challenges of higher interest rates. The wonderful thing about assumable mortgages is assumable mortgages basically allow you, if you locked into a 3 % mortgage rate in 2021 or 22 or something like that, and you've got it on a 30-year fix, you don't want to move from New Jersey to take that job in Texas because, you might have to walk away from that 3 % and you get locked into a 7 % mortgage.

19:05You don't want that. So you stay put. Assumable mortgage allows you to basically port that mortgage with you. You take it with you. You take that 3 % with you to Texas and you buy that house there. Today, assumable mortgages are only allowed on about 20 % of mortgages nationally, mostly VA-related mortgages. So the idea would be to go to the Trump administration, Bill Pulte would be the person to do this and say, hey, want to make this, you know, 100 % of all mortgages are able to do this. What's the downside here? There's really, there's, you know, the nice thing about you do this, there are no inflationary effects.

19:45People have these mortgages already. We're just asking them to keep those mortgages and be able to go and buy another house. What that does, though, is it drives down the cost of home ownership nationally. And there's nothing that's probably more important other than like when, you know, it goes part and parcel with the cost of living, right? It's like the cost of your home. There's no bigger cost for most Americans than the cost of their home. And so if you can drive down a home affordability, because now people can port their mortgages with them, there are more buyers and sellers for your home.

20:19There's more transactions that are going to happen as opposed to this frozen market that we've had for these last couple of years. And all the downstream revenue, all the people that get jobs from home rentals and and all this kind of stuff, the agents themselves that are tied to like a better booming housing market with no inflationary effects. I mean, that's a gift, you know, in sitting there right in front of the White House for them to pick up and run. And it goes directly against the Zoram Mondamis of the world who are out there with crazy half-cocked communist ideas that are getting play only because people are so desperate and looking for answers.

20:57And they're willing to kind of latch on to, you know, something that makes no sense at all. I mean, I heard on one of these Kara Swisher podcasts the other day, well, my son was saying, yeah, the, you know, communist controlled groceries in New York City. Yeah, of course, that's a crazy idea, but at least it's an idea. Like, no, we don't want communist ideas. We want freedom. We need capitalism. If you're in favor of freedom, you're in favor of capitalism. We need the creative ideas that are non-inflationary, that people can rally around, that directly support what the administration is already trying to do.

21:31That's assumable mortgage. Make them available nationally and put open door at the heart of all that. So what's interesting about the assumable mortgages, I've heard two arguments, right? One is that if you're the bank issuing the mortgage and now it becomes assumable and rates rise, you have a lower mortgage rate. Now, the counter arguments of that is if somebody sells their home, there's no guarantee that the person buying the home is going to come back to you as the bank and take out the same mortgage. And so there is this kind of, I think, balance between is it better for the overall market?

22:02I think absolutely. Is there more transaction volume? Absolutely. Is it better for home affordability? Absolutely. And there is probably on the edges, some downside to the banks, but there may actually be a more net positive to them. And so it is one of these rare win-win-wins where the buyers and sellers, the banks, and the government all get a win out of this. And so I think it's a pretty powerful idea. Another area that I've seen people kind of focus on is international expansion. I saw you talking about this as well. Open Door today is in the United States. Obviously, they're trying to grow very rapidly domestically.

22:34What is your thoughts as to what they could do internationally? Well, one of the amazing things about this whole last, I don't know what it is, I lose track. I don't know if it's three weeks now that I've been doing this campaign or four weeks. But basically, I think Opendoor is now like the number one retail stock out there. I think it's sort of surpassed Palantir in terms of like fervor right now amongst the retail investors. But what like what blows me away about that retail love is that I would say probably just my own experience in responding to tweets is probably 50 percent of those retail investors are from outside the United States.

23:12And like I get all you know, last week I was like retweeting all these people like I'm in Antarctica. I'm in Afghanistan. I'm in Pakistan. You know, keep pushing, Eric. You know, get these board of directors to wake up like I'm in Indonesia, Malaysia. We love you. And then a lot of them would say, Anthony, I'm in the Netherlands. I can't stand these greedy real estate cartels here in the Netherlands. You know, when is Opendoor coming here? Same thing from the UK. Same thing from Spain. You know, so like I don't expect Opendoor to go into Afghanistan next week. But, you know, Netherlands, you know, UK, Spain.

23:49I mean, obviously, every market's a little bit different. There's a little bit of, you know, difference in the government regulations and so forth. Yeah, it's complicated. But, you know, if Airbnb, you know, we're talking about an Airbnb type model here, you know, Anthony, this is not rocket science. There's no reason why, you know, imagine if we said, oh, Airbnb, you know, they can only stay in the United States. You know, even though there's obviously like all this demand out there, but, you know, it's too complicated. Regulations. Oh, you know, you know, figure it out, guys. I mean, Uber can do it.

24:18Airbnb can do it. There is no reason with this asset light approach that Opendoor can't do this now and kind of respond to the kind of international love. And then guess what? It's all about TAM,$20 trillion US residential real estate market. Multiply that probably by two or three if you really went after the international market. You know, what's interesting to me is as you've been throwing these eyes out there, as we have seen more and more people in the retail audience throwing ideas out there, it does feel like there's a cultural shift inside of this company. You know, we had a, I don't know, maybe they just weren't paying attention to retail because frankly, retail wasn't paying attention to them, right?