Despite All Logic (EP.41)

Episode Summary

Executive Summary: The episode covers market absurdities and structural shifts across media, investing, and retirement. The hosts discuss MoviePass’s implosion as a cautionary tale, Disney’s streaming ambitions, Fidelity’s zero-fee funds, the durability of bull markets and distrust in institutions, retirement insecurity and pension underfunding, valuation concentration, leveraged ETF innovation, venture capital’s winner-take-most dynamics, and what these trends imply for investors and society.

Main Topics: MoviePass/Helios & Matheson as a bubble-era cautionary tale (Priority: 5/5): The hosts dissect MoviePass’s collapse, highlighting its broken unit economics, extreme share-price volatility, reverse split, and the absurdity of the stock’s tiny market cap despite huge trading volume. They frame it as a symbol of speculative excess and poor business design. Streaming disruption: Disney and the end of cable bundling (Priority: 5/5): They discuss Disney’s entry into streaming and broader cord-cutting trends, arguing Disney’s family-friendly catalog could make the service a huge success while sports and fragmented access remain barriers to fully abandoning cable. The race to zero in fund fees (Priority: 5/5): They analyze Fidelity’s launch of 0% expense ratio funds, seeing it as a marketing and distribution strategy more than a direct investor game-changer, but one that pressures rivals and reinforces the long-term decline in fees. Retirement insecurity, pension underfunding, and bankruptcy (Priority: 5/5): The conversation shifts to the fragility of retirement promises, comparing mythologized pensions with present-day workplace plans and stressing that many municipal pensions are underfunded and older Americans are increasingly filing for bankruptcy. Market valuations, concentration, and skepticism toward the system (Priority: 4/5): They debate tweets and charts suggesting the market is rigged or overpriced, countering that concentration in a few mega-caps is less extreme than people assume and that many critics who sat in cash after 2008 are mostly rationalizing missed gains. ETF innovation and leveraged 60/40 replication (Priority: 4/5): They spotlight WisdomTree’s 90/60 fund, an idea originating on Twitter, as a genuine ETF innovation that uses leverage to mimic a 60/40 portfolio while potentially freeing capital for other bets. Venture capital’s winner-take-most structure (Priority: 4/5): The hosts explain why VC is structurally dominated by a few elite firms and funds, noting that although top funds can produce extraordinary returns, the industry overall often underperforms broad equity benchmarks.

Key Arguments: MoviePass had fundamentally unsustainable economics because it paid full movie-ticket costs while charging subscribers far less, making losses inevitable if usage was heavy. The stock’s collapse and massive trading volume illustrate how detached price action can become from business value in speculative episodes. Disney’s streaming offering is likely to succeed because families with young children value access to the full Disney catalog enough to pay for it. Fidelity’s 0% funds are less about immediate fee savings for investors and more about using loss-leader pricing to attract assets and gather platform economics elsewhere. The decline of pensions is not just nostalgia: defined-benefit coverage was limited historically, and many current pensions are underfunded, creating real retirement risk. Rising bankruptcy among older Americans suggests that retirement insecurity, medical expenses, and family support burdens are becoming more severe. Market concentration and valuation fears are often overstated; the largest companies are not as dominant in profit generation as critics imply. Leveraged fund structures like WisdomTree’s 90/60 can be useful innovations for sophisticated investors, but they add leverage risk and require understanding. VC returns are highly skewed; a few firms and a few deals drive most industry gains, so broad exposure to venture does not guarantee superior performance. High-yield credit spreads are an imperfect timing tool; they reflect sentiment and risk appetite, but not a simple recession signal.

Data Points: MoviePass market cap at peak: $330 million - Referenced as the stock’s high point during the discussion of its collapse. MoviePass market cap currently discussed: $150,000 - They were shocked that the company’s equity value had fallen to roughly this level. MoviePass share price: $0.08–$0.09 per share - Used to illustrate the collapse even after a reverse split. MoviePass reverse stock split: 250-to-1 - Mentioned as a dramatic corporate action that still left the shares nearly worthless. MoviePass trading volume: 240 million shares - Used to highlight extreme turnover relative to the company’s tiny market value. Approximate dollar volume traded in MoviePass stock: ~$20 million - Derived in the conversation from the share volume and low share price. Adults without cable/satellite: 33 million - Projected number of adults who have cut the cord and remain without cable/satellite this year. Cord-cutter growth: 33% increase from 2017 - Year-over-year increase cited in the Disney streaming discussion. Fidelity 0% funds: 2 mutual funds - The number of zero-expense-ratio funds Fidelity announced. Original index fund sales load: 8.5% - Used to show how much fees have fallen over time. Fidelity revenue: $18 billion annually - Discussed as evidence Fidelity can afford fee-waiver loss leaders. Fee savings from two Fidelity funds: ~$47 million - Estimated amount shareholders could save in fees, described as a drop in the bucket for Fidelity. Vanguard revenue comparison: About 4x smaller than Fidelity's revenue - Used in comparing firm scale within the asset management industry. Student loans causing divorce: 1 in 8 divorces - A survey headline the hosts strongly doubted. Venture fund Benchmark investment in eBay: $6.7 million - Cited as a classic example of venture capital upside. Benchmark investment value in eBay by 1999: $5 billion - Illustrates venture’s power-law return profile. Union Square Ventures first fund return: 13.9x cash-on-cash - Mentioned to demonstrate elite VC performance. VC industry performance horizon: 3-, 5-, 10-, and 15-year periods - All four periods were said to underperform S&P, Russell 2000, and Nasdaq on an aggregate basis. Top VC funds’ concentration (1986-1999 study): 29 funds raised 14% of capital and generated 51% of distributions - Used to show how concentrated VC returns are among a small set of winners. Older-age bankruptcy trend: Tripled since 1991 - Referenced for Americans aged 65 and older filing bankruptcy. Bankruptcy explanation breakdown: 3 in 5 cited unmanageable medical expenses; just over 1/3 cited helping others - From the New York Times article on older filers. Defined-benefit pension peak coverage: 45% of workers - Historical maximum coverage cited to counter the myth that everyone once had pensions. Workers with workplace retirement plans today: More than 60% - Used to show workplace retirement coverage has broadened in modern times. SP 500 top five stocks by market cap: 16% - Mentioned in discussion of concentration in index leadership. Top five economic profit generators’ market cap share: 10% - From a chart suggesting market concentration is lower than many assume. Top five market cap share historically: Almost 50% - Shown in the historical chart to illustrate past concentration levels. Zero-to-low fee comparison: 3 bps vs. 0 bps - A listener asked whether switching from a 3 bp ETF to a 0 bp mutual fund was worthwhile.

Pivotal Quotes: "it may seem like it's too good to be true, but that's what they said about us at Netflix" — MoviePass founder Mitch Lowe (quoted by hosts): Used to criticize the company’s attempt to justify an unprofitable business model. "any crowing about the uptick in box office receipts in the summer season should include the fact that a significant percentage of their total is directly attributable to movie pass subscribers" — MoviePass press release (quoted by hosts): Cited as an example of MoviePass’s combative, hubristic messaging. "where a real demand exists, it does not go long unfulfilled" — John Kenneth Galbraith (as read by Ben): From his discussion of The Crash of 1929 and how capitalism responds to demand, which tied into the bull market/psychology theme.

Implications: Listeners are urged to focus on business fundamentals, hidden risks, and structural incentives rather than hype. The episode suggests fees will keep falling, retirement stress will rise, and markets will remain shaped by concentration, leverage, and winner-take-most dynamics.