Animal Spirits Podcast Summary: Ben's Bearish (EP.406)

Host: Michael Batnick and Ben Carlson
Release Date: April 2, 2025
Podcast: Animal Spirits Podcast by The Compound

Introduction

Timestamp: [01:49]

In the episode titled "Ben's Bearish," hosts Michael Batnick and Ben Carlson delve into a multitude of pressing financial topics, with a significant focus on the implications of recent tariff policies introduced by the Trump administration. The conversation seamlessly transitions from macroeconomic policies to personal anecdotes, providing listeners with both deep analytical insights and relatable narratives.

Tariffs and Economic Uncertainty

Timestamp: [01:49] - [13:14]

Ben Carlson: "Whatever the outcome is, it will have seemed so obvious in the future."
Michael Batnick: "Binary is the word I was gonna use too."

The discussion opens with the contentious topic of tariffs, a new category added to their documentation. Both hosts express skepticism about the longevity and efficacy of the current tariff policies. They outline two primary outcomes:

1. Economic Downturn: If Trump's tariffs severely impact the economy, there will be widespread criticism and blame directed at the administration.
2. Political Chess: The tariffs may be a strategic move to create economic chaos, allowing the administration to later claim victory through negotiated outcomes.

Michael voices increasing bearish sentiments, stating, "I haven't been this bearish since the great financial crisis..." reflecting deep concerns about the cascading effects of sustained tariff implementations.

Impact on the Auto Industry and Consumer Debt

Timestamp: [05:38] - [11:11]

Ben Carlson: "Buy now, pay later for cars."
Michael Batnick: "You're going to get extended car loans much further because people will say, I'm not going to cut back... That's what's going to happen and that's going to be really bad for people."

The hosts analyze the specific impact of a 25% tariff on imported automobiles. According to Dan Ives, these tariffs could increase new car prices by $5,000 to $15,000. Trump's rationale is that higher prices on foreign cars will boost American auto sales. However, Michael counters this by pointing out that competitors will also raise their prices, leading to a uniform price hike across the industry.

This scenario is expected to drive consumers into deeper debt as they extend their auto loans to maintain their current payment levels. The discussion highlights the broader implications of increased consumer debt on the economy.

Energy Sector and Corporate Planning Freezes

Timestamp: [08:14] - [10:42]

Ben Carlson: "These people are not happy."
Michael Batnick: "It's going to be more debt."

The episode shifts focus to the energy sector, referencing a Dallas Fed Energy Survey that underscores significant uncertainty among public energy companies. An executive from Public Trade expresses concerns that contradictory governmental messages undermine U.S. energy dominance, particularly at a time when oil prices are volatile.

This uncertainty is leading to a freeze in corporate planning, complicating strategic decisions within the energy sector. The hosts discuss how such instability can stifle economic growth and exacerbate existing financial tensions.

Wealth Distribution and Private Equity in Retirement Savings

Timestamp: [29:30] - [36:30]

Michael Batnick: "This experiment is probably not going to go great in general."
Ben Carlson: "These strategies do not keep up with the S&P. By definition some of them are not even as good as a simple 60, 40, 70."

A significant portion of the conversation is dedicated to wealth distribution, referencing a Bloomberg statistic that states, "Half of American households hold 97.5% of wealth," with the bottom 50% holding just 2.5%. The hosts compare this to historical data, noting similar distributions during the aftermath of the Great Financial Crisis.

The discussion transitions to private equity's push into 401(k) retirement accounts. Michael expresses skepticism, emphasizing the illiquidity and complexity of private equity investments for the average investor. Ben acknowledges the potential pitfalls but also considers the psychological appeal of these strategies for investors seeking certainty.

Real Estate Market Divergence

Timestamp: [35:40] - [49:08]

Ben Carlson: "The best time to buy is when you can afford it."
Michael Batnick: "There’s a significant divergence where some places are hot while others are cooling off."

The hosts examine the current state of the real estate market, highlighting a stark divergence between regions. In Northern Virginia, properties are selling rapidly above asking prices, suggesting a robust market. Conversely, in Miami, there's a glut of active listings with homes remaining on the market for extended periods and even recent price cuts.

This regional disparity underscores the importance of local market conditions over national trends. The conversation touches on factors like rising insurance costs and oversupply in certain areas, which are contributing to this uneven landscape.

Options-Based Investment Strategies Critique

Timestamp: [23:55] - [37:00]

Ben Carlson: "The human element... investors want that certainty even though it's not completely certain, it's more bracketed in and it's a psychological thing."
Michael Batnick: "It's about having the certainty even though it's not completely certain."

Ben and Michael critique options-based investment strategies, such as buffered overlays and defined outcomes. Referencing a piece by AQR, they agree that these strategies often fail to outperform passive U.S. equities and have disappointing returns. Despite the mathematical shortcomings, the psychological comfort they provide to investors ensures their continued popularity.

The hosts discuss the growing trend of these strategies, fueled by increasing adoption among financial advisors and shifting demographics. They caution investors about the long-term viability and effectiveness of these approaches.

Streaming Services and Market Performances

Timestamp: [50:58] - [60:49]

Michael Batnick: "Gold is still where people turn, not crypto."
Ben Carlson: "Bitcoin is a risk asset. That's it."

Shifting gears, the podcast explores the financial performance of streaming services, specifically Apple TV+, which is reportedly losing over a billion dollars annually despite having 45 million subscribers. They discuss the sustainability of such business models and the broader implications for the streaming industry.

Additionally, the hosts compare the performance of traditional hedges like gold to cryptocurrencies. Michael notes, "Gold is up almost 20%, Bitcoin’s down almost 10%," emphasizing that in times of turmoil, gold remains a more reliable store of value compared to the volatile crypto market.

Personal Anecdotes and Lighthearted Discussions

Timestamp: [37:00] - [61:15]

Towards the end of the episode, Michael and Ben share personal stories and engage in lighthearted banter. Topics range from dealing with aggressive Canadian geese near Michael's office to reflections on classic movies like Glengarry Glen Ross and Hoosiers. They also touch upon their preferences in music and discuss the challenges of recommending shows to their children.

These segments provide a welcome respite from the intense financial discussions, showcasing the hosts' personalities and their ability to connect on a personal level with their audience.

Conclusion

Timestamp: [60:45] - [61:15]

As the episode wraps up, Michael and Ben recap their views on the current market, reaffirming Ben's stance that a bear market is not imminent despite recent downturns. They acknowledge the binary nature of economic outcomes and the unpredictability that lies ahead, emphasizing the importance of being prepared for various scenarios.

Michael Batnick: "I'm sure Jamie Dimon is like the perfect one for this."
Ben Carlson: "We’re all just guessing."

The hosts invite listeners to reach out via email for more personal interactions, concluding the episode on a note of camaraderie and mutual respect.

Notable Quotes:

• Ben Carlson [02:05]: "All opinions expressed by Michael and Ben are solely their own and do not reflect the opinion of Ritholtz Wealth Management."

• Michael Batnick [05:59]: "Trump said, listen, I don't care if prices on foreign cars rise because then people will buy American cars."

• Ben Carlson [14:55]: "Google is trading at... high teens, 26. Estimated earnings. I bought Nvidia yesterday for the first time."

• Michael Batnick [13:14]: "I have more bearish now than I have been in 15 years. This is what I'm going to say."

• Ben Carlson [27:44]: "People bought the shit out of US ETFs in the first quarter."

• Michael Batnick [29:52]: "It doesn't sound good."

Key Takeaways:

1. Tariff Policies: Trump's tariff impositions are creating significant uncertainty in the economy, particularly in the auto and energy sectors. The potential for increased consumer debt and disrupted corporate planning is a major concern.

2. Wealth Distribution: The vast disparity in wealth distribution remains a critical issue, with the bottom 50% holding a minuscule portion of the nation's wealth. Private equity's shift towards 401(k) accounts introduces new challenges for retirement savings.

3. Real Estate Dynamics: Regional differences in the housing market highlight the complexity of national economic indicators. While some areas experience rapid sales above asking prices, others face oversupply and stagnation.

4. Investment Strategies: Options-based strategies, despite their appeal for providing psychological comfort to investors, often fail to deliver superior returns compared to passive equity investments.

5. Market Sentiment: Despite bearish analyses, the stock market has shown resilience, with major indices not reflecting the depth of underlying economic uncertainties.

6. Consumer Behavior: Rising costs in essential sectors like transportation and housing are pushing consumers towards higher debt levels, which could have long-term implications for economic stability.

7. Personal Insights: The hosts' personal stories and reflections add depth to the discussion, illustrating the human side of economic and market analyses.

For more insights and detailed discussions, tune into the full episode of "Ben's Bearish" on the Animal Spirits Podcast.