Animal Spirits Podcast Summary: "A Bubble is Coming" (EP. 416)
Released on June 11, 2025
Hosts: Michael Batnick and Ben Carlson
Introduction and Recent Discussions
In Episode 416 of the Animal Spirits Podcast, hosts Michael Batnik and Ben Carlson delve deep into the current state of the markets, exploring the potential emergence of a new economic bubble. The conversation builds upon their recent podcast with Dr. Daniel Crosby, where they examined the psychological impacts of money through Crosby's book, The Soul of Wealth, and the LinkedIn post, "The Joneses Aren't that Happy" (01:13).
Reverse Flex: A Modern Conspicuous Consumption
Batnik introduces the concept of "Reverse Flex," where ultra-wealthy individuals showcase their affluence in understated ways, such as driving modest vehicles despite their vast wealth. This behavior sparks a debate among listeners:
- Ben Carlson (03:05): Questions whether Reverse Flex is a positive or negative trend, suggesting that while he tolerates it, it shouldn't permeate all aspects of wealth display.
- Michael Batnik (03:07): Criticizes Reverse Flex as insincere, describing it as "a dick move" where the supposed modest display inadvertently highlights one's wealth.
The Looming Bubble: Market Dynamics in 2025
Batnik posits that the current market environment is the most intriguing they've witnessed in their professional careers, citing multiple cross currents influencing investor behavior:
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Political and Economic Factors:
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Technological Advancements:
- AI Industrial Revolution (04:26): Batnik emphasizes the transformative impact of AI, referencing Mary Meeker's comprehensive report. He warns that the average investor may be underestimating AI's influence, potentially leading to a market bubble.
- Ben Carlson (05:31): Highlights the historical trend where groundbreaking technologies often precipitate market bubbles.
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Retail Investors and Market Participation:
- Rise of Retail Investors (05:58): The surge in retail investors now constitutes approximately 25% of all trading volume, contributing to increased market volatility and bubble potential.
- Ben Carlson (06:11): Suggests that the heightened appetite for risk among retail investors may pave the way for more frequent bubbles.
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Post-COVID Spending Habits:
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Federal Reserve Policies:
- Interest Rates and Inflation (04:18): Debates around whether the Fed should cut interest rates to stimulate the sluggish housing market and address rising unemployment (24:32, 25:57).
- Ben Carlson (26:07): Advocates for rate cuts, citing low M&A and IPO activities as indicators for potential monetary easing.
AI's Role in Shaping the Market
A significant portion of the discussion centers on Artificial Intelligence and its profound impact on various industries:
- Mark Rubenstein (26:07): Shares insights from his Substack, emphasizing how AI tools have revolutionized financial research by enhancing productivity and accuracy.
- Investment Strategies (30:21): Ben Carlson recommends a straightforward approach to AI investments by focusing on major indices like the S&P 500 or NASDAQ 100, suggesting that 35% of the S&P 500 is already benefiting directly from AI advancements.
- Potential AI Bubble Indicators (35:14): The hosts explore metrics such as Palantir's staggering price-to-sales ratio (105x) compared to industry giants like Coca-Cola, positing that such valuations may signal an impending bubble.
Retail Investors and Market Sentiment
The hosts analyze the behavior and impact of retail investors on the current market:
- Stock Market Ownership (10:20): Ben Carlson highlights a surge in stock ownership, reaching 62%, the highest since the late 1990s. He attributes this trend to the pandemic's influence in encouraging more individuals to invest.
- MAG7 Performance (38:13): Both hosts discuss the disproportionate performance of the MAG7 (Meta, Apple, Google, Amazon, Microsoft, NVIDIA, and Tesla) stocks, noting significant drawdowns in 2022 and 2025, yet contrasting them with historical market resilience.
Private Markets and Cryptocurrency Insights
The conversation shifts to private markets and the evolving landscape of cryptocurrency:
- Private Equity Challenges (50:33): They address negative trends in private equity distributions, emphasizing the complexity and lack of transparency in secondary markets.
- Cryptocurrency Integration (43:15): Ben Carlson argues that cryptocurrency has become intertwined with traditional finance, evidenced by the rise of crypto ETFs and institutional investments. This blending signifies a new era where crypto is no longer separate from mainstream financial markets.
Housing Market and Economic Indicators
A critical discussion unfolds around the housing market's stagnation and its broader economic implications:
- Housing Activity Decline (25:17): Ben Carlson points out that US existing home sales have plummeted to the lows seen during the Great Financial Crisis, attributing this to high mortgage rates and weakening demographics.
- Federal Reserve's Potential Response (24:32): The hosts debate the necessity for the Fed to intervene by cutting rates to rejuvenate the housing market, considering the long-term consequences of inaction.
Consumer Behavior and Economic Health
Through excerpts from company earnings reports, the hosts assess the health of consumer spending:
- Tractor Supply (57:30): Reports stable consumer spending despite cautious sentiments, fueled by seasonal product sales.
- Marriott's Insights (57:53): Observes a permanent shift in consumer spending patterns, with travel becoming a prioritized expense across all demographics.
- Dollar General (57:53): Highlights that a significant portion of customers have experienced reduced income, indicating potential future economic vulnerabilities.
Conclusion: Vigilance Amidst Market Excitement
As the episode wraps up, Batnik and Carlson emphasize the importance of remaining vigilant in the face of exciting yet potentially unstable market conditions. They caution that while technological advancements like AI present significant opportunities, they also carry risks of inflated valuations and market bubbles. The hosts advocate for a balanced investment approach, leveraging comprehensive research and mindful risk management to navigate the complex landscape of 2025.
Notable Quotes:
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Michael Batnik (03:07): "It is like, I'm so rich, I drive a beater. It's like, come on, dude, don't flex on me."
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Ben Carlson (05:31): "We've never seen a case in history where a life-altering technology didn't cause a bubble."
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Michael Batnik (04:15): "The most interesting market environment I've ever lived through."
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Ben Carlson (26:07): "AI is deflationary."
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Ben Carlson (35:14): "Ben Thompson wrote a piece a couple weeks ago about just the amount of money that the big companies are spending on AI. How long is the market going to let them?"
This episode provides a comprehensive analysis of the interplay between technological advancements, investor behavior, and macroeconomic factors shaping the markets in 2025. Batnik and Carlson offer insightful perspectives on the potential risks and opportunities, urging listeners to stay informed and cautious as they navigate their investment strategies.