Great Quartr Guys (EP.230)

Episode Summary

Executive Summary: Animal Spirits marked its four-year anniversary with a wide-ranging discussion of markets, earnings-season turbulence, and the psychology of investing. The hosts used Tesla, Zillow, Peloton, and AMC to illustrate how individual stocks can be crushed even as indexes hit highs, then shifted to inflation, labor-market recovery, housing, crypto, and the difficulty of disrupting real estate and consumer services.

Main Topics: Tesla, Elon Musk, and market mechanics (Priority: 5/5): The episode opened with Elon Musk's tweet about selling 10% of his Tesla stake and a discussion of volume, ownership estimates, short interest, and whether the sale would impact the stock. The hosts also debated Musk's motives, taxes, and his tendency to troll markets. Earnings season and 'Great Quarter Guys' (Priority: 5/5): They introduced a new earnings-season segment, emphasizing how to listen to earnings calls, what analyst questions signal, and why company-specific narratives matter more during volatile quarters. Zillow's iBuying shutdown (Priority: 5/5): A major segment focused on Zillow's decision to exit iBuying, lay off 25% of staff, and admit that its pricing and operating model made it look like a leveraged housing trader rather than a market maker. The hosts reflected on whether the thesis could ever have worked at scale. Peloton and the fate of high-expectation growth stocks (Priority: 4/5): Peloton's earnings miss and steep stock decline were used to explore how quickly sentiment can reverse when growth slows and logistics/inflation pressure rises. The hosts discussed the challenge of holding, averaging down, or exiting tiny growth-stock positions. Market highs vs. stock-level carnage (Priority: 4/5): Despite the S&P 500 making new highs, many individual names were suffering huge drawdowns after earnings. The hosts highlighted the growing gap between index performance and stock-picking outcomes. Inflation, rates, and labor-market recovery (Priority: 4/5): They argued that the Fed's taper, infrastructure spending, and a strong labor recovery coexist with falling long rates and a strong dollar, suggesting deep demand for yield and structural forces keeping rates low. Housing, automation, and consumer behavior (Priority: 3/5): The episode reviewed a housing-bubble analysis, argued that the 2008 crisis was fundamentally about weak borrower credit rather than just prices, and discussed how certain industries like real estate and healthcare remain difficult for technology to disrupt.

Key Arguments: Tesla's 10% sale would be enormous in volume terms, but the market can absorb major trades better than expected. The current market is highly unforgiving to earnings misses, even while the broader index remains strong. Zillow's iBuying failure showed that real estate is much harder to automate and scale than investors hoped. Peloton and other pandemic winners are now confronting normalization, slowing growth, and higher operating complexity. Low long-term interest rates may persist due to demographics and strong demand for yield, despite tapering and improving economic data. The labor market and economy recovered much faster than after prior recessions because policymakers acted aggressively. Inflation is experienced unevenly; headline CPI matters less than the specific categories households buy. Young, crypto-rich, self-directed investors often do not need traditional advisors yet, but may later as complexity rises. Some industries, especially real estate and healthcare, resist full technological disruption because of regulation, incentives, and fragmented execution.

Data Points: Tesla 30-day average daily volume: ~21 million shares - Used to compare against a possible sale of 10% of Elon Musk's stake. Elon Musk stake sale size: ~23 million shares - Estimated 10% of Tesla holdings using the highest cited ownership estimate. Tesla short interest as % of shares outstanding: ~3% - Down from roughly 25% average between 2012 and 2019. Animal Spirits downloads: ~11 million - Referenced on the show's four-year anniversary. S&P 500 return YTD: 25% - Discussed as evidence of a very strong market. S&P 500 return prior year: 18% - Mentioned as part of a multi-year strong market stretch. S&P 500 return two years prior: 31% - Added to the discussion of consecutive strong annual returns. Live Nation stock performance: +120% over the past year - Example of pandemic-recovery trade assuming normalcy. Planet Fitness stock performance: +50% over the past year - Another reopening/pandemic-recovery example. Zoom Video stock performance: -44% over the past year - Illustrated pandemic-era winners reverting. Peloton stock performance: down well over 50% over the past year - Shown as a major pandemic winner now being repriced. Zillow stock move after earnings: -25% after already being down ~50% - Highlighted the severity of the selloff. Peloton stock move after earnings: -20% to -30% after being down ~50% - Used to show post-earnings punishment for misses. Penn Gaming stock move after earnings: -20% after being down ~50% - Another example of severe earnings-driven declines. 10-year Treasury yield: 1.45% - Discussed as unusually low given improving economic conditions and tapering. Zillow website traffic: ~230 million unique visitors per month - Used to show the strength of Zillow's brand despite the iBuying failure. Zillow employee reduction: 25% of workforce - Announced as part of the iBuying exit. Zillow offer rejection rate: 90% - Most homeowners declined Zillow's offers. AMC revenue (3 months ended Sept. 30, 2020): $63 million - Compared with 2021 to show recovery from near-zero activity. AMC revenue (3 months ended Sept. 30, 2021): $425 million - Used to discuss theater recovery and inflation effects. Crypto retirement survey 'yes' responses: 11% combined - 4% said they or someone they know quit due to crypto gains; 7% said someone they know did. Young households with self-directed investing style: 70% in 2019 vs. 57% in 2010 - Used to argue many wealthy young investors don't need advisors yet. Pandemic job losses trough: 15% - Shown as deeper than any post-WWII recession. Current unemployment rate: 4.6% - Referenced as evidence of a rapid labor-market recovery. Milk example price increase: $1.99 to $2.79 per gallon - Used to explain that inflation is highly personal. M1 spend checking APY: 1% - Mentioned in a listener email about cash parking options. Foolhardy wine discount: 20% off with code SPIRITS - Listener promotion and sponsor mention.

Pivotal Quotes: "our observed error rate has been far more volatile than we ever expected possible and makes us look more like a leveraged housing trader than the market maker we set out to be" — Rich Barton: Zillow earnings call, explaining why the company exited iBuying. "The stock market was Wayne Gretzky" — Michael Batnick/Ben Carlson: Commenting on how markets anticipated the end of the pandemic better than many commentators. "You have to understand that they're never going to go that hard at these people" — Ben Carlson: Advice on how to listen to earnings calls and interpret analyst questions.

Implications: Listeners should expect continued divergence between index levels and individual-stock outcomes, especially in expensive growth names. The episode also reinforces that rates may stay low longer than expected, while real estate, labor, and inflation remain highly context-specific.