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Welcome to Animal Spirits with Mike and Ben. Michael, I want to start our podcast off by talking about another podcast. Okay. Paul Tudor Jones was on Invest Like the Best with Patrick O'Shaughnessy. You listened, I assume. Very good. He's a very engaging person. He seems like the kind of guy that you'd want to like sit on a porch with and have a whiskey.
Yeah, very like happy, jovial. Something about the southern accent I think just makes people sound nicer. Anyway, I thought this interview was very instructive in how to think about the personality of investors, hedge fund managers. I want to get into that in a second, but I want to read you something that Patrick shared on Twitter that was from the interview. So he says we're 252% of stock market cap to GDP now. In 1929 we're 65%, in 1987 we got to 85 to 90%, in 2007 170%.
He says if you think about the periodicity of significant bear markets since 1970, we get a mean reversion about every 10 years. And he also says that basically we're over-equitized as a country. We have the highest individual equity weightings in the history of the country. He says the problem is that if you buy the S&P at the current valuation, the 10-year forward return is negative when you buy the S&P with a P/E of 22, that's what history shows. Okay, so he's saying like listen, he said valuation matters a lot and the stock market's really high and it's going to be really hard to make money from here with any kind of long-term view.
Now, if you just pull that out of there, there'd be two ways of looking at this. One would be, oh, this guy's right. If you look at the history, and there's been charts of this, forward P/E at 22, 23, whatever it is, forward returns are not very good. So you'd say, how could you argue with that? The other person would say, these hedge fund managers have been saying this for years and they've been wrong for years. Don't listen to them. After listening to this interview, I didn't take any of that away from this. Here's what I took away from this, and you can see, I want to see if you took the same thing.
He started the interview talking about how he always was kind of a Warren Buffett hater. I thought that was pretty interesting. I didn't realize that. He's like, I poo-pooed whatever Buffett did. I thought his just thinking and acting for the long term, he kind of got lucky. He got a few ideas. He just rode the long-term trend. And he said, my personality won't allow me to do that. I'm a trader. So I just don't have that Buffett in me. And he talked about how in 1987 he was predicting there was going to be a depression after the crash. And I thought, oh man, that's very interesting because Dalio in 1982 predicted there was going to be a depression in the United States, the start of perhaps the greatest bull market of all time.
And I just thought that I think certain personality types are more well suited for certain types of investment disciplines, and that's why these kind of predictions, like you have to take it with a huge grain of salt. So I thought him explaining his personality and the way that he is hardwired, like he has to be a trader, he has to be a speculator. He doesn't have the ability to be a long-term investor, and that's why he constantly is talking down on markets. Like that's why a lot of hedge fund managers are, and anytime you see a bond manager go on CNBC, they talk about how bearish they are. It's because it's part of their personality. It has nothing to do with their forecasting abilities. It's all personality-driven thoughts.
Totally. Yeah. 100%. 100%.
Can you get that out of his like listening to him explain his background? Because I've never heard many interviews with him. Him being bearish because he's been bearish for a while. I think he's made many bearish comments over the years. It makes so much more sense when you think about it in those terms.
Yeah. It is kind of wild that we're now here in 2026 and it doesn't happen so much anymore, but like in 2015, 2014, people were talking like it was a daily thing how expensive the stock market was. I don't think new participants realize that we used to argue about the CAPE ratio and why forward 10-year returns for stocks were going to be depressed in 2014.
You remember when Jesse Livermore did that whole huge 5,000-word epic on philosophical economics, which if you weren't in the blog game around then, those were the must-reads. He was talking about that in like 2015 about how the market isn't as expensive as you think it is based on CAPE.
Yeah, that's true. Now, in fairness, I was pushing back against CAPE, making the point that it is different this time, but also I expected returns to be lower. I genuinely did.
Yeah. I also think that the market is obviously not cheap. Okay. Do with that what you will. Probably not going to have another 14% compound annual growth the next decade. Could happen. I don't know, if AI and robots keep going, it certainly could happen. But the part that I thought that I would push back against is like the over-equitization of America.
This is the richest country on the planet and almost all of the wealth has been created by equity, by being a business owner. Why wouldn't Americans piggyback people like Elon Musk, who we'll talk about later, and all these people who made their fortunes building businesses? Why would we not be over? Why would we not do that?
So, look at this.
Look at this chart I just put in here. Paul Kadoski shared this today. He says no country comes close to the US in stock ownership, and it's the United States at the highest, and this is through 2024. So it's higher now. I think the United States is by far the highest at 55%, Canada's almost 50%. You go to India, 6% of the country owns stocks. China is 7%, Germany's 14%, Japan 15%.
And here's the thing that I don't get too about this, this is the Buffett indicator, the stock market to GDP. It's so much higher now than it was in the past. In 1929, 2% of the country owned stocks. In 1987, 20% of the country owned stocks. Today, it's 60%. Of course, the stock market is going to be higher as a percentage of GDP. More people own stocks. There's more wealth in the stock market. Yes, this is exactly what you would expect. It would be weird if it weren't the case.
Yes. If more money kept pouring in and it wasn't growing. So that, yes. My question is, when you look at this country ETF or country ownership thing, a lot of people would say, well, the US is going to come down. But what happens when the rest of the world catches up?
No, the US is not going to come down. This is the share of households with stock market exposure.
Yes, this is going to only, I'm saying some people would say this is going to come down. It has to. It's never been high.
I know. By the way, by the way, I know you're not saying that.
Yes, it absolutely is not going to come down. Now, as a permanently high plateau, yeah, as a percentage of like, you know, household exposure, that's a different story, right? Because if the market corrects, that number will pull back. But in terms of the percentage of people owning stocks, this number will only go higher,
which it should go to 100%. I know it never will, but that's the goal. And more people in other countries, as the barriers to entry have now been broken down, are going to continue to. India and China are not going to be under 10% forever. They're going to have way more equity investors in the future as people gain more wealth in those countries.
Yeah. So last week we got Big Seven, the Mag 7 reported earnings. And part of what the bears could not foresee, nobody could have foreseen this, I don't think, is that these companies would continue to grow at the pace that they've been growing at. And not just continue, that it would accelerate.
These are mind-boggling numbers that we're looking at right here.
Yeah. So I listened to all the calls last week except for, I don't think, not Microsoft. I did not do Microsoft. That one's too complicated for me.
Wait. When you go on a call, do you still listen to the CEO talk or do you go straight to Q&A?
It depends who the CEO is.
Well, I mean, that's where the good stuff is for the most part. All right. So anyway, just, you know, I was talking with you and Josh, the topline numbers just defy anything. There's this guy, Evan Armstrong, who has a substack called The Leverage, and he has a chart that shows on one axis the annualized revenue on the X and then the year-over-year revenue growth on the Y. Okay.
Okay. And he calls this the quadrant that shouldn't exist, and it's Meta, Microsoft, Alphabet, Apple, and Amazon, and it shouldn't exist because at that size, at 80 billion, 100-plus billion, whatever it is, at that annual revenue growth, you should not be able to grow at the rate with which they're growing.
No.
So I know we've been beating this drum for years, years, years. You cannot compare these companies to companies in the 70s or the 60s or the 80s or the 90s for that matter. Maybe the 90s are a little bit closer, I suppose, but not really. Not really. They weren't doing this.
The reason why some of these calls are hard to digest is Amazon, for example, there's so much going on. There's so many different business lines in there, and Google as well, and Microsoft of course, forget about it.
This is the whole, every time the bull market keeps going, someone says, yeah, but if this would have happened then it wouldn't have kept going. This is the thing, if you would have told me in 2017 when Scott Galloway's book, what was it called, The Four,
Yeah, it was about Amazon, Facebook, Microsoft.
Yeah, you told me that wasn't the top. Nope, not even close.
If you would have said these companies are still growing just as fast now as they were then, I would have said impossible. It's impossible. They can't.
So Warren P has had this thing where he says earnings growth is really accelerating now, forward estimates are now 25% year-over-year, and he's saying like this is insane. So I looked up, I said, why is this happening? Of course the Mag 7 is part of it, but so I looked at, this is from FactSet, seven sectors are now reporting double-digit earnings growth for Q1 2026, led by communications services 53%, tech 50%, and communications services basically is tech, and then consumer discretionary almost 40%.
Listen to what these companies beat on their EPS surprises. Alphabet beat by over 90%, Amazon by over 70%, and Meta by over 56%. It's absolutely insane. The Mag 7 was 61% above expectations so far with earnings.
I forget where I pulled this from, or maybe you pulled this from somewhere. During the past week, earnings growth for the S&P 500 for the first quarter increased to 27% from 15%. If 27% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021. And guess what?
Which included low base effects.
Yeah. A little bit of a difference.
Remember, remember that was a thing for a while, like once the base effects go away.
Remember the other one was, what happens when the excess savings from the pandemic goes away? You don't hear that one much anymore, remember? And at the risk of just sounding insanely bullish.
How do you say data like this and not sound like a cheerleader? It's impossible.
I know. No, but I don't know. I feel like we're telling the truth. If it sounds like we're being cheerleaders, all right, guilty as charged. I suppose I'm telling you what's happening in the market. What if we had a conversation with CraneShares earlier in the week? What if robotics is the next thing, like humanoid robots, and maybe that's a pipe dream, but maybe it's not. What if that's the next five trillion dollar market?
So Andreessen Horowitz, A16Z, has these charts of the week now, which is pretty cool, and they show the margins, and to your point about the 70s, they say not your grandpa's stock market, profit margins at all-time high again, and
Yeah, don't ever show me the CAPE ratio or this, that from the 50s when profit margins were 5%. You are comparing computers and something else, something else, but think of something clever.
So Financial Times says they talk about Google's numbers and they say big tech's AI spending plans rise to $725 billion, and they show the capex just keeps every quarter gets higher and higher, and it's not coming back. This is from Mike Zaccardi.
I'm just staring at these numbers. I shared this with you and Josh. Let me just pull this up.
Okay, sorry. The one was the big four, which is Amazon, Meta, Microsoft, Google, are together expecting to spend 77% more in capex than last year, which was a record.
77% more than the 410 billion they spent last year, just these four companies alone.
So, Meta, a company that the stock market is not, excuse me, super excited about right now. I think it fell 9% after earnings and there's no bounce. So,
Nope. Purchases of property, plant, and equipment was $6.4 billion for the quarter in the first quarter of 2024. All right, just two years ago. That is 19 billion. So it went from spending 6.4 billion to 19 billion.
Well, you would expect free cash flow to get destroyed, right? Like because that's a lot of the part of the narrative is their free cash flow is eroding really quickly. It's all being financed by debt. They're not going to be able to pay for this. Their free cash flow in the first quarter was 12.5 billion. In the most recent quarter is 12.3 billion. How, how?
Well, their net cash provided by operating activities went from 19 billion to 32 billion in one, two, three, four, in eight quarters.
19 to 32 in eight quarters. And think about how long the pandemic, how long ago the pandemic was. I'm only looking back to 2024. What was Facebook pre-COVID?
And the stock's in a 24% drawdown at the moment.
So yeah, I don't think the market is certainly not showing signs of euphoria, at least not in the Mag 7. The stuff that's going on with the chip names is starting to worry me a little bit.
Western Digital, SanDisk, Micron. Yeah.
Now the earnings are up. I did this with Josh last week on what are your thoughts?
The earnings are up like 10x. So maybe what do you expect the stock to be doing? I think in one case, I think SanDisk's earnings might be up 50x year over year. I'm not kidding. Something nuts. So I guess you would expect the stock to be going along in concert. But it's a lot of market cap. It's like, see if you're like Micron that goes up 8% every day. There was a lot of chasing.
They're like the new quantum computing stocks. Seems like you mentioned the cash flow part. Bank of America via Mike Zaccardi. Hyperscalers capex as a percentage of operating cash flow was 70% in 2025, expected to be greater than 90% in 2026. Holy smokes, they are just going for it. This is crazy too. This is from the Atlantic.
Hold on a sec. Capex as a percent of operating cash flow.
That's nuts. Correct. So this is below 25% in 2012. Now it's going to be 90%. This looks like a stock chart.
Okay, I give him the Zach Galifianakis gift there, Duncan. This is another crazy one. So The Atlantic had this piece on Anthropic. Okay, so they say Anthropic's revenues increasing faster than Zoom's during the pandemic, Google during the early 2000s, and even Standard Oil during the Gilded Age. If the company's current growth rate were to continue by early next year, they would be taking in more money than any company in the world.
Not like 10 years out, not 5 years out, just the current trajectory to next year, their revenue would be higher than anyone else.
No, we've never seen this before.
Yes. If you're comparing this to anything in history, we've seen high growth. We've never seen gigantic rapid growth like this, which has never happened before.
It's nuts. All right, exhibit.
I'm going to take the under. I'm going to guess that they don't have the most revenue in the world a year from now. I'm going to guess that the growth slows down. You know, going out on a limb.
That's probably fair. Maybe we'll be wrong. Exhibit A, chart of the week. This one surprised me. I didn't know this. Charge Matt sent this out last week. exhibitaforadvice.com if you want to learn more. We're now a double from the lows of 2022. The S&P 500 is up 100% from the lows. See, when inflation was at 8% in the fall of 2022, and the world seemed like, okay, there's a recession is like any day now or we're already in a recession. You bought back then, you're up 100% in the S&P.
It's pretty good. That's, I didn't think that.
Let's give some bad news. I think this is bad news. TLT, the iShares 20-year plus Treasury bond, long-term government bonds, now have a negative return over the past 11 years. Nowhere for 11 years. Still in a 40% drawdown from the highs of early 2020, mid-2020, because rates have gone from essentially 1% or something to 5% now or something.
Was this the easiest crash of all time to hedge of a pretty substantial asset? This is long-term government bonds are a substantial asset. I don't know how many trillions of dollars they're worth, but it's a lot.
What do you mean? Was it the easiest thing to hedge? Because all you had to do is go short-term.
It was the easiest hedge of all time within fixed income.
Oh, yeah. I think that's fair. I don't think that's a time to buy. I think that's fair.
I think if you sat through a 40% crash in this thing and you've been in it since 2020 and didn't diversify your bonds, that's your fault.
Harsh, but fair. I did notice for the first time gasoline is expensive. I filled up the tank, my wife's tank. By the way, I got a bone to pick with my wife. I don't know if your wife does this. There's never any gas in her car.
Never. Somehow, miraculously, the light is always on when I go in there. Except this time, there was only 10 miles left and I had to take Kobe and his friend to art. So the gas light was like going on and off and Kobe was like, Daddy, you got to pull over. It's saying pull over immediately. And I was like, I think we're going to be okay. So I filled up the tank and I think it cost $90 or so.
So look at the text message I put in here for my wife. Holy [__], gas is $5 a gallon. There's something about round numbers that get the human brain going. You know, no one ever says, oh my gosh, gas is $4.75 a gallon. It's the round number thing.
I paid way less relatively. I think mine was like 4.25. But I noticed the bottom line, that happened, I feel like that happened fast. No?
Very. Look at the price of, look at the chart of average gasoline prices. It shot up like a cannon. And it seems like the way that this works is that when oil prices rise, they rise like, what do they say? Rise like a rocket, fall like a feather. Is that kind of how gas prices happen?
I've never heard that before, but I like that.
I mean, I didn't make it up. But that's what's happening now. And it still seems like, I mean, we're probably, I don't know, it seems like we could get $6 a gallon gas in the country on average and the stock market still won't care. Is that possible?
Um, the stock market still won't care.
Uh, it's funny because we're in a place where it seems like every, $6 is high. I think we're, I mean, a lot of places we're getting pretty darn close.
Oh, you know what? I asked ChatGPT to make this for me. A chart of gasoline versus the S&P 500.
I bet there's not much of a.
My suspicion was there's nothing there.
Yeah, I'm guessing there's not either.
We never did guess something.
But here's the thing. Every single oil analyst, every single geopolitical analyst, every single investment pundit right now is thinking like, listen, the energy markets are all screwed up and no one is paying attention to this. But doesn't this seem like the most telegraphed risk we've ever seen? Like it seems like everyone knows about it. There's no one that, if you're paying attention, you know about this. You know that energy stuff is screwed. So look at the chart from the Financial Times. Scroll down a little bit. The loss of oil supplies in 2026 is the biggest of them all since 1973. Bigger than the Iranian revolution in the late 70s, bigger than the Arab oil embargo, bigger than the invasion of Kuwait, Iran-Iraq war, all these other things have happened in the Middle East. This is by far the biggest supply.
And obviously oil is more, there's a bigger supply than ever because there's more people. But this is the Austin Powers where the guy is standing in the way of the steamroller. Get out of the way. Get out of the way.
This morning, I think Robin rolled over onto the remote control and the TV turned on and it was the local news. So I guess before Good Morning America, whatever it is, I don't know, local news. And it started with gasoline prices, fire in the city, another fire, somebody got stabbed in the face, murder, and then somebody spray painted a swastika on somebody's front door. I was like, what the [__] is this? Is this for real? And I feel like we've had this conversation over the years, like this is just what the news is now.
But this wasn't like, it wasn't like channel 12. It wasn't like that local news. It was like, it was one of the major networks. It was either channel 4 or channel 7. And I don't know why I'm talking about this, but like this is just what the news is. It's unbelievable. Literally.
Gasoline, fire, fire, death, swastika. And then I turned it off. I'd had enough.
Sorry, I got a busy day. DoorDash just came for me.
That's okay. You don't have to apologize.
No, this is why I've essentially checked out of news. Like I don't really, I pay attention to financial news, economic news. I've checked out of the actual news networks. I don't like to watch them anymore because it's just depressing.
I mentioned that I have that brick thing, right, where you lock your phone, and I primarily did it because I don't want to be with my kids on my phone. But I realized like one of the problems is in the morning I wake up and I'm now just on Instagram for an hour in the morning in bed.
Oh, so you went from doing one thing to another.
Well, my screen time did not decrease. I'm embarrassed to tell you how much time I spend on my screen. You know, Apple gives you like your screen time for the week. So I blocked Instagram and I have hardcore mixed thoughts. I feel like it's a little, I'm still on Twitter and Instagram. I'm on Twitter on my computer and that's enough. I logged into Instagram today on the computer for the first time. I've never done that before. I was a mobile-only.
Desktop. I know you could do that even.
But this is a big step, cutting off Instagram. That's huge. Where am I going to shop? How am I going to find my fitness influencer stuff? Speaking of that, somebody, I did peek into the comment section because you guys shared something funny.
You had to get roasted for that thing last week.
I said, I wonder what people are saying about my fitness. So LaRosa, our colleague, said, this has to be the most ridiculous [__] you've ever bought, right? I almost crashed trying to zoom in for a better view while driving.
Somebody wrote, that was the dumbest workout machine I've ever seen. And then somebody replied, I know, lol. Can't you just swing your fist without a guide? Now, yeah, imagine I'm just doing this. There's resistance. There's resistance.
So my Instagram purchases are obviously going to tank, which I don't really love that. That's where I get all my [__]. But I did buy one more thing, Ben. One more. My transition to fitness influence is almost complete. So I'm not feeling great about my body. There I said it. Feeling old. I'm looking old. Don't feel great. Body issues. Ben, you know what I bought?
So I also bought this for practical purposes. You know, I have a rickety back. My back is like just aching all the time. I can't play basketball anymore. So I need to strengthen my core.
Planks are very good for you. No.
Yes. Yeah, of course you do. The problem with planks, Ben, hurts your arms. So I bought, you know, the wrestler, Edge. So Christian and Edge, you don't know wrestling, they have a mat. So it's like 2 inches of foam with grips and a timer. So guess what I've been doing every day, Ben? Planks. I'm getting in shape and it doesn't hurt your arm or elbow at all. purplank.com. Get 20% off. Now, you can't get any percent off, but it's working for me.
Why don't you buy a yoga mat?
Yoga mat? Those are this thick.
Your arms are that sensitive. You can't go on the.
Okay. Got a bridge to sell you. Okay. So I think you put some charts in here from Duality Research about why gasoline is, and part of it is percentage of wages, price of gasoline hasn't gone that much farther. Average cars are more fuel efficient than they were in the past. That matters a lot.
So this is great stuff. No.
Yeah. Adjust for fuel efficiency, like it's much lower. I had Sean do.
Whoa, whoa, whoa. He did three adjustments. He did three adjustments. Fuel, wages. Okay.
Right. Because we're comparing. Yeah. Guess what? Average hourly earnings have gone up a lot over the last 50 years. He adjusted for average fuel efficiency and then as a percentage of wages adjusted for fuel efficiency. The double adjust.
That's pretty good. So I had Sean just give me an inflation-adjusted gas price going back to 1990. And we're essentially today on an inflation-adjusted basis where we were in 2004 and 1990 for gas prices, just inflation-adjusted, which obviously takes.
Not adjusting for inflation, which is obviously absurd. Not adjusting for wages and fuel efficiency. That's like saying houses cost so much more money than they did in the 1970s on a nominal basis without talking about inflation and houses are a lot bigger and better. There's double the square feet, obviously more expensive.
But this is also why gas prices will annoy people and people will complain about it, and it is more annoying to spend more to fill up.
It is annoying. It sucks. Yeah, it does suck.
But consumers will probably be okay as a whole. Some won't. Most will. That's probably where we fall on this. Right.
That's right. Man, that's this is.
But that's kind of the way that things have worked for this whole cycle.
Something happens, it annoys people, but people kind of just still push through it and we're okay.
That's where we've landed. See, The Economist cover is still in La La Land. Why oil prices are not high enough. Not yet high enough. They're kind of thinking the same way. I think, you know, I thought there's a macro forecasting rule here because people have talked about, hey, if the Strait of Hormuz is not open by X date, we're screwed. If you're a macro forecaster, never give a date.
Always just keep it open-ended. Listen, if the Strait of Hormuz doesn't open, energy markets are screwed. Oil is going to dot dot dot. Give an amount. You have to give an amount. Never give a date because the date thing, it always comes to pass and then you realize like, oh, wait, nothing happened. Push back a month. Don't give a date. Something to think about.
Sage advice, Ben. All right. This is a garbage survey. The share of Americans who say their financial situation is getting worse. So it's at an all-time high as far as this poll is concerned.
Yeah. Goes back poll doing.
It's so right now the reading is 55%. And for context, during the Great Financial Crisis, which was both great as well as a crisis, that number did not reach quite close to 50%. So more people are saying that the financial situation is getting worse now than in 2008. Or more likely surveys are broken, and or more likely this survey is complete [__].
You can't trust them anymore. These surveys, you can't trust them. There's no way in any objective measure that people's finances are worse off today than they were in the financial crisis.
All right, Ben, I want to read a tweet to you from this guy Peter Diamandis, MD. I don't, I'm not.
