Animal Spirits Podcast - Episode 407: "The Stock Market Crashed. Now What?" Summary

Introduction

In Episode 407 of the Animal Spirits Podcast, hosted by Michael Batnick and Ben Carlson from The Compound, the duo delves into the dramatic stock market crash triggered by unexpected tariff announcements by the U.S. government. Released on April 9, 2025, this episode provides an in-depth analysis of the economic implications, market reactions, and personal strategies for navigating such turbulent times.

1. Tariffs and Economic Perspectives

Michael Batnick opens the discussion by highlighting a perspective from Cullen Roush, emphasizing that tariffs have historically been viewed as a nonpartisan economic tool. Roush suggests that while inequality exists and needs addressing, tariffs undermine the economic advantages of free trade.

"[00:56] Michael Batnick: Household net worth at record highs... the average American in the top 10% of global net worth."

Ben Carlson references William Bernstein’s A Splendid Exchange to underscore the positive impact of free trade, noting a significant reduction in household spending on necessities due to cheaper imports.

"[04:48] Ben Carlson: ...households spent 25% of their budget on food in the 1920s, now it's like 10%. Free trade made that possible."

2. Impact on Businesses and Consumers

The hosts discuss the immediate effects of the new tariffs on businesses, particularly small manufacturers. They cite real-world examples of businesses struggling to absorb increased costs, leading to higher prices for consumers and potential layoffs.

"[22:54] Michael Batnick: ...Lucerne International, another local auto supplier... they have to raise prices due to the new China tariffs."

Ben Carlson shares a poignant anecdote from a listener, Russ Latino, who faces the reality of increased tariffs wreaking havoc on his business contracts and profitability.

"[24:02] Michael Batnick: ...there are millions of Americans that feel this way... but their attitude towards people like us complaining about the stock market, I understand where they're coming from."

3. Market Reaction and Recession Risks

A significant portion of the episode is dedicated to analyzing the stock market's swift downturn following the tariff announcements. The hosts examine historical data, comparing the current situation to past market crashes, and discuss the probability of an impending recession.

"[07:49] Ben Carlson: A recession is the baseline now. I think it has to be. Baseline is, I mean, I'm, I think it's 75% chance."

Michael references Larry Fink’s remarks about the economy already being in recession, highlighting the sentiment among CEOs and industry leaders.

"[08:23] Michael Batnick: Larry Fink was on stage yesterday and he said that CEOs are telling him that we're already in a recession."

They also explore the psychological aspects of investor behavior during such crises, citing Morgan Housel's insights on market denial and overconfidence.

"[10:50] Ben Carlson: ...if these tariffs are in place as they are, the market could be down 40 to 50%. And I say this without... I really believe this."

4. Listener Emails and Personal Stories

The episode incorporates emotional narratives from listeners, illustrating the broader societal impact of economic policies. One particularly moving email details an individual's struggle to balance a successful career with personal challenges, reflecting feelings of community decline and economic uncertainty.

"[28:22] Michael Batnick: This person represents millions of Americans... For these people, it really isn't [the economy is fine]."

Ben Carlson adds his reflections on societal changes, such as delayed parenthood and declining fertility rates, linking them to economic pressures.

"[28:51] Ben Carlson: ...what if we would have just had kids when we were like 22. I wonder how many people, young people want to grow up that quickly these days."

5. Investing Strategies During a Crash

Michael and Ben share their personal investment approaches amidst the market turmoil. They advocate for maintaining disciplined investment plans, such as regular stock purchases, despite the volatility.

"[46:28] Ben Carlson: My whole plan... Every week I buy stocks in my brokerage account. Every month I buy stocks in my SEP. IRA. Every other week I buy stocks in my 401k. I'm not going to change that because of this."

Michael emphasizes the importance of seizing opportunities during downturns, drawing parallels to historical market recoveries.

"[53:02] Ben Carlson: ...stocks are lower. And the thing is, if you're a young person, this is not going to feel like a blessing if we get a complete wipeout in a recession."

6. Economic Data and Market Behavior

The hosts analyze recent economic indicators, including non-farm payrolls and the Economic Policy Uncertainty Index, to assess the health of the economy and predict future market movements.

"[55:39] Ben Carlson: ...the consumer is not going to get crushed right away by any means. But in terms of valuations for US Stocks, there wasn't a huge margin of safety."

Michael presents historical charts from JP Morgan and other sources to illustrate how the stock market typically reacts ahead of economic downturns, reinforcing the likelihood of a recession.

"[54:28] Ben Carlson: ...the consumer is not going to get crushed right away by any means... But in terms of valuations for US Stocks, there wasn't a huge margin of safety."

7. Conclusions and Future Outlook

In concluding the episode, Michael and Ben express cautious optimism, acknowledging the severe short-term challenges while maintaining a long-term positive outlook on the stock market's ability to recover. They stress the importance of strategic investing and maintaining confidence amidst economic uncertainties.

"[71:37] Michael Batnick: ...tomorrow might get more painful, but I still believe this is the best way to building wealth. And I don't think that there is anything that could change my mind."

"[72:07] Ben Carlson: ...the stock market could fall 20% in the blink of an eye like that. That's the reason that you get the long term premium, because of the risk there."

Notable Quotes with Timestamps

• Michael Batnick [02:27]: "We've got 50 pages in the Google Doc. It's got to be approaching the 2020 Covid records in terms of the length of the dock."

• Ben Carlson [10:50]: "If these tariffs are in place as they are laid out right now, the market could be down 40 to 50%. And I say this without... I really believe this."

• Michael Batnick [28:22]: "This person represents millions of Americans. This is not a completely... this is not an outlier."

• Ben Carlson [46:28]: "Every week I buy stocks in my brokerage account. Every month I buy stocks in my SEP. IRA. Every other week I buy stocks in my 401k."

• Michael Batnick [71:37]: "Tomorrow might get more painful, but I still believe this is the best way to building wealth."

Final Thoughts

Episode 407 of the Animal Spirits Podcast offers a comprehensive examination of the recent stock market crash precipitated by the imposition of new tariffs. Michael Batnick and Ben Carlson adeptly dissect the multifaceted impacts on the economy, businesses, and individual investors, while also addressing the emotional and societal repercussions. Their balanced perspective combines data-driven analysis with personal insights, providing listeners with both understanding and actionable strategies during uncertain financial times.

For more insights and discussions on markets, life, and investing, listeners are encouraged to subscribe to the Animal Spirits Podcast and stay informed every Wednesday morning.

Disclaimer: All opinions expressed in this summary are derived from the podcast transcript provided and are solely those of the speakers, Michael Batnick and Ben Carlson. This summary is for informational purposes only and should not be relied upon for any investment decisions.