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Welcome to Animal Spirits with Michael and Ben. Michael, I'm ready to call it. This is officially one of the greatest bull markets of all time. We're there. We're entering 1980s, 1990s territory. Allow me to make my case in front of the jury here. Okay. 2010's S&P 500 was up 13.4% per year annual basis. Not bad. Handful of like minor bear markets, right? We had a few like 19% and change ones. 2020s 15.7% per year. I think the 80s was like 17 and the 90s was 18, something like that, maybe flip-flops. So, a little higher from the lows in 2009, the S&P 500 is up almost 1500% or sorry, this is the Vanguard total stock market index. Do you see now that they have the Vanguard Morningstar total stock market index? That's a new thing.
Oh, that is interesting. Okay. Yeah, Morningstar branded it.
VTI is up almost 1500% in total. 17% annualized return since the bottom in 2009, which is when I think the bull market started. Some people disagree with me. I don't care. That's when it started. Uh this year, and I think the bull market, this has been a caveated bull market the entire way. It's only the S&P. Nowhere else is nothing else is keeping up. Uh it's just concentration. It's all Mag 7 blah blah blah. Well, the last 24 months or so, the bull market has entered a totally new territory. So, we in the last week have hit new all-time highs in the S&P, the equal weight, Europe, uh, midcaps, small caps, emerging markets are basically there. Valuations are falling, profit margins are rising. This is the craziest one to me. Tech stocks are up 65% since January 2025. And I pulled this Duality research chart. In that time the forward PE again that's this sector is up 65%. In that time the forward PE has gone from 29 to 22 while the stocks have risen almost 70%. This is like we're a stone's throw away from this being one of the great bull markets ever. Thoughts? Am I right? Am I wrong?
So many thoughts. Ben, that was a Russian nesting doll of arguments. A lot to unpack there. Nailed it. An egg doll. Yeah.
Is that what it's called? Oh, a nesting doll. I said egg doll last week. Remember?
All right. First of all, let me just nitpick a little bit. I don't think the bottom of a disgusting bear market is the beginning of a bull market.
A lot of people nitpick with that. I disagree. Keep going.
Okay, fine. Whatever. We can move on for now. Uh we've been in one of the greatest bull markets of all time, right? I know you obviously know that we didn't just enter one, right? Like it's you could have said this three years ago and I would have said, 'Yeah, this is one of the greatest bull markets of all time.' Uh and I still think there's a wall of worry to climb. How about that? Despite the 1500% rise off the bottom, I still think people not okay. I don't think, I know that people are worried that earnings are too high, which sounds hilarious.
But honestly, that is part of the bear case is that the earnings are too good.
Yes. It's all fake. It's all fake. They don't count.
Just too good. Which could turn out to be right.
Right. Yeah. You're right. Not fake, but like they're not going to last. That's they're temporary, which is a funny worry, but it's a legitimate concern nonetheless. And another thought that I had as you're talking about this, as I'm staring at this chart, I think this partly fuels the consternation among young people. It's like, okay, I missed the housing market. I missed the stock market. What's next? And I think that's valid. If I'm 26, 28 years old and I feel like everything is just too out of reach, I look at the stock market, I look at the housing market, I say, 'Yeah, parlays. Let's go. I get it.'
Okay, I wanted to get into this in a minute. Um, I think way too much kid gloves for young people these days. I'm sorry. We've given plenty of sympathy, empathy, whatever the word is for people in the housing market. I think we're way too tiptoeing around young people. Oh, boohoo. Young people, you know what? Suck it up.
This will be a popular take.
Suck it up. You don't get to get rich overnight. You don't get to have your dream job right away. I think the problem with young people is that they know too much. Like when I came up, no one expected to get their dream job right away. No one expected to be rich by age 30 right away. I think that's the young people live in a day and age where they see other young people who are wildly successful and they go, 'That should be me. At 27, I should be wildly successful.' And I think the expectations for young people are way too high. And I think that we are all being a little too like, oh boohoo young people, I'm so sorry. I feel like there's way too much virtue signaling with young people right now. You know what? No young generation has ever had it easy. It's true. They've never had Okay, that's what I'm feeling these days. I got more to say on that.
Wait, I think you're right. And I also think that nobody looks bad by pandering to the young people.
Oh, of course. It's a great strategy these days. If you want to get good on social media, you tell young people, 'Hey, listen. You're screwed. You're paying all the interest on the debt. You're never going to buy a house. Blame the baby boomers.'
Yeah. You pander to them. Epidemic of loneliness and a lot of pandering going on. And listen, there's more than a kernel of truth, right? Like, yes, I agree. Yes. In many ways, young people do have it hard. Harder than previous generations. It's always been hard to be a young person. And but now there's a content strategy around that audience which amplifies the outrage.
Well, here let's get into this now if we're going to do this now.
I think a lot of this came on because there was this survey in Bloomberg that went kind of nuts on social media.
Hang on. Correct the record. Betterment survey.
Yes, sorry. Betterment survey and reported it. Yeah.
Yes. 26% of Gen Z investors born between 97 and 2007 said they treat sports betting as a deliberate ongoing component of their financial plans, according to an online survey of 10,000 retail investors. Uh that's compared with 14% of millennials, 6% of Gen X blah blah blah. And they had this chart and it makes it look like everyone in Gen Z has given up and this financial nihilism has taken hold and they've decided the only way to get ahead is for me to gamble. And this to me is the Winnie the Pooh meme. And it's degenerate gambler on the top and financial nihilism on the bottom. We're giving people a free pass because they're degenerate gamblers or because they want to gamble. And I also don't believe these numbers. There's no way these numbers are correct. No way in hell. There's no way this many people assume that sports gambling is part of their financial plan. That's just not There's no way.
I have a few thoughts here. Number one, this just ties into our theme about how social media is just breaking everything.
I don't think anybody actually read the survey. Number one, no. But this chart, this tweet could have said anything. It could have said anything about people blurring the lines between investing and gambling and people would have gone nuts. It could have said 11% and people would have had the same reaction. So, I don't know that I disbelieve the numbers, but I don't think it matters. Guess what? These are young people. When I if I was 25 years old and I had Robinhood, I'd be doing the same thing. And guess what happens to young people? They turn into us. Their backs start to hurt. They eat cottage cheese with pineapples. That's what happens. And they snap out of it. They're not going to I don't think that 40-year-olds in 15 years, I don't think that 25-year-olds today when they're our age are going to have uh 60% stocks, 30% bonds, 10% uh NHL ETFs, which we'll talk about later. I just don't believe it.
How many people who are 25 have a long-term financial strategy in the first place?
Yeah. What long-term strategy? 25. Come on. I would love to know how many Gen Z people they had to locate to actually answer this survey.
So there's two well there was a yeah there was a thousand people surveyed. I don't know how many of them were Gen Z, but there's two things in here that really get to the crux of the matter. One is this appeals to people in our world that love to wag their finger. See, everyone is gambling. It's I get that. And then there's the crossover of young people are screwed. And that is a big Venn diagram of rage bait, right? Like this tweet was like where we're chimpanzees in the cage screaming about this.
So you pulled up the actual survey from Betterment, which is a friend, old friend of the show, Dan Egan.
Oh yeah. Oh, credit to me. I went to the source. How about that?
So they said where sports betting fits into financial goals for Gen Z, 36% don't participate. That's not a headline, right? Nobody wants to read that. So 36% of Gen Z people just don't bet. 15% used it to accelerate a goal. All right. Uh 14% occasionally redirected funds. Also very not headliny at all. Nobody is going to click that. Uh 23% kept funds separate as fun money. Again, nobody's clicking that. That's not very interesting. That sounds nor dare I say that sounds responsible. And 11% 11% so one in 10 have it as a high-risk investment strategy. You know these numbers? I don't know. I don't find them unbelievable. Anything there that you say that there's no way that's true?
No, this is not nearly as bad. But then Bloomberg talks to this 32-year-old dude who says, um, it's not just a hobby for me, I'm smarter than the gambling markets. And he said this year he made he said he booked a whole vacation thanks to the Carolina Hurricanes, which sounds insane to say out loud. So you find these anecdotes and you latch on to them and you go, 'See, everyone feels like they have to do this, have to gamble on sports just to get ahead.' The thing is young people are so much further ahead financially than previous generations just because it's so much easier. So people doing everything now they're much more advanced than we were. More young people have IRAs. More young people have 401ks. More young people have Robinhood accounts. More young people also gamble online because guess what? It's easier. We didn't have access to this stuff. So, no one talked about it or did it.
Uh, no offense to Robert. He's 32. There's like the scene in Wedding Crashers when they're sitting on the steps of the Washington Monument or maybe it's in J.F.K. I can't remember. Come on, we were young. Couple of kids. And I think Owen Wilson says, 'Not that young. Robert, you're not that young. You're 32 years old. Snap out of it.' Robert says, 'I booked a whole vacation thanks to the Carolina Hurricanes this year.' Which sounds insane to say out loud. It's not that insane to say out loud. Uh, a little bit insane, but guess what? You could also not book a vacation because of the Hurricanes. You're 32 years old.
True. That you should be saving in a different way. But so there was this other survey done by Empower that a lot of people point to and they asked every generation what do you need for a minimum net worth to be, what does financial success look like to you, and what's a minimum salary?
This is garbage. We've been through this before. This is the salary is like $600,000 and the net worth is like $10 million.
And everyone's like, 'See, look at Gen Z.' And I just This is like the sampling bias survey. Like I don't believe a lot of these numbers and I feel like they are used to I still don't understand the term gaslighting. I'm still trying to learn that one. Um it feels like gaslighting to me or virtue signaling or whatever. Um it's funny because I do an annual rewatch of The Office Space and I put it on again the other night and I'm watching this and it's Gen X who is completely just miserable with her situation in life and being in a cubicle and it just every generation goes through this like quarter-life crisis, whatever you want to call it. I think Gen Z is just going through it earlier than most. And I had one of these moments in the Great Financial Crisis. I remember I asked my boss for a raise and they kind of they laughed at me almost like are you kidding me? No one's getting a raise right now. And I was reading I Will Teach You to Be Rich. He was the first blog I ever started reading like 2006 and I remember in 2009 cuz I got caught up in the listen we're all screwed because the Great Financial Crisis like through no fault of our own we're screwed. The job market stinks. No one's, you know, it's hard to ask for a raise. It's hard to get a new job. And I remember Ramit wrote a post about like, okay, listen, you can complain about the macroeconomy for 10 minutes and then what are you going to do about your own situation? And that's kind of like you need someone to shake you out of it and go stop getting into the herd over there who complains about it's all the economy's fault and it's all the boomers' fault and it's all the housing market's fault and all these things. Okay, fine. Get it out of your system. Now, what are you going to do for yourself that you can control to get out of the situation? And that's kind of where I am with young people. Like, okay, fine. Get it out of your system. We've seen these things before, but Gen Z really is better off in terms of income, in terms of stock market dollars, in terms of wealth by age. Like, if you look at all the numbers of under 40, these people have more money in the stock market than ever before. And they just have more money in everything than ever before. And again, I do think the biggest gripe about housing, I totally am on board with that. If you missed the housing boat by five years because you just weren't at the place in life to buy one and you missed 3% mortgage rates and much lower prices, it's not your fault. That's the Robin Williams in Good Will Hunting.
I have two different lenses through which I see and experience young people. Number one is this nonsense and social media which paints a distorted picture of everything, right? Young people, old people, unhappy people, happy people. Everybody's warped image. So, let me just put that to the side because that's not real life, right? And then I have the people that we work with, which is also I suppose I don't know if that's a small sample of people. Well, I do know it's a small sample of people. How many young people do we have working for us under 30? I'm going to guess not 20. We have like Yeah, 20, 25 probably. All over the country, not making $600,000. And by all accounts, these seem to be very happy people. I don't know that they're like representative of the entire population of young people, but I just think that a lot of this is warped by social media.
If you're too online, then yes, I agree. I also do think that there's going to be something whether it's happening now or in the future where there are just so many more I keep harping on this. There's so many more rich people that there are bound to be unhappy children who are almost like downwardly mobile through no fault of their own because their parents are so successful and rich that they're going to be miserable because they're probably not going to be as successful as their parents or they're going to inherit mommy and daddy's money and it's like they're never going to be happy because of that. That's going to be a big thing for a small segment of the population. The other big thing is that in 2008 when I was coming out of college, obviously not a great time, but um there were no young rich people for the most part. No, no, that's it wasn't a thing. There's no influencers. That wasn't a job. But that's why the 2008 crisis was so different because everyone felt like they were in the same boat because there was older people who got in trouble who lost their stock options who got crushed in the stock market who lost their house potentially who lost a job and also young people who were so everyone was dealing with this everyone was on the same wavelength and now there's a different wavelength because some young people would say listen okay great I put 20 grand into my 401k in the past 5 years and now it's worth 45 grand what good does that do me And I understand that. But you also have to be patient as a young person and know that like most people don't get rich overnight. And the stories that you're seeing, that's not normal. That shouldn't be a strategy.
Life has seasons. And like every young person before them, they will age out of this season of their life and into whatever is next.
Yes. And I still do feel like as a whole, young people are going to be richer because some of them are boxed out of the housing market. I really do think that's a thing and it may still make them unhappier, but I think they're going to be one of the wealthiest generations ever at a younger age than most because they know more about the stock market and they have access to it. Um, see this is what the world does to us these days. We start out talking about how this is one of the greatest bull markets of all time and then we have to bring it down.
Everything is a caveat. Speaking of which, so in the 2010s, the big caveat was the only reason that we have a bull market, and I'm speaking in like doomers here probably. The only reason you're speaking in what? I didn't hear that. Uh doomers. Doomers. The only reason there's a bull market is because interest rates are at zero and the Fed's monetary policy and QE. That's the only reason we have a bull market, right? That was a 2010.
That was 2010 to 200 Well, not even 2010 because in 2010, See, here's the thing, Ben. Getting back to my earlier point. In 2010, nobody was talking about a bull market.
This is all revisionist history, right? It's like looking at basketball stats and saying, uh, this person was the best. No.
If you saw it, you would say, no, no, no, no, no, no, no. Yes, the S&P 500 was up 37% in 2009 or whatever the number was, that wasn't a bull market. We were there in 2011. We were still talking about double dip recession. That wasn't a bull market. The only time we even started talking about a new bull market was 2013.
Yeah, but a secular bull market can only be defined in hindsight. It can't be defined in the moment.
Fine. I know there's nuance here, but I know you were there. We were not talking about a bull market.
Of course, no one. Uh, yes, I agree. So, that was the thing in the 2010s is 0% rates. And now in the 2020s, it's anytime you show someone there's a bull market, they go, 'Oh, yeah. Well, government spending, government debt, deficits. That's the only reason for the bull market.' And obviously that's a big part of it that money does drop to the bottom line. But here's the thing. Uh because in the 2010s the question was okay fine. Europe has negative rates. Why aren't stocks going crazy there? In the 2020s it's remember we showed this data from Michael Slesinger before. Canada has a or not Canada has a bigger deficit than the US. China is now borrowing as much or more as a share of GDP than the US. Look at what Chinese stocks have done this decade. And I didn't really realize it was this bad. MSCI China has done literally nothing this decade. It's up 2% in total in the 2020s.
I hear your point. You can't compare Chinese stocks to US stocks.
We are a capitalist society and they uh sort of are not.
It's kind of crazy when you think and obviously debt goes to different things. Um my point is as you know you can't just pick one variable like that and you go okay if you just pull this lever things go up. It doesn't work like that.
Of course. Right. I think there's people who actually think this is true though, that the Illuminati is pulling the lever and making the stock market go up. And if it was that easy, they would just keep pulling the lever, right? Well, keep uh what's keep that chicken jerry from? Is that a blooper on the internet?
Uh got to plead ignorance here. I don't know what that one is.
Yeah. Yeah, it was a weatherman who went viral.
All right. Anyway, moving on. Um, well, you can't have a bull market without this chart from the Wall Street Journal via Bank of America. The median earnings growth for the S&P 500. So, strip out the one time like the hyperscalers, the median earnings growth is about 14%. Which is the highest it's been in a long time, which gets back, I mean, at least since 2023, like way way way higher than normal. Gets back to the earlier point. Um, this could be peak growth. Like we this is a good chart though this because you're right this takes away the extremes and the concentration and the hey this is all just a markup from Anthropic and OpenAI that does this it's not real this is a good chart.
Very good chart. Um all right on TAF we were talking about how much money is still in money market funds despite the raging bull market despite higher interest rates on bonds that you can lock in despite money market rates coming down like the money is not moving out and somebody rightly said, 'Guys, you always talk about money market funds. You never talk about how big the denominator is.' And I would say, I said, 'Actually, not true. Not true. Last on Thursday, I omitted the fact that the market is so much bigger.' But we've shared this chart a million times in the past. Um, so credit to this person for sending us the email. You have to make the adjustment because we were saying like, 'Oh my god, $3 trillion. That's money on the sidelines.' Whatever. It's 11% of the S&P 500 market cap, which is below the 18% average since 1990.
So, I don't know that I've seen this chart before going this far back. I assume chart could help you with this. That is bananas that money market funds were 61% of the stock market in 2009.
Yeah, I think that was just a pure denominator collapse.
Well, of course, but being that high.
Because it was half of that in the dot-com bubble or whatever. So, I think what's so this is a Wall Street Journal article. It said there's $3 trillion in retail money sitting in money markets. And I really do think that this cash is a bond allocation now. I think so many people got fed up with bonds because you lost 18% of your money in a or whatever that people said, you know what, fine. Cash is my bond allocation and even if I get lower rates and lower yields, I'm going to have a barbell portfolio and I'm not going to get hit in bonds again. Um, which is interesting because I think you and I something we may have been wrong about or we were leaning that we thought once rates get to a certain level that it's going to be competition for other stuff, right? So, if you look at TIPS right now because everyone's worried about inflation, right? Correct. People think inflation is going to be higher. We're in a 3% world, not a 2% world. Inflation is sticky. Government spending is obviously not slowing down. Nothing stops this train. So, how are you getting 3% in a TIPS yield for a 20 or 30-year bond plus inflation? So, you get a real 3% for bond. Like, that's a pretty darn good deal. And uh William Bernstein wrote a piece on this. He's a big TIPS guy. He always writes about this in a lot of his books. He's saying by 2010 yields for TIPS had fallen below 2%. By 2011, below 1%. In 2021, the 5-year TIPS yield fell to negative 1.76%. You had a negative yield. You were literally paying the government in a real basis to buy these TIPS. Now you can get 3% in TIPS. And he's saying this is like a massive massive buying opportunity. Like you can get 3% real in a government bond. Holy crap. And no one cares. No one wants this stuff.
Yeah. Nobody cares. People think in nominal terms. So on they also and people also have been they just the scars are still fresh. Their hands still hurt from touching the oven. They don't want volatility in their fixed income.
So on Steve Eisen's podcast this past week he had uh Jason Trennert from Strategas. Well you had Todd S from Strategas last week too, right?
So they asked what's the level of interest rate for bonds that would get people to sell some stocks and they all agreed. I thought it was like 4 and a half percent. Which probably you and I probably would have said, 'Yeah, back up the truck. People are going to be' and they said it's actually way higher. And this is just total bull market mindset that if you're getting 20% a year in the stock market, what do you care if you can get four or five or 6% in the bond market?
Yeah, it sounds the same thing, right? 5%, 3%, same thing.
You say it after the fact. Whenever this thing ends, someone's going to look at bonds and go, 'Why didn't all these idiots put their money into five-year treasuries? Are you kidding me?' Because they were yielding. What? You know, and that's the only thing you know after the fact in the mean. Yeah. No one's going to say, 'Yeah, I'm going to lock in 5%.' Awesome. Maybe some retirees. Most people aren't going to do that. I forgot to mention exciting news. Our longtime friend Morgan Housel has joined The Compound. Morgan has a podcast called The Psychology of Money, name of his best-selling book and I do mean best-selling got to be the it has to be the number one selling book in the history of finance. No, if we call it like a personal finance behavioral psychology book probably. Yes. Well, I don't even know what number two is. Is The Intelligent Investor number two? That it has to be The Intelligent Investor. That thing that's been on sale since the 1940s and it's still like a I bet you Morgan sold more than The Intelligent Investor. I don't know. It's just been out maybe. Anyway, Morgan is an incredible person, incredible author, speaker. He's one of the few. Not too many people can write and speak. Very difficult. I would say I'm probably below average at both. I could do both. I could do both.
Two different muscles. You're right. Two different muscles.
Not well, but I could do both.
There are some really good writers who if you hear them speak like, 'Oh gosh.' Yes. You and I are both like uh No, you're a great writer. You're an A writer, C++ speaker. I would say I'm a C-minus writer and a B speaker.
That's fair. Average it out more B's.
Yeah. Uh I would say Derek is another unicorn. Derek Thompson. Hey, listen. I graduated college with like a 3.3 grade point average. I think that's where we are. 32, 33. Okay. If we average it out.
Wait, I have one more thing to say. Oh, speaking of books, I got rid of almost all my books.
Okay. You sent this you sent a picture of you sitting in your driveway with a bunch of U-Haul boxes.
So, they're being picked up.
It looks like we haven't picked up yet. Um, why would you do this? Because a bookshelf just looks so nice. There's something about a bookshelf with all these books. Why did you do that?
I have no I can't fit a bookshelf in my house.
Oh, you have no room for it?
Nope. I uh listen, I enjoyed looking at it, but it's sort of a piece of furniture. I wish I could keep my books. I can't keep them forever. I have 11 boxes. What? They were taking up too much space. I'm never reading these books again.
So, you give them to the library or what?
I kept the ones that are signed, but they I don't know. Some book company picked them up.
Felt like that season of my life of hoarding my books is over. I wish I had space for a bookshelf, but I don't.
Well, it's funny. Almost every new book I buy now is either on Audible or Kindle. So, I don't people send me books still, but most of the books I have now I'm consuming in electronic form. There you go.
All right, let's talk about a bull market story here. Oh, wait. There's one more bond chart. Just yes or no.
Just real quick, another risk to the bull market. Bond rates just continue to march higher. Especially at the long end, which is like the worsening part.
Yeah, but what we just talked about shows that it's not a risk until it is like no one in a bull market no one that's nonsense. It's not a risk until it is. I mean, isn't that literally that's true? We just had this conversation. No one cares about bond yields right now when the stock market is giving you so much.
And it's not just in the US. Global bond yields are screaming higher.
And I think for the most part the stock market, not for the most part, the stock market has absorbed higher rates. Stock market is at all-time highs.
The median stock is at an all-time high. We are now used to this. Um, if the 30-year goes from if it lurches from five to six, the stock market will buckle, but if it's a steady march higher, I don't know where the line is, but something to keep an eye on.
The stock market really has been like a boxer that just absorbs punches, like takes a million punches. Remember in The Simpsons where Homer, his whole thing was like people would punch him until they fell over. Um, and he just took the punches and then finally the that's the stock market. So everything it's been thrown at it, and then every once in a while it punches back and goes up. But if you would have told me four years ago, hey, mortgage rates are going to be at 6% forever and bond yields are going to be at 5% and you're going to get the highest 30-year bond yield and keeps going higher. I would have said, man, that can't be good for the stock market, right? Stocks don't care. It's crazy. All right, great bull market story here from the Wall Street Journal. The dating scene that's suddenly dominated by chip nerds thanks to mid-six-figure bonuses. Engineers at Samsung and SK Hynix are the hottest bachelors in South Korea. See, they should make a reality show about this. And they interview all these people. Um, and they talk to this guy who works at Samsung and he gets he said like everyone there is getting six-figure bonuses. Um, and he says that like there's more romantic interest for him and his co-workers because they got stock options.
The Real Housewives of SK Hynix. I love it.
That's a great bull market story though, right? Yeah, it's good. It makes I think they said the average, you know, I'm sure they get stock options, too. And they interviewed one woman who said, 'I dated a guy who worked at SK Hynix for three years, and my biggest regret is that I didn't buy the stock.'
It's 30 minutes of the show. We haven't even mentioned the rebound in the AI memory names in particular.
Oh my gosh, they came roaring back immediately. Right.
SanDisk was up 35% last week. But see, this is the point. And we're part of the problem too, Ben. We love talking about the bad news. And the good news is ah who cares.
That's because we move on, right? One risk, one week, next week, other risk.
Uh yeah, I'm thinking about this as we continue to harp on potential bad news because that's what we do. We worry. So this is as good as it gets. Humans are never going to change. But I do think that there's like some weird like I have no evidence of this there's some weird thing going on where people want to go back and I think part of that is certainly COVID but like people want to reset and I think I don't know I don't know how to articulate that so the way like so you're talking about uh the way inflation prices and stuff and okay but I don't even I don't even know that human condition yeah I don't even know that that's like a 2026 story I think it's like a forever sort of thing. I do think in a lot of ways though 2020 is a huge line of demarcation for sure. There was a before COVID and there's an after COVID and I think that has screwed with a lot of people. I do agree with that.
All right, somebody emailed us.
So wait, hang on. Getting back to this recession thing. I keep thinking through like what is the reaction function going to be? And I think that the sentiment could be so overwhelmingly negative like we've never seen before. That's pretty easy to say that consumer sentiment will just drop to lowest levels we've ever seen it. But what if some people actually are happier that we're in a recession and it's kind of like you know what I've been suffering now they're suffering too and what if there is a certain 20% of the population 30% whatever the number is who kind of go you know what I don't mind this I don't mind a recession my life hasn't been very good anyway oh yeah yeah there's going to be a lot of that where some people are going to be happy when we have the next recession that's going to be an emotion uh my just got a text message Oasis: Don't Look Back in Anger is out now in cinemas and IMAX September 9th.
I was thinking about that the other day since we're almost time for Future Proof again. Uh one of my best concert experiences I've ever had in terms of just the vibes. Vibes were off the chart at that concert. It was amazing.
One of the best nights of my life.
That was great. All right. What's the email here?
Okay. Markets. Okay. You say markets are always right. Many times if markets are always right, there would be no buying opportunities. Therefore, this popular statement isn't accurate. Don't scare people into always indexing. Believe um all right, a lot to unpack here. My operating premise is that the market is always right. And now I know that's not true. Obviously, the market is not always right because guess what? The price changes tomorrow and the day after. And sometimes the price changes so fast that the market can't always be right. And especially when there's uncertainty and confusion. I guess the point that I'm making is um it's hard to know when the market's wrong. And if you think that that's controversial, you're an idiot. That should be like the fundamental premise for any investor is that it's hard to know when the market's wrong.
Okay. So that's a really good segue. So Burton Malkiel was on Barry's podcast a number of years ago right when Barry started Masters in Business and I had this quote um and he says uh people think that market efficiency means the price is perfectly right. That's wrong. He said the price is never right and in fact prices are always wrong. What's right is that nobody knows for sure whether they're too high or too low. It's not that the prices are always right. It's that it's never clear that they are wrong. The market is very very difficult to beat. I think that makes more sense to me.
Okay. Um so that's also I was thinking about this. I was in a car ride with a friend and we were talking about the stock market and um he sounded like every retail investor and I don't mean that pejoratively at all. Okay. He sounds like every retail investor who's done extraordinarily well over the last 15 years. And I know Ben, you said there's some people that want a recession. There's a lot of professional investors who want this era of the best and most well-known companies beating everything. People need that era to end. They need it to end, right? This idiot just bought five tech stocks and he's killing me. I can't
So my friend, and let's just call my friend the average investor who bought Google 10 years ago and just held it. And when I say just extraordinarily hard to do, I didn't do it, so I'm not putting them down. Has beaten the... And there's so many investors like that that have beaten the absolute living out of quote professional investors, right? Okay. And there's nothing that I could do to convince him that this is...
You were just about to use a big word there and you stopped yourself.
Was I about to use it right? I was like 50/50.
Okay. There's nothing I could say to convince him that this has been a really good market environment. And I think what he hears is, and I'm like, dude, I'm not like wagging my finger at you and saying that I'm a better investor trading than you are. That's not what I'm saying. And I'm definitely not trying to scare people into investing in index funds and needing to hire a financial adviser. That's not my shtick. I would encourage people to invest however they invest. And it doesn't matter if you beat the market. Just put your money in the market, what you can afford to save for your future. That's like my whole MO, Ben, is save for the future. Whether you beat the market, whether you're smarter or better at trading, it doesn't matter. But it is an interesting thing because I do think, I was thinking about this, well, in what environment can the retail investor lose to us? Can we say, I know for a fact that I will beat the average quote no-nothing investor, and it would have to be in a bear market where buying a dip no longer works, because I know that if I'm investing in a bear market I'm not going to get blown up. If the market's down 30%, I can be down 30%. If the market's down 30%, I won't be down 70%.
Right? The guy in the three-times leveraged NASDAQ fund is going to be down 80%.
I also think that just a different market environment, and maybe these don't exist anymore, but value stocks work, dividend stocks work, international stocks work, and those things are working. But if they really worked as tech stocks got smoked for a long period of time, that's the period, that's the time where...
So that's the environment that all the Buffett acolytes are dying for.
I don't care. We don't need that. So anyway, Epsilon Theory was on this beat this week. He tweeted, 'What is true is that an individual trader going up against pros will have a hard time outperforming the index, but I don't know what the going up against pros part means in there.' But anyway, he said, 'But unless you were managing other people's money, I've never understood why this is a particularly important thing to care about.' But even on this point, the story over the last 15 years is that to beat the market, all you had to do was buy the big names that every Joe Schmo has heard of. No need for any satellite imagery, data, sophisticated algorithms, or complicated Excel models. It's been a very interesting 15-year period where the professionals have gotten smoked.
Yeah. It's been the first-level thinking market for a long, long time.
Yeah. Good point. All right. Let's talk about AI. So AI feels to me like the debate has shifted to the, remember the hard landing, soft landing debate we had about the economy? It just kept going and going and going. Alex Isid had a good tweet here. If you look at the last three years of AI progress, technologists have largely been right about the massive increase in capabilities, right? That's probably better than anyone. The things that AI can do is probably better than anyone could have possibly imagined when ChatGPT came out at this point. Like, oh my gosh.
And the economists have largely been right about the economic impact. I don't expect that to change. This is the one. I think this is the right take.
That the capabilities of this are going to keep getting better and better and better, and it might not have the earth-shattering impact that people think. And that's going to be, we're somewhere in between the hard landing and the soft landing. And everyone's kind of like, wait, I'm kind of right and I'm kind of wrong.
Can I... That's where we've been.
Can I pile on your Grand Rapids hedge?
I was thinking about the Paul Kedrosky interview, and Paul Kedrosky has been making the case for a while now that this is a massive bubble.
He has. I listened to that too. He makes the best bear take that there is. Yeah, it was good because he's not like, this is all nonsense. He's like, well obviously it's real, otherwise there wouldn't be this level of investment.
He's not just a doomer either. He literally works, he's a VC. Okay. And part of it, I think I worry that like, wait, is it just shtick that he's just the AI bear guy and he keeps doubling down? But his bear case, it's the best bear case that there is by far.
So how do you sum up his bear case?
His bear case is that, just listen, there's never been this amount of spending before on something like this, and the ROI is just not going to be there in time.
And it's not just that it's the biggest spending as a percentage of GDP in history. It's that it happened faster than any time in history, and you just, there's too much other spending that has to go on in the future. And if you just look at these like an actual investment, unless we turn technology into a god, he's saying like the only way I'm wrong is if this is actually a call option on AGI.
So my takeaway was, you know what, this is just, I put this in a too-hard pile. Now I know as people talking about, there's a financial podcast, we should probably have strong opinions. Is this a bubble? Is it not a bubble? I don't know. I listened to that, I was like, I just, I don't know. How could I know? How could I know if Google and Microsoft and Amazon are going to get a high enough return on their investment? How the hell could I know?
Yes, I totally agree. You come away from listening to that and you go, 'Oh man.' But even he asked him at the end, 'How are you like betting it? Are you putting a big short on this?' And he was kind of like, 'Not really. I can't really force myself to put it. I'm not reinvesting or something.' But yes, I totally agree. I'm hedging this one. I'm totally on the fence. We said before, we told Derek like, 'No, this isn't a bubble.' And I lean that way, but I'm not 100% on that. How could you?
I mean, all the signs are there.
Paul makes a very good... So that on the Big Technology podcast, it's worth a listen. He makes a very good bear case. Very good bear case. Here's another part of it. Wall Street Journal: why the $3 trillion in spending is higher than it seems. And they show all this off-balance sheet stuff for all the big hyperscalers. And then they break it down, and it's mostly Google and Meta and Microsoft and Oracle and Amazon and Nvidia have these massive off-balance sheet leases that have not started yet. And obviously if the Wall Street Journal has it, the market knows this. But this is another thing like, hey, actually this amount of spending and what they're committing to, this is even bigger than the numbers that we see at face value. And it's going through the cash, free cash flow levels down to, okay, we're into borrowing territory now. And Google, you know, has even issued equity. So that's kind of the thing here.
All right. Well, it's certainly real. Anthropic's revenue run rate is up to $65 billion. And Sean made this chart comparing the ARR of Anthropic to the trailing 12-month revenue of various companies. And it's done more revenue than Pfizer, Cisco, Qualcomm, Philips, Intel, $10 billion ahead of Uber, $15 billion ahead of Coca-Cola. I don't know why I just said it like that. And $17 billion ahead of Netflix. Holy mackerel. And it's right behind, and it's probably about to pass Oracle and Delta.
See, I'm not impressed because they... How can Delta be ahead of them? Doesn't it show how bad of a business airlines are that Delta has a higher revenue run rate than all these companies.
Yeah, it's kind of funny to think about... it's so much smaller.
But yeah, you're right. And this is a company that was founded a couple years ago, a few years ago, and they're already earning more money in revenue than all these. Yeah. So that part is real.
All right. Last week with Todd, we were talking about the explosion in the ETF marketplace and what's coming, wrapping prediction markets inside of ETFs. And then there was a filing from a company, I don't know who this is, but Jeffrey Ptak tweeted, 'Wild, wild stuff, filing to register 32 ETFs tied to each NHL franchise. Each ETF will invest in futures contracts tied to the CME FSPI index for the team concerned.' All right, whatever. I hate this. Obviously, I hate this.
It's kind of funny that the NHL is the first one to do this and not the NFL or the NBA. But yes, obviously this is... it's also crazy that there is an actual futures contract created in the CME for this. Like this is, it sounds halfway legitimate, but...
Keep gambling out of your brokerage accounts. You should not be able to commingle your retirement funds. I agree with you.
Your retirement account with...
Sports fandom. That's why, yes, I like the separation of church and state here. You should keep your gambling in your FanDuel account or your DraftKings account or whatever it is. Like that should be separate from your Charles Schwab and your Robinhood account because you know why, you could so easily drain your brokerage account and just shovel that money into the hole that is sports betting losses. This is it.
