The Compound and Friends
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.
00:29:22 · Josh Brown, Alex Altmann, Michael Batnick
[00:29:22] S0: Negative wealth effect. It's huge. [00:29:24] S1: And because it's real time, unlike .com where [00:29:26] S2: you But that also scared people. There's massive uncertainty in terms of what the economy was going to do. I don't think it [00:29:30] S1: was just the stock market falling. You're right. It wasn't just the stock market falling, but the average individual really had no concept about what the implication of tariffs was gonna be in that moment. Right? [00:29:39] S2: They were scared. [00:29:40] S1: I think they were scared. And... But more importantly, in 2000, when we had even a... It wasn't comparable today, but it was reasonably comparable in terms of the amount of equity ownership in households, you have to wait either for a monthly or quarterly brokerage report. Right? Most people do it or the... They were looking [00:29:56] S0: alerts into your hands [00:29:57] S2: 27 times a day. [00:29:58] S1: Are seeing your real time wealth adjustment. Right? And that's very powerful on both the way up and the way down. You know, I kind of had this running joke that the stock market is the economy now. The the old adage was stock market is not the economy. No. It is the economy now. [00:30:12] S0: I agree with that. [00:30:12] S2: Right? [00:30:13] S0: I say it all the time, and people get pissed off about it, but I really think it's more than ever [00:30:16] S2: I agree.
00:30:16 · Michael Batnick, Josh Brown, Alex Altmann
[00:30:16] S2: I agree. [00:30:17] S0: The centricity of of the stock market. It used to be like an avatar, loosely speaking, for how companies are doing. And then people would say, alright, but what does IBM and Coca Cola have to do with Main Street? Like, now I think it's basically we've built retirement around the stock market. Everybody's all in. Every household with a high income also has a large four zero one k. Now we've tied compensations to the stock market. You think about all the young up and coming millionaire households, they all work for companies that are about to go public, just went public, have stock prices. Like, this is it. If... You can't have a prolonged two year bear market without a recession. It's impossible because everybody's wealth effect and everyone's mentality is based on how much money their accounts are worth. And so I totally agree with you. [00:31:14] S1: Yeah. And the messed up thing is is that I I would challenge any economist on the planet no matter how good they are, and there are some phenomenal economists that I work with at Barclays. But I don't think any of them actually have a cell in their econometric model that measures S and P. Yeah. Right? So they're they're monitoring everything. [00:31:29] S0: Does? The Fed does. [00:31:30] S1: Well, the Fed have their FCI process.