The Compound and Friends
00:21:40 · Michael Batnick, Alex Altmann, Josh Brown
[00:21:40] S2: Right? I [00:21:40] S1: remember. So there was very, very low frictions trading. Then what happened? COVID. Right? And then what happened? [00:21:46] S2: Everyone trades. [00:21:47] S1: Bunch of stimulus checks, people sitting at home. [00:21:49] S0: 40,000,000 new brokerage accounts open in eighteen months. Exactly. Yeah. [00:21:52] S1: So... But, really, I mean, would non zero zero commission trading have changed it? Probably not. But I do think it's important because, you know, it effectively lowered your transaction friction to to to nothing. And then you got a bunch of people with checks and nothing to do, and they're basically, you know, let's face it, we're all degenerate gamblers. So a lot of people basically got involved in that, and and that obviously coincided with a significant short term correction in in equities. [00:22:20] S2: They didn't leave. They never left after the bear market. They're still here. [00:22:25] S1: They're still... Oh, no. No. They they... That's not true. They did... So there was a degree of selling by the retail community in 2022, and that was a deliberate financial tightening exercise by the Fed. [00:22:35] S2: Right? It was but it was short lived. Like, if you look at the percentage of overall volume, it's still pretty... It's still high. Is it 25%? [00:22:41] S0: The retail share of trading is still where it was. [00:22:43] S1: Oh, in terms of the share. Yeah. But what we tend to track is the evolution of both cash balances and margin balances as as a percentage versus the natural drift of Yeah.
00:22:43 · Alex Altmann, Josh Brown, Michael Batnick
[00:22:43] S1: Oh, in terms of the share. Yeah. But what we tend to track is the evolution of both cash balances and margin balances as as a percentage versus the natural drift of Yeah. [00:22:52] S0: Retail got blown out of SPACs and all that shit just like everybody else did. [00:22:56] S2: And NVIDIA felt 75% and saw the meta in 2022. I mean, that was terrible. It was... Yeah. [00:23:00] S1: It was it was a bad time for retail. And and retail genuinely lost money, but they didn't... They they did sell, but they didn't It [00:23:08] S2: didn't leave. [00:23:09] S1: They didn't they didn't completely get out of dodge. Yeah. And then ever since then, '23, '24, '25, '26, regardless of whether we've had those economic wobbles or not, they've just kind of been pretty set. [00:23:21] S2: So how is the data from the nineties relevant to today? [00:23:24] S1: So the the... In terms of the comparable? Yeah. Yeah. So we've blown through everything we saw in the nineties. The ownership of... The US household ownership of stocks today, you've got approximately two thirds of all American homes that own stocks. That's way higher than .com. And the other stat which I I sort of love to throw around is that the the next highest... The the 35%. Yeah. 35% of US household net worth is now in equities, the highest ever. The next highest wealth channel is unsurprisingly, home equity. But the gap between stocks and home equity in terms of your wealth percentage [00:24:06] S2: for Closing? [00:24:07] S1: Is the widest it's ever been in history going back to the nineteen sixties. We've only
00:24:07 · Alex Altmann, Josh Brown
[00:24:07] S1: Is the widest it's ever been in history going back to the nineteen sixties. We've only [00:24:12] S0: got But isn't it obvious why? Like, homes have appreciated 0% over three years thanks to interest rates. Yep. The stock market has doubled. Yep. Of... Like, of course. [00:24:22] S1: Of course. [00:24:23] S0: It's not causal. It's it's the it's the reverse. [00:24:26] S1: It it... It's... Well, there's a whole bunch of other stuff. Mean, think about over the past... Really, since 2022, mortgages have been completely unaffordable. You know, new homes and existing home sales have plummeted. The housing market's basically been dead or, you know, zombie fixes. [00:24:38] S0: Housing market recession? [00:24:40] S1: It's... For all intents and purposes, with housing really not doing much, right, in terms of prices. So you've got a bunch of, you know, gen y, gen zers with money that they... Savings that they've accumulated. Where are gonna put it? They're not putting it into a new home anymore. They're putting it into the stock market. Yeah. Right? So you've had that constant inflow that we estimate if you think about where, like, typical new mortgage origination from home equity down down payments, 2 to $300,000,000,000 a year. Plus you got the $40.01 k money that comes in every year. That's between 8 and $900,000,000,000 on our estimation. Right? So between that, you've got over a trillion dollars, then you've got a trillion dollars of buybacks. Even if you haircut that a little bit for the executions being low, you're still talking about 750,000,000,000.
00:24:40 · Alex Altmann, Josh Brown
[00:24:40] S1: It's... For all intents and purposes, with housing really not doing much, right, in terms of prices. So you've got a bunch of, you know, gen y, gen zers with money that they... Savings that they've accumulated. Where are gonna put it? They're not putting it into a new home anymore. They're putting it into the stock market. Yeah. Right? So you've had that constant inflow that we estimate if you think about where, like, typical new mortgage origination from home equity down down payments, 2 to $300,000,000,000 a year. Plus you got the $40.01 k money that comes in every year. That's between 8 and $900,000,000,000 on our estimation. Right? So between that, you've got over a trillion dollars, then you've got a trillion dollars of buybacks. Even if you haircut that a little bit for the executions being low, you're still talking about 750,000,000,000. [00:25:22] S0: This is guaranteed... This is almost guaranteed buying, like, $0.01 k money. [00:25:27] S1: $40.01 k is guaranteed buying. [00:25:28] S0: The weather. Like, it's coming in. [00:25:30] S1: It's coming in as long as people have jobs. [00:25:32] S0: And it's valuation insensitive, and it's just... It's... It's automated. [00:25:36] S1: Yeah. Because it's effectively like, you know, life plan, you know, retire at target, life target, whatever it is, you know, 65, so it solves You [00:25:43] S0: had that at 900,000,000,000 a year? Yeah. Okay.
00:25:43 · Josh Brown, Alex Altmann
[00:25:43] S0: had that at 900,000,000,000 a year? Yeah. Okay. [00:25:46] S1: So the way I worked it out was, number of, homes in America, and then we sort of haircut that number to assume that not every home can contribute to a four zero one k whether... You know, for whatever reason. Then we assume a 12% of your 12% contribution of your paycheck, and then you... And your and your median household income is $88,000. Yeah. So we kind of... You sort of solve for that math, and you heck out a little bit more. You get into between $8.08 and 900,000,000,000.
00:26:13 · Josh Brown, Alex Altmann
[00:26:13] S0: Yeah. So I wrote I wrote something about that eleven or twelve years ago on my original blog, and I called it the relentless bid. And I basically said there's, like, three things driving this... Because the question back then in 2014, the market had just made an all time high in '13, and there was still a lot of bad news and Euro Zone stuff. And people... I don't know. They said, why does this market ever sell off? Right? Like, it it just crashed spectacularly. It doesn't... Every time there's bad news, it wobbles, and then the... It goes right back to highs, and people were struggling with that. And I basically said it's the combination of buybacks shrinking the float. Wasn't even at 1,000,000,000,000 a year yet. It was on the way. This $40.01 k money, which I felt had been underappreciated. And then a third factor that I don't think anybody was talking about, the business model transition from stock brokers to financial planners and wealth management transitioning from my broker trades stocks for me to my broker allocates the ETFs. And that was trillions of dollars. Like, you look at Morgan Stanley going from predominantly trading commissions to predominantly fee based. What does that do to the the way the market behaves? I argued it's a volatility dampener. There's more guaranteed money into the same 500 stocks every time people allocate to their wealth accounts. So we've been living in that world now for over a decade. [00:27:39] S1: Oh, yeah.