Animal Spirits Podcast - Episode 391: "Eff You Money" Summary
Release Date: December 18, 2024 Hosts: Michael Batnick and Ben Carlson
1. Economic Outlook and Recession Predictions
The episode kicks off with Michael and Ben delving into the evolving landscape of economic cycles and recession forecasts. Ben reminisces about the past predictions of impending recessions, noting, "We've had the fewest recessions this century, and they're becoming more spread out" (02:04). Michael counters by emphasizing that while business cycles may change due to the digital transformation, "bear markets are still cyclical and secular" (04:02).
They discuss the shifting nature of economic indicators, highlighting that factors like the rise of AI and deregulation are influencing market growth. Ben references Barron's optimistic forecasts, mentioning, "Barron's is predicting another 20% year, and we're on track for two back-to-back years of 25% gains in the S&P" (06:08). However, Michael remains cautious, predicting a modest 3% growth for the year, anticipating a strong first half followed by volatility in the latter half (10:10).
2. Critique of Market Bears – John Hussman
A significant portion of the discussion centers on John Hussman, a prominent bearish voice in the market. Both hosts express skepticism about Hussman's persistent negative outlook. Michael asserts, "John Hussman is the boy who cried wolf," drawing parallels to the classic fable to illustrate Hussman's repeated recession predictions without success (15:13). They highlight Hussman's fund performance, noting it had minimal gains despite market booms, and criticize his reluctance to adjust his bearish stance over the years (17:42).
Ben adds, "He changed his models from a 10-year to a 12-year model because the 10-year looked bad," underscoring Hussman's inflexibility (15:23). The hosts lament that Hussman's consistent negativity has eroded his credibility, making it difficult for listeners to take his warnings seriously.
3. Retail Trader Sentiment and Stocktwits Study
Exploring the intersection of social media and trading behavior, Ben shares insights from a Purdue University study analyzing 77 million messages on Stocktwits. The study found that "retail trader sentiment on Stocktwits does influence Robinhood trading volume, indicating that retail traders follow through on the advice and opinions shared" (27:17). However, the study also revealed that stocks identified as bullish by retail traders underperformed, while those deemed bearish tended to gain over a decade (27:56). Michael posits that this could be because "stocks that people talk about the most are probably too stretched," suggesting a skepticism towards popular investment trends.
4. Market Trends and Sector Performance
Michael and Ben analyze current market trends, focusing on the underperformance of specific sectors. They highlight that sectors like energy, materials, and healthcare are "violently crashing compared to the market," with energy now constituting only 3% of the stock market (30:52). Despite acknowledging that energy has historically been a volatile sector, Michael expresses concern over its sustained decline, while Ben notes that "energy has been a terrible place to have money for the last 12 years."
The hosts discuss the broader implications of these sector trends, with Michael emphasizing that "under the surface, things don't look very good" (32:47). They contemplate whether these sector-specific downturns signal deeper market issues or are isolated anomalies.
5. "FU Money" Discussion
A heartfelt segment explores the concept of "FU Money"—a financial milestone where one achieves financial independence to the extent that money no longer dictates life choices. Ben sets his personal benchmark at "$10 million," sharing, "Once you get past a certain point, there's so much stress that comes with the money" (45:22). Michael reflects on the subjective nature of FU Money, stating, "For me, if coming from a place with not a lot of money and being able to provide for your family is FU Money, then I've achieved it."
They discuss the psychological and social aspects of wealth, debating how excess money can sometimes become a liability rather than an asset. The hosts agree that FU Money is highly individual, depending on personal circumstances and life goals.
6. Listener Emails and Interactions
The episode features several listener emails, fostering an interactive atmosphere:
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Car Advice: A listener seeks guidance on purchasing a car for their 16-year-old son versus upgrading their own vehicle. Ben advises, "Kids get the hand-me-downs. Definitely. You do not get the kid a new car and you drive the old one" (61:21).
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Middle Age Perception: An email discusses how different age groups perceive middle age. Michael shares his thoughts on middle age being subjective and influenced by personal experiences (58:29).
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Sprinkler Insurance and Christmas Lights: Light-hearted discussions on home maintenance and holiday traditions reveal the hosts' relatable everyday struggles, blending personal anecdotes with humor (39:13, 42:04).
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Holiday Homes: A listener expresses frustration over downsizing and finding suitable homes, highlighting generational housing challenges (41:22).
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Run-in with a Fan: Michael recounts an encounter at a Peter Lugafauer anniversary event, where a listener praises his relatability, making him feel appreciated (57:54).
7. Miscellaneous Discussions
Beyond financial topics, Michael and Ben engage in diverse conversations:
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Movie Reviews: They discuss recent and classic films, including "Kraven the Hunter," "American Psycho," and "Blood Simple." Ben praises "Gattaca" as a timeless masterpiece, while Michael humorously critiques "Carry On" and "The Little Fockers."
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Technology and Streaming: The hosts touch on the evolving streaming landscape, debating the value of platforms like YouTube TV and the resurgence of IMAX releases (53:12, 54:00).
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Personal Stories: Michael shares his experience of converting his attic into a play area for his children and his journey to overcoming anxiety about hair loss by shaving his head (47:53).
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Car Dealership Fraud: They address the alarming rise of odometer fraud, citing a statistic that "2.14 million cars may have had odometer rollbacks in 2024" and warn listeners to be cautious when purchasing vehicles (42:28).
8. Market Sentiment and Investor Behavior
Towards the end, Michael and Ben analyze current market sentiment indicators, noting unusual trends such as the decline in total returns for value stocks over consecutive days and increased market share of U.S. equities globally (29:38, 23:30). They reference a study by Jeffrey Klein, who pointed out that Europe's stock market would outperform the S&P 500 if Nvidia were excluded, underscoring the outsized influence of tech giants on U.S. markets (19:17).
Ben underscores the complexity of stock picking, emphasizing how dominant companies like Nvidia skew market performance, making active management challenging (20:17). Michael concurs, expressing frustration over custodial delays and the opaque practices of financial institutions (64:03).
Notable Quotes
- Ben Carlson: "There's no Greg in old school." (60:22)
- Michael Batnick: "This is why Mr. Barry Ritholtz is a true one of one." (18:26)
- Ben Carlson: "Most of the time, you want to ride the trend. If you're a contrarian all the time, you're going to be wrong most of the time." (34:15)
- Michael Batnick: "People don't believe liars even when they're telling the truth." (16:29)
- Ben Carlson: "Stock picking is so difficult. Imagine being an active manager and looking at this stat and going, see, see, see what I'm dealing with here." (20:17)
This episode of "Animal Spirits Podcast" offers a comprehensive exploration of economic forecasts, market sentiment, and the psychological facets of wealth, all interwoven with personal anecdotes and listener interactions. Michael and Ben provide insightful critiques of persistent market pessimism, highlight the intricate dance between social media and trading behaviors, and engage listeners with relatable stories and humor, making complex financial discussions accessible and engaging.