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Welcome to Animal Spirits with Michael and Ben. Ben, it's good to see you.
You got a big profile on Barron's dropped this morning.
Thank you. It was the first of probably many media appearances for my book that's coming out soon.
Ah, I was talking to Barry about this, how the book tour is now the podcast tour. There's still some legacy financial media, but I'll be doing a lot of podcasts in the weeks and months ahead.
When does the book come out?
Okay. All right. Soon. All right. Speaking of Barry, Barry and the team are going to San Francisco the week of April 14th. My partner Chris will be out there. We'll have a bunch of financial advisers out there. If you are a prospective client, if you want to learn about how we work with clients here, or if you are a financial adviser out there who is looking to learn more about how we onboard advisors here, reach out to us. We'd love to hear from you. Info at ritholtzwealth.com.
See, you did it for my roast.
You said my partner Chris.
Wait, what? I forget. What did you say? Did I say that again? I said that because nobody knows who Chris is.
I know, but it's funny that you call him your partner. That's the funny part.
Okay. Well, there's an audience, Ben. I'm not just talking to you. When I'm talking to you, I don't call him my partner Chris. But when there's an audience of people who don't know who Chris is, I have to.
I think it's funny when you call him your partner. That's all I'm saying.
Well, what should I call him?
I don't know. My colleague Chris.
He's more than my colleague. We started this business together. He's my partner.
All right. Anyway, anyway, I've been waiting to drop it extensively and I can't figure out how to do it.
Oh, you know what? But I forgot to go back to the tape. I meant to ask Rob to tape check you and find out how often I actually use that word that I'm now self-conscious about. I won't be using it ever again.
Oh, I bet we could word cloud that. How often, ostensibly?
Well, what does all the time mean? I feel that's got to be at least once in an episode. No.
Okay, just for a big word. I feel like, hey, I'm jealous. I wish I had a word like that.
I will set the over/under. So less than one. I'm gonna say 0.5. I'm gonna say every other episode tops. And I would even still take the under.
You sure about that? You sure about that every episode?
No, I said not. I said every other episode.
No, you didn't. You just said every.
All right. I said every other.
It's close. I would even go as far to say as one out of three. You use that word way more than the average person. How's that?
I've never used it in my life.
Keep moving the goalpost. Keep moving the goalpost.
Okay. So, a couple of weeks ago I said into this here camera that the burden of proof is on you. Meaning if you think that we are about to enter an actual bear market, then the burden of proof is on you because the market generally overreacts. So right now it's just not overreacting. It is a very orderly selloff.
The VIX has not really spiked at all. Joe Weisenthal tweeted the other day, 'We haven't had a 2% down day during this war.' So, I pulled all the returns and if you look at them, the worst return is like a negative 1.7% on a daily basis. You know, we haven't even had one day that's like, 'Oh, geez, here it is.' Not even close.
Okay, so all of this leads me to believe, to stick with the courtroom analogy, the stock market has to be proven guilty beyond a reasonable doubt. And when I say stock market, I'm talking about things that actually drive the stock market on a longer term basis: inflation, interest rates, and most especially earnings. And last week was anecdotally the first time that I started to hear the R-word, recession. And I suspect, and I could be wrong, but I suspect more than a little, that this is a classic case of the stock market predicting nine of the last five recessions. And let me just introduce to you, ladies and gentlemen of the jury, two pieces of evidence.
I pulled this from our friends at The Transcript. This quote is from the chairman and CEO of Arthur J. Gallagher, which is, I believe, an insurance brokerage type of thingamajiggy. 'Through mid-March, our daily revenue indications from audits, endorsements, and cancellations are still in positive territory, indicating continued solid business activity and no signs of a broad slowdown.' We're just not seeing signs of economic weakness. And I'll give you one more, maybe more relevant to the broader economy. Paychex CEO, and Paychex processes, processes, um, Paychex accounts, all that.
Ostensibly they process paychecks for people.
I looked this up: over 700,000 small and mid-size businesses in the United States. Okay. So they've got their finger on the pulse, so to speak.
'What we're seeing,' this is from the CEO, 'what we're seeing is a stable macro environment. No signs of recession in any of our data or indicators. Nothing that would indicate that we would change what we're thinking in terms of pace on any of our segments at this point in time.' Now, of course, as always, you could point to the housing market weakness. You could point to the hiring weakness. You could point to AI fears and private credit fears and of course oil. And I'm not saying there's nothing to worry about with that. So, don't misunderstand me. But I think this is a wonderful long-term opportunity for investors. I think that assuming that this ends at some point in time, and I don't know when it's going to end, and I'm not suggesting a V-shaped rally, and in fact let me be very clear, the sellers are clearly obviously in control right now, right? So I'm not saying like throw caution to the wind. I respect trend and right now the trend is lower, the path of least resistance is lower. But that can and will change in my opinion. And I think once all of these headwinds subside, assuming that the economy doesn't roll over, assuming that earnings stay positive, I think that this will in the second half of the year, maybe next year, who knows, will be looked back on as 'I can't believe I didn't buy.' That's how I feel.
I think it's important that you're distinguishing between a recession and a correction because listen, most corrections don't lead to a recession, or you're right, the stock market predicts them because guess what? We haven't had a real one in 17 years. So all the corrections we've had along the way that thought the economy is slowing, they were wrong.
And every time we do this, every time. So we show the chart every year of the average of the max intra-year drawdown and the average over time.
Depending on when you look at it, 14 or 16%. So I...
So every year on average has an intra-year 14% decline and right now we're at 9%.
I feel like every year we forget that this happens every year.
Yeah. And my take on the economy would be it's proven to be so strong. I totally agree with you that it's got to be lawyer speak beyond a reasonable doubt. This would have to, the whole energy crisis would have to last a lot longer for it to have an impact on the economy. That's my general feeling. Now, there are so, again, we're just normal correction chart. You mentioned that the S&P from the highs is down nine. The Russell 2000 is down 11. So is the EFA. Emerging markets are down 13. NASDAQ 100 is down 12. Gold is down 16%. There are some areas. Software is down 34%. Silver is down 40% from the highs. Bitcoin is almost in a 50% drawdown. Ethereum is down almost 60%. So there are places you can look at that. Okay, these are pretty bombed out things.
40% of the index, last I checked, of the S&P was down 20% or more, and to your point, there's names that are getting absolutely destroyed.
Let's look at a company like Micron for example. So Micron reported next week and this is one of the best performing stocks, right? So it went straight up, so the fact that it's giving some back is whatever, pretty normal. But Micron fell 30% in a few weeks after reporting earnings. And this is what the CFO said on the call: Micron set new records across revenue, gross margins, EPS, and free cash flow. Fiscal Q2 DRAM revenue was a record 18.8 billion, up, listen to this, Ben, 207% year-over-year. Up 207% year-over-year, and the stock is in a 30% decline. For all the talk that we had in 2025 about the inevitability of a bubble forming, like it's coming, just wait for it. The fact that the market has rejected it with both hands, I think is awesome for long-term returns.
So, your point about this being a potential good opportunity, Chart Man, and he's got a blog too, by the way, people, chartkidmatt.com, subscribe there for his charts he shows. So I think you can make the case that if this is just a blip and there's no big economy-wide tail on this, then there's a lot of stocks that are probably pretty cheap because he shows that the forward price-to-earnings is now at new all-time highs while the index is rolling over. And if you look at, he shows how equity, and this is on Exhibit A as well. If you go there, exhibitaforadvice.com, he's showing that this year's fundamentals, earnings growth is strong, 5%, dividends are kicking in a little, and PEs have contracted by 10%. So the reason that stocks are down is because valuations have fallen. Now you could say, hey, wait a minute, that does kind of make sense. Inflation might be higher. Like, you know, these things do happen where earnings and stock prices don't always exist in the same, they don't always follow each other. So that could make sense. But I think that if this is a blip, this is a taco liberation day kind of thing, you're going to go, 'Man, there are some cheap stocks out there that were getting bombed out that I could have bought.'
Yeah. So the sell-off makes sense. I'm not saying like people are being stupid for selling their stocks. I understand why the stock market is selling. We had a bunch of emails about the taco stuff, and this is a very fair point. It takes two sides to taco in this case. It's like, what if Trump is like, 'All right, mission accomplished. We're done.' And then Iran's like, 'Well, we're not done.' Like, 'We're not done.'
This is not as easy as the tariff thing. I totally agree with that. There's a lot more going on here.
So, Duality Research has a similar chart that Matt did where he breaks down the sector returns of the S&P into the price return, the EPS growth, and the PE multiple. And every sector has positive earnings growth. Every single one. And the only three sectors with multiple expansion, obviously energy stocks and utilities and staples. But where it really matters, technology earnings are up 18%. 18%. And yet technology stocks are down 12%. That's 25% multiple compression.
I actually think that some multiple compression is warranted in tech stocks.
With all the money that they're spending and they're becoming more asset heavy and less asset light and less intangible, like the valuation compression there makes a lot of sense to me.
Yeah. So two things can be true.
Two things can be true. The market is sniffing something out that doesn't smell too good. Redpoint did a big report on what's going on in software and they estimate that 95% of the current price action is by terminal value. So that's why all of these companies, Adobe, Duolingo, where you see their earnings per share at an all-time high and the stocks are down 70%.
Yeah. The market's not dumb. It doesn't matter. It could put up record earnings for the next six quarters, but if the market believes that ultimately Adobe's business will be a fraction of what it is today in 10 years, that's all that matters.
Yes. And that's why stock picking is hard because you could probably buy a basket of companies right now and be okay, but if you try to buy a few stocks that you think, well, the market is wrong because I got the P and I got the E, I can calculate that, it's not as easy as that.
Yeah. So anyway, interesting market as always. Carl Quintanilla tweeted, this is from Goldman: 'Since the start of the war, long-only trading activity on our desk has essentially been non-existent. It is eerie. I worry that we are now approaching the point of this conflict where the long-only community will become unfrozen and start cutting some real risk.' I think every day investors are like looking at the screen and you know, market fell yesterday, tried to open higher, sold intraday, but where is like the, where's the trapdoor down 3% day where the VIX gets to 45 and people like...
Now there's always a camp in a bear market, in a correction, there's always a camp that says you need capitulation. I don't know where that comes from. I mean, I get it, you know, you need people to like really throw in the towel. I understand where that's coming from. You don't.
No offense to the vampire squid, though, but are we really, I can't really put Goldman in the same bucket as like the long-term Vanguard target date investors. Like those are real long-term investors. I don't put Goldman in that bucket. No offense.
It didn't say long term. It didn't say long term. It said long.
Long only. Sorry. Long. Okay. Sorry. Long only.
So you mentioned the volatility being normal thing. I just had to, I've been totally Claude'd. I just want to go on record saying this. Took me probably, took me too long.
Dude, wait till you discover Claude. It's by far the best financial analyst of all the LLMs and it's not even close. Is that fair from our perspective and what we use it for?
So I did this thing where Chart Matt helped me create this chart that showed just volatility is normal, right? And the number of drawdowns since 1928, and we looked at 10% where 15, and someone said, 'Okay, Ben, what's the forward return from there?' I said, 'All right, yeah, you know, I've probably done this in the past with me.' So I just said, 'At the end of a month, the S&P finishes down 10%, 20% or 30%. What do your forward returns look like?' Okay. So I still had to do some calculations because I want to make sure I get these numbers right. I don't quite trust it 100% yet. So I did some calculations really quick. It takes me five minutes. And then I upload that spreadsheet to Claude. I say, 'I need you to figure out from these dates, mix and match these returns that I calculated with these specific drawdown points,' right? And it does it immediately. Now this probably would have taken me, if I did this five years ago, like I would have by hand, it would have taken me two hours probably. It did it in 30 seconds. And oh by the way, I said, 'Hey, just so you know, I color coded these drawdowns for you and I color coded the gains as well and I calculated the average returns and the win rates.' Okay, so I still have to go and check these because I want to make sure, but it just shows, look at the win rates if you buy at the, again, this is the end of the month. And the reason I did end of the month is because I like total returns, right? I'm not a price return guy. I'm a total return guy. But the win rates are all in the 90%. If you just buy down 10%, your average returns going forward are like for the next 12, 36, and 60 months are 15, 42, and 72. Like it's pretty good. They're all pretty close if you buy down these 10, 20, or 30%. And the win rates are all 93, 94, 90, 99, like it's really, really high win rates. If you buy stocks that are down...
But when you don't win, you lose bigly.
I thought this was kind of interesting too. Now, some people will say like, why does it matter how long it takes the Earth to rotate around the Sun, right? Why do we care about calendar years? I don't know. This is kind of fun. So since 2009, and I knew this...
You're already, wait, hold on. You think calendar years are kind of fun, but birthdays aren't. And to be clear, I am not a birthday guy. So even though Ben is a birthday Grinch, it's not like I'm like, 'Oh, everybody text me to celebrate my birthday.' Like I don't like to celebrate my birthday. In fact, I hate to celebrate my birthday. So I am not a spotlight guy. I don't like, I get like social anxiety in large crowds like that.
Last year in Miami, you did that.
You got socially anxious when everyone was celebrating you in that steakhouse with the fireworks in.
Yes. Yes. So that, I don't get anxious about a lot of things, but it makes me sweat. I just, I really feel uncomfortable in those situations. For my bar mitzvah, I got so uncomfortable that I had like a sports party because my nightmare was for bar mitzvah, they bring the boys and girls out and like all the people look at them and they dance with the dancers and like that's the worst thing for me. So anyway, back to calendar years, Ben. Let's hear why you like calendar years.
Since 2009, there have been exactly two down calendar years in the S&P 500. Okay, so we're like 17 years. There's been two down years. 2018 was negative 4%. 2022 was negative 8%. Okay, that's it. Those are the only down years that we've had since 2009. So far, 2026 as of the close Monday was down 7%. The point is down years don't happen that often. Now, you can say, well, this has been an extremely great run. So from 2009, who cares? Give us a down year. I mean, I don't want to fall 30%, but if the S&P closes down 7% this year, is that the end of the world?
No, that's what's funny. If the S&P closed down 7%, it would be the worst year, it would be the second worst year since 2008 essentially. It's just crazy to think about that. Like right now, that's how good investors have had it because yeah, the market fell four out of 10 years from 2020.
So my point is that like this is...
And to be clear, investors have had it so good, and they have because companies have delivered so good.
Yeah. And now obviously two down years, but there's been plenty of corrections along the way. That's what I'm saying. Okay, I just think it's fascinating to think that as much worry as there's been, there's been literally two down years in almost two decades.
All right. So this is my whole point about as much anxiety about the market and the economy with AI as people have, and the market's only down 9%.
I just don't buy that we're whistling past the graveyard. Sorry. I mean, it's, you know, maybe there's a lot of egg on my face coming if there's a financial crisis that I missed, but I don't know. Not my base case.
Okay. So Torsten Slok says the same thing. Markets are too focused on the near-term challenges from higher oil prices. The real trade-off for investors is four to six weeks of instability paying off 50 years of stability in oil market supply chains and geopolitics. The Gulf region will be more stable and even more closely integrated with the global economy. And I put the Tobias Fünke thing in here. Did it work for those people? No, it never does. But these people somehow delude themselves to think it might work for us.
It's an Arrested Development one. I mean, you really...
I might have to rewatch the whole first three seasons of the show. It's one of the great sitcoms of all time. And it's full of memes that you don't understand. And the thing is, it wasn't a popular show and it's not. But...
Wait, hold on. Is that Bateman and Will Arnett?
Yes. It was like that was Bateman's comeback essentially from being non-existent forever. That was his and Will Arnett's...
Did you watch The Madison?
Okay. Will Arnett makes a very interesting appearance in that show. Not exactly the person I thought would be on screen.
I feel like there's too many Taylor Sheridan shows. I can't keep up with all the shows.
Well, we'll get to that later. What about the Bateman show?
Yes, I'm still into that one. I like it. I can see how some people would be turned off by it and wouldn't like it and go, 'What is this?' I think the guy from Stranger Things, his name is escaping me, I think when he does the sign language interpretive dance, I think he's hilarious in this show.
Yeah. But anyway, my point is, I just, the idea that all of a sudden things in the Middle East are going to be fixed. I feel like every president has said like, 'I'm going to go in and fix the Middle East.' And I just don't think it's fixable for us. I don't think we can fix it.
Well, yeah, there's been thousands of years of conflict. I think you're probably right, Ben. All right. But my worry is like, okay, Iran goes, oh, the Strait of Hormuz is more important than ever, like we're going to use this as a choke point. This is going to be a worry for the next 20 years of them using it as a choke point. Like I can't imagine this is the last we're going to hear about this.
Even if we say, all right, we're done. We're out of here. Like this is more important than it was before this.
I don't, 50 years of stability. I don't buy that at all. No way.
Yeah. I don't think anybody buys that. I mean, hello. Were you born yesterday? Bloomberg made a chart of the difference between European gas prices, natural gas specifically, and US. And look what the fracking revolution did to our country and our energy independence, which was like very much a political issue in the 2010s, right? Like that was a very heated argument. And it turns out energy independence is a good thing.
So my new Audible is, I'm listening to How the World Really Works. Vaclav Smil is his name. I think I can pronounce that right. And it was one that I tried to read and I just couldn't get through it, but I put on audiobooks. And the whole point of the book is, a lot of people think that fossil fuels are bad and they're really bad for the world and they're destroying the world. But he says like we would not have gotten to where we are as a society without fossil fuels. And it's looking at kind of both sides of this and saying like how much more energy efficient we've gotten over time and it's kind of like the leaps forward are insane. But it's an interesting look at just like, listen, the world is not the way it is if we didn't have fossil fuels. You can hate them if you want, but it's anyway, interesting look at it.
So what this chart is showing is that our natural gas prices are basically unchanged over the last four years. There was a blip, short-term spike that came back down, but look at what it's doing to European gas prices.
I'm really interested to see how much bigger the European response is going to be because they have to think, listen, we didn't do anything. We didn't start the Ukraine-Russia war and our energy prices spiked. We didn't start the Iran war, our energy prices spiked. Like what is their response going to be? They're not just going to sit there and take this, are they, forever? I mean, I just wonder if their fiscal defense spend is just going to go through the roof because they can't just sit there and take this every time something happens that their energy prices spike and ours don't.
I just asked Claude. Okay. Roughly 40% of European homes use natural gas as their primary heating source and it's higher in other countries. So yeah, this sucks for them a lot.
Like this really hurts. I guess the good thing is that it's not the winter, but still.
They don't use air conditioning in Europe, so in the summer they're going to be okay. Everyone just walks around sweaty with BO.
So it's like medieval times. All right, so I put the long-term chart of US retail gas prices in here. The spike is insane how quickly it went from three to four dollars a gallon. I continue to think that it's just a temporary spike. I don't think gas prices matter anymore. Like I know people see the big signs and they get angry with them, but I don't think for the economy gas prices matter all that much. Is that a dumb statement?
Yeah, it's pretty dumb, short-sighted.
I don't think a short-term spike, I'm saying for the economy. I'm not talking about people's pocketbooks. Yeah, for the overall economy, does a short-term rise in gas prices matter? I don't know. I'm probably very, very much on the margin. I don't think I'll see this in the data.
That's what I think, it's going to be marginal if it's just this short-term spike. All right. DFA had a cool chart. They looked at the correlation between oil price changes and energy sector returns from 1964 to 2025. And the correlation was 0.29, which is kind of shocking. You would think oil and energy would move in lockstep.
I don't even, I don't believe this.
Look at the chart. You don't believe it?
Nope. If this is trying to show that energy stocks don't react to the direction of oil prices, then I reject this chart.
Okay. So they show for example, oil was...
They might be saying like over the long term it might not matter as much as you think. Fine. Not everybody lives in 10-year periods.
But they're showing annual returns. They're showing 12-month periods. Okay? Then they say, for example, oil was up more than 150% in 1974. Energy stocks fell. On the other hand, energy stocks were up in 2025 despite a market drop in oil prices.
So what? Everything, every stock fell in 1974. Energy stocks rose in 2025. This chart doesn't do it for me. Sorry, not impressed.
I think the point is there's a lot of people who think energy stocks are a perfect, like why buy oil when you can just buy energy stocks, and the point is it's not always a one-to-one hedge. That's the point.
Have you seen energy stocks?
Yeah, they're doing well this year. But the point is it's not always like that.
Okay. All right. You're right.
Recency bias wins. Reject the historical data. You're right.
Oh, what? Because in 1974 energy stocks fell. This chart is crap. They show every year since 1965.
There's no rhyme or reason to this chart. That's the point.
Show it. Show a chart. Show this data presented differently. Show me rolling 30-day returns of energy stocks. And I bet you this looks a lot different.
Yeah, you're zooming in. I'm zooming in.
Okay. The zoom out is a 12-month period, though. I think that's not like a totally, like takes away all the little...
All right. No. You just agree to not trust the data sometimes. You're a data truther at times.
Nope. You can manipulate the charts to show what you want.
I'm not a data truther. The data is the data and I don't like the way that this data is presented.
All right. I think the correlation being that low is surprising is all there. I think the whole point...
Energy shocks don't last 12 months all the time. You're measuring the wrong thing.
All right.
All right. So I mentioned before like tech valuations probably should be compressed and this chart from the FT, this is the reason why. So it shows revenue generated per dollar of fixed assets and for Facebook and Google and Microsoft and Amazon it's going down, down, down, and for Apple it's continued to rise a little bit because they're not spending money. All this means is that these companies are going more from intangible to tangible because of all the investments in AI. And it will be very interesting to think like, listen, we had to do this, but is this the thing that finally changes this cycle...
Of like the tech premium.
But it's more than a short-term blip. Is this, does this change it maybe forever? Like this whole 15-year cycle or whatever we've been on.
This is the AI thing is the thing that finally changes it. The cost of data centers and the cost of compute.
It's going to finally change this.
This is a very plausible story. I could buy this. So if these companies were living in a world of 40 to 70% operating margins with high cash flow and now we have reached an inflection point and that's the thing and people go, 'Wait a minute, earnings are still growing 15% per year, why is my stock going down or why is the valuation compressing?' I think that's going to be a thing that people are saying about a lot of these stocks going forward. I don't get it. That's what happened to Microsoft after the dot-com bubble. Earnings were growing like crazy and the stock did nothing. People are going, 'This doesn't make any sense. Why isn't it matching the fundamentals?'
The difference is the valuations were absurd back then. So like Facebook is trading at 16 times forward earnings. So yes, obviously investors are saying time out. This is not 2021 anymore. But I would also argue that at 16 times forward earnings for Facebook and 20 for Microsoft or whatever, the rerating has sufficiently de-risked these stocks. I'm not saying like Microsoft is a screaming buy today, but like I think if you could put the stock away for a couple years, I think you're going to make money.
Duncan asked me the other day like all these stocks that have gotten crushed, where would you look? And I said, 'My boring answer, and we talked about this on Ask the Compound, I could go through a lot of different charts, is just I think you'd probably say if I wanted to go bottom fishing right now, these stocks that are down 30% or more, every time Meta and Microsoft fall like this...'
If you're going to bottom fish, bottom fish in a mega cap, meme...
Yeah. And guess what? One of these times maybe you're wrong and it takes a lot longer to come back, but that's where I would do it. That's like the safe answer I would say. We had a really good, Josh and I did a really good podcast with this guy Jonathan Boyer who's a value investor and I said to him like there's no extra points for difficulty with investing and if you are a value investor and you're buying stocks because you think the market is wrong, the burden of proof is really high and guess what, most of the time the market's not wrong and buying 52-week lows is a really, really, really, really bad long-term strategy. So I asked him like why not just wait until these stocks stop crashing? I'm not saying that you can know when the bottom is. Who can? But why at least wait for some sort of signs that okay, the selling has stopped, right? Like the stock's not crashing anymore. It bottomed, it rallied, it fell, it failed, like it's gone sideways, some consolidation. And he basically, he had a good answer. He said, 'I do. I buy over time.' And that's as good of an answer as any. So just for the listeners, like if you, you know, I wouldn't say don't go all in on a stock that's in free fall. That's not a great, that usually doesn't work out well.
You don't blow your whole wad on the first dip, right? Because it's probably going to keep dipping.
All right. 2025, it turns out, was a really, really bad year for stock pickers. 79%.
Man, I thought it was going to be a stock picker's year. Shoot.
Should be. No, it is. No. Yeah. First, I'm saying it should be. I don't know that, we don't know how the stock pickers are doing.
Okay, that's a good point. So yesterday the equal-weighted index was flat. It was down 1% in the year and the S&P was down 7%. So by definition, it is a stock picker's...
I hope they picked the right stock. So I hope they avoided the mega. I hope they were underweight. Listen, the...
If you're not a closet indexer, that's the point.
Yeah. Yeah. I'm sure, how many are you a closet indexer? That's what you figure out.
Yeah. The crazy thing to me is that I wrote about this a little bit after we talked about it last week. If you look at the, for this SPIVA report, if you look at the 10, 15, 20-year numbers and it's across, it's not just large cap. It's small cap, midcap, it's all these different categories, international, it's something like 90 to 95% of active managers underperform the index. And my baseline was always for index funds, and I don't make fun of you on index funds, but I assumed it would be 70, 75%. That seemed like a good baseline to me. Like that's how many active managers you outperform just because of costs and fees and all that stuff usually. The fact that it's been 90 to 95% is kind of insane to me. I didn't think it would be that high.
You could say this is the hardest period ever for stock pickers and I wouldn't argue with you.
But the fact that it's that high is pretty crazy to me. The fact that like indexing became so popular and people were talking about it being a bubble and it's going to lead to all these things and guess what? It worked better than it's ever worked in history for indexing.
That's the crazy part.
All right, this story from the Wall Street Journal was flying around. People love to share these charts.
They're rich but not famous and they're suddenly everywhere. The number of Americans worth eight or nine figures is up markedly. It's transforming the US economy. Now, they show this chart and they show there are 430,000 US households worth $30 million or more.
430,000. Isn't that crazy? And this is as of 2022. So this number is definitely higher.
74,000 people that are worth $100 million or more. Okay. Even adjusted for inflation, the wealth of the top 0.1% of households has grown more than 13-fold over the past 50 years. Again, adjusted for inflation.
That is a face-blowing stat. That's hard to believe.
Yeah. So they show, they break this down. They show the number of households by 30 million up, 50 million up, and 100 million up. And again, they are adjusting for inflation for these figures. And the 100 million one just keeps going up. Even 50 and 30 is kind of a little more volatile, but there are so many rich people these days. And this is why there's rich person anxiety too. You saw that viral story from the New York Times last week about the couple in New York who makes $500,000 a year and they say they're middle class. Okay.
That really pisses people off.
Oh yeah. Rich people claiming that they're working class, people for good reason. That's, if you make a half a million dollars a year, you're in the top 1%.
But this is why those people feel that way because they go, 'Yeah, sure I make half a million a year, but I'm not worth $30 million like my neighbor is on Park Avenue or whatever.' Like and I just...
430,000 households over 30 million or more. You sure that's as of 2022?
Yeah. It's insane, right? Yes. As of 2022. Because that's the last data, the Fed data for this.
All right. And think about how much more the stock market is up, which is where all the wealth is since then. So what is it now? 700,000.
That is honestly like a, that is hard to believe. Wow.
2022 was also a bear market. So think about that. So yeah, it's probably now 600,000.
So a couple things here. One, I think if you take this and the fact that it's not just like the top 10% or the top 5%, it's really, it's not even the top 1%. It's like the top 0.1%.
In the next, I may be even short here, in the next 12 years, we're going to elect a socialist president in this country.
Stamp rubber with AI. AI is going to make inequality worse. Okay, these rich people have more power than ever when it comes to politics. Think about what happened in New York. This is going to happen on a national basis.
I hope the rich people collude and have as much power as we think they do to make sure that we don't get a socialist president.
I'm just saying if this trend keeps being in place and AI is going to make it worse and we see all the corruption going on in the government right now, okay, we are going to elect a socialist president.
All right. So, I don't know.
Obviously I'm not saying I want that. I'm saying this is going to happen. This is where the country is going.
All right. But isn't it really expensive to put somebody in office?
So where does the money come from to get a socialist person to the top?
How did the guy get elected in New York? I don't know. You don't think that's funny?
I think it's different at the national level.
All right. I just think we're going down a bad path here is all I'm saying. I think that's where we're heading.
Well, yes, this is tough.
Because again, AI is going to make this worse. AI is not going to make inequality better. It's going to make it worse.
Why? You're going to be able to start a business with far fewer people. Guess what? That's more money in the hands of fewer people.
Let me ask you a question. I'm being serious. So when we say wealth inequality is going to get worse, let's just assume that the bottom, I don't know, 10%, we'll see no improvement from AI, the bottom of the K. What if AI lifts 70% of the economy?
Then it would be a miracle technology if it did that. I don't think it's been decided that this is going to make things a lot worse. Now, I'm not saying that it's going to make things better. So that's not what I'm saying, but I don't know. I don't know that we can say that.
I'm more sure about this than anything right now. I'm really...
Yes, AI is going to make inequality way worse. Think about how starting a company with fewer people and you keep all that equity yourself.
All right. Let me read an email that we got. Okay.
Okay. This is actually exactly what we're talking about. 'I own a manufacturing firm in the rural Midwest. Cutting to the chase, my production employees are generally lower quarter in IQ.' Now, this sounds mean. I don't think this person is trying to be mean. It's hard for many people to imagine, but if I asked them to pick a half-gallon 1% organic milk out at a grocery store shelf, they would be flummoxed. Too many ideas to hold at one time. Let's remember what AI is. Artificial intelligence. In the same way the barcode scanner allowed a new cohort of people to be checkout people versus keying in all groceries, or how spell check helped some people communicate by fixing almost every word, the adoption of AI actually extends the runway of employment for lots of people that graduated high school with a fourth-grade reading level.
which is a sixth of the population. He said one sixth of the population can't qualify to be in the military due to low IQ. So, this is a real issue. That's wild, but whatever. Different topic, I suppose. In short, the AI doomerism about it spreading the gap among haves and have-nots forgets that a lot of have-nots can use even the simplest AI to extend their skills in the workforce. That's a good alternative.
Yes, I hope so. Yes, I agree. The ability to do it will be there.
A lot of these discussions, because obviously the same thing with every discussion, it's either all good or all bad.
Yeah, right. The barriers to entry have been completely flattened. If you want to learn about something, right, you can ask as many questions as you want. If you want to learn about a specific topic, it can give you step by step. Yes, it's there. The ability is there if people take it.
Yes. Wow. 430,000 people with $30 million net worth. That's just unbelievable. All right, here's another one. So Delta, speaking of the upper end of the K. So Delta Airlines, they said our consumer is really healthy. We live at the top end of the K that people talk about, the premium end of the K, and that's where over 90% of our revenue is sourced from.
The group of folks that want to travel, they're investing in themselves. They're investing in the experience economy. We've seen eight of the top 10 sales days in our history this quarter, and five of those within just the last two weeks.
