Animal Spirits Podcast — Episode Summary
Episode: All-Time Highs Should Feel Better Than This
Hosts: Michael Batnick & Ben Carlson
Date: December 17, 2025
Overview
In this wide-ranging, end-of-year episode, Michael and Ben break down the surprising market dynamics of 2025—despite mounting worries, sliding economic narratives, and stumbles in big tech and AI stocks, the markets remain at all-time highs. They dig into whether we’re in a bubble, shifting investor sentiment toward the “Mag 7” mega-caps, the broadening strength of markets (including international and cyclical sectors), and why record highs don’t necessarily “feel” good for most investors. They also discuss the labor market, inflation, AI’s hype versus business reality, changes in private markets, and public company performance. As always, the conversation weaves in behavioral finance, current data, and pop culture.
Key Discussion Points
1. 2025’s Sliding Narratives and Market Resilience
- Narrative Whiplash: The year began with optimism about deregulation and a financial boom, flipped dramatically with fears of recession (“We pulled the E-brake”) and “Liberation Day”, and then gave way to renewed angst over AI’s future and mega-cap tech valuations.
- Despite the Drama, Markets Soared: While Oracle, Netflix, Meta, Nvidia, and other banner names dropped by double-digit percentages, the broader markets—both cap-weighted and equal-weighted—hit all-time highs (02:17–05:06).
- “All these huge big tech names are getting killed, and the market doesn’t seem to care.” — Ben (05:27)
- International and emerging stocks up 30% for the year, Europe’s comeback highlighted.
2. Market Breadth: Beyond the Mega Caps
- Broad-based Rally: Highest percentage of S&P 500 stocks at new 52-week highs in nine months (05:03–07:35).
- Emergence of Cyclicals & International: Financials, industrials, and non-U.S. ETFs outperforming—European financials (EUFN) up 160% over five years, beating NASDAQ 100 (A:06:20).
3. Bubble Talk & Investor Skepticism
- Is It a Bubble? Both hosts challenge the idea that we’re in a classic bubble:
- Microsoft, a close AI proxy, has underperformed the S&P since ChatGPT’s launch—“That is not bubble behavior” (A:09:47).
- Nvidia’s forward P/E multiple is contracting, not expanding, even as its market cap explodes (A:18:55–19:14).
- “I say today, you could not ask for a more bullish environment… I’m not saying anything about the future.” — Michael (08:08)
- Howard Marks’ Cautionary Take: Moderation is wise (“no one can definitively say whether this is a bubble…a moderate position…seems like the best approach” — B:17:23).
4. Retail Flows & Rotation
- Retail behavior: Flows move away from “Mag 7” toward broader ETFs, indicating appetite for value and caution about mega-cap concentration (B:11:06).
- AI skepticism is healthy for the market—sells discipline into highflying stories (A:07:35).
5. AI: Product, Bubble, or Business Model?
- Investor Disbelief vs. Underlying Change: AI spending is massive, but some AI “proxies” have sold off.
- AI adoption rates by corporations are slowing—but overall enterprise AI is still the fastest-growing software segment in history ($37.5B to $100B+ forecast) (A:38:21–B:39:00).
- OpenAI as an “Obvious Short?” Ben argues it’s a great product but a poor business; Michael counters that it’s too soon to call, business model still evolving (A:36:00).
- Half of revenue going to stock-based comp—“almost half of projected revenue” (B:36:00).
- Data Centers in Space? Speculation about future computation needs—debated whether we’ll see orbital data centers (41:07–42:23).
6. Labor Market, Inflation & Consumer Strength
- Unemployment Trends: Unemployment trending upward (now at 4.6%), raising recession “alarm bells," but hosts question granularity obsession (B:26:47–28:51).
- Labor market deteriorates, yet neither stocks nor bonds seem to care; possible reason: companies protect margins and wait for more productivity from AI (A:29:15).
- Consumer Health: Lenders like Ally Financial and Capital One at all-time highs—aggregate U.S. consumer spending remains resilient (A:29:52).
7. Private Markets & Venture Capital
- Buyout Funds Delay Liquidity: Speed of private equity fund monetization has slowed—10 years in and investors get only 30% back, not 70% as before (B:50:46–51:32).
- Venture Value Destroyers: Lower quartile VC has underperformed public markets for years—only top 5% of funds justify the risk (A:53:31).
8. Behavioral Lessons from the Boom
- Concentration Paid, But It’s Not Normal: Many investors got rich by concentrating in “Mag 7,” but the hosts caution it’s probably a once-in-a-generation occurrence.
- “There are quite literally millions of people…that got rich off Apple.” — Michael (A:21:50)
- “This is a once-in-a-lifetime thing that just happened.” — Ben (A:22:04)
- Learning & Maturity: Most people mature, diversify, and move away from speculation as they age (“You pay your tuition” — B:24:59).
9. Housing Market & Consumer Backstops
- U.S. home prices likely flat in 2026; affordability worsening, some markets down; 86% of borrowers have at least 30% equity (B:45:10–46:56).
- High home equity cushions the consumer—little threat of systemic collapse unless a true crisis hits.
10. Cultural & Media Talk
- Streaming services keep raising prices, but most people remain subscribers.
- Netflix’s buying/bundling moves, industry shakeouts (59:05 and later).
- Strong opinions on movies (“one battle after another sucked”—Ben), pop culture, and book recommendations close the episode.
Notable Quotes & Moments (with Timestamps)
- “All these huge big tech names are getting killed, and the market doesn’t seem to care.” — Ben (05:27)
- “European financials are outperforming the Qs by a lot over the last five years… the NASDAQ 100 is up 105%. Okay, pretty good. EUFN is up 160%.” — Michael (06:20)
- “If you went against all conventional wisdom in terms of reasonable financial advice…you did amazing…you won.” — Ben (21:05)
- “This is not a bubble…Is OpenAI worth $500 billion? I don’t know. Is the stock market in a bubble? No.” — Michael (09:59)
- “Moderation is wise: ‘No one should go all in without acknowledging that they face the risk of ruin…By the same token, no one should stay all out and risk missing out on one of the great technological steps forward.’” — Howard Marks, via Ben (17:23)
- “The first query that I typed in…I laughed at how it’s not—it’s apples and oranges…the $200 version is like a whole other universe.” — Michael on ChatGPT paid tiers (40:44)
- “86% of [home loan] borrowers have at least 30% of equity in their home. …This is the consumer backstop, even if it’s illiquid.” — Ben (46:56)
- “If you could poll the audience, would you rather go back to 2019 prices and wages? …Handily, not even close, we go back to 2019 prices.” — Michael (33:17)
- “It’s never going to always be this easy…eventually…just the best, biggest stocks that you know and own—you can’t just own those and it’s easy. It’s been too easy.” — Ben (25:22)
- On movies: “One battle after another. It sucked. It absolutely sucked. …It’s the most overhyped movie of this decade, and it sucked.” — Ben (75:20)
- “I trust investors to learn the right lessons over time…But I really do believe that people age and get wise and burn their hand one too many times.” — Michael (24:35)
Timestamps for Key Segments
- 02:17 — The year in review: narrative whiplash, AI/tech shocks, and surprising market highs
- 05:03 — Market breadth and the outperformance of international/cyclical stocks
- 09:47 — Challenging the “bubble” narrative: S&P vs. Microsoft, Nvidia’s P/E
- 11:06 — Rotation away from mega-caps, ETF inflows, retail investor sentiment
- 17:23 — Howard Marks’ bubble memo, importance of moderation
- 21:05 — Did bias and speculation pay off—should investors now diversify?
- 26:47 — Labor market data: unemployment uptick, market indifference
- 36:00 — OpenAI as business: stock-based comp, monetization debate
- 40:44 — AI in the real world: ChatGPT paid tiers, corporate adoption cycles
- 45:10 — Housing: flat prices, equity cushions, implications for markets
- 50:46 — Private markets: slow exits, PE/VC performance vs. public markets
- 66:03 — Leasing vs. owning cars: personal finance rationales
- 73:01 — Media/film reviews and recommendations
Tone & Takeaways
Michael and Ben’s conversation is equal parts irreverent, skeptical, and data-driven. They celebrate healthy skepticism in the market, challenge hot narratives, and use humor and personal stories to drive home the behavioral realities of investing. The overall message: markets can behave in ways that defy prevailing narratives, and the broadening of strength beyond mega-caps and the U.S. is a good sign, even if “all-time highs don’t feel better.” Investors should beware of extrapolating recent outperformance, and stay moderate and diversified as the next cycle unfolds.
End of summary.