The Compound and Friends
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.
00:27:39 · Alex Altmann, Josh Brown
[00:27:39] S1: Oh, yeah. [00:27:39] S0: Yeah. And I think it's like... I think it's a big reason for why the VIX so quickly evaporates every time it gets going. Like, it just... You've got... Alright. Two weeks go by, the $40.01 k money comes in. The financial advisers who used to trade stocks, now they're just rebalancing ETFs. You could almost set your watch by it.
00:28:00 · Alex Altmann, Josh Brown
[00:28:00] S1: Yeah. And then there's... Now on top of that, you've got the levered... You've got the the the cool overriding ETFs. You've got kind of the very deliberate vol selling products that are further suppressing or or supplying gamma and vega, not to use these Greek terms, but, like, you know, supplying volatility to the market as well on top of that. But, you know, to answer the original question, you know, retail are kind of all in on stocks. Part of it's involuntary because they've kind of lost faith in the home the home ownership slice. And, also, just the fractional nature of stocks is very appealing to younger individuals. Right? I don't need to cough up. You know, if your median home price in The US... I don't know the number of Tomahed, but I'm guessing it's between 3 and $400,000. You know, you don't have to cough up $60,000, $50,000 for a deposit. I can go and buy a share of Nvidia or a share of the s m... Of Spy or whatever and just forget about it. It unfortunately does create vulnerabilities in our economy. You know? And people ask me all the time, and I know we're getting bit tangential here, but, like, what keeps you awake at night? Is it, like, levered ETFs, or is it Iran, or is it AI? I'm like, no. It's retail. It's... Retail is the scary one in the sense that because we've got such a financialized economy. Right? Like, you... Even last year during the tariffs when the S and P fell 20%, there was a visible drop in consumption Yeah. Over the subsequent two months. [00:29:22] S0: Negative wealth effect. It's huge.