Living the Dream (EP.370)

Episode Summary

Executive Summary: Ben and Michael cover markets, politics, and everyday life through a mix of charts, anecdotes, and cultural commentary. The main thrust is that elections and political drama matter less for investors than people think, the U.S. consumer and economy remain resilient despite higher rates, the Fed and economy may have benefited from luck, and media/entertainment trends—from Netflix’s dominance to movie theater recovery—keep shifting.

Main Topics: Politics and investing don't mix (Priority: 5/5): The hosts argue that election-year volatility is usually overthought and that investors should not let political views drive portfolio changes. They emphasize that presidents matter in some sectors, but markets are driven by many other forces and outcomes are often luck-dependent. Market resilience and low volatility in 2024 (Priority: 4/5): They discuss a chart showing unusually calm daily S&P 500 returns in 2024, using it to argue that markets have already absorbed election risk and that investors are already doing plenty of worrying for us. The U.S. economy, Fed policy, and consumer debt (Priority: 5/5): A major theme is whether the Fed and the economy deserve credit or merely got lucky. They point to low-rate lock-in, strong asset values, rising consumer borrowing costs, and resilient consumer data as evidence the economy is still holding up. Stock market winners, diversification, and NVIDIA (Priority: 4/5): Using Hendrik Bessembinder’s work, they revisit how a tiny share of stocks drive most wealth creation and highlight NVIDIA as an extraordinary long-term winner, reinforcing the case for diversification and the power of compounding. Inflation, disinflation, and consumer pricing (Priority: 4/5): They examine the rapid post-2022 disinflation, argue that the recent decline in inflation is historically unusual but not unprecedented, and discuss how companies like McDonald’s adjust prices and promotions when customers push back. Media, streaming, and entertainment trends (Priority: 3/5): The hosts compare Netflix’s dominance with Disney, Apple TV+, and others, note the continued strength of streaming versus theaters, and discuss movies, TV shows, and the economics of cinema attendance. Listener emails, stories, and cultural side topics (Priority: 2/5): The episode also features lighter banter about comedy movie rankings, awkward social phrases, honking etiquette, dream sequences, and personal stories about concerts, basketball, and parenting.

Key Arguments: Presidents matter at the margins, but most portfolio outcomes are driven by broader economic forces, policy constraints, timing, and luck. Campaign promises often diverge from actual policy once Congress, the Senate, and real-world constraints intervene. The stock market already incorporates uncertainty; investors should not overreact to election noise or build portfolios around political forecasts. The U.S. consumer remains resilient overall, even though some households are stressed by credit cards, autos, and mortgage rates. Household debt growth has not outpaced inflation by much in real terms since the pandemic, so debt burdens are not yet catastrophic. The economy and asset prices have been supported by low fixed-rate debt locked in by households and corporations. Bessembinder-style research reinforces that a very small number of stocks create most long-run wealth, making diversification essential. NVIDIA stands out as a historic outlier and showcases the wealth creation possible in successful tech franchises. The recent rapid drop in inflation is historically notable, but disinflation itself is not necessarily recessionary or alarming. Companies like McDonald's will reverse pricing strategy if volume suffers, showing that corporate pricing power has limits. Streaming winners like Netflix can survive severe drawdowns and still dominate because the market rewards scale and engagement, not just subscriber growth. Survey data on inflation and sentiment can be distorted by methodology and online response behavior, so headline survey numbers should be interpreted cautiously.

Data Points: S&P 500 2024 daily return volatility: One 2% move plus/minus all year, and it was an up day - Used to show how calm U.S. stocks have been in 2024 despite election concerns U.S. stock market wealth creation concentration: About 4% of stocks account for the vast majority of long-term wealth creation - Referenced from Hendrik Bessembinder’s research Long-run cumulative return winners: 17 stocks produced cumulative returns of 5 million% - Bessembinder analysis of biggest stock market winners from 1926-2023 Average cumulative return of sampled stocks: About 23,000% - Compared against the median stock’s negative return over the same period Median cumulative return: -7.4% - Shows how many stocks underperform over the long term Average annual return of biggest winners: 13.5% per year - Even the biggest winners did not need extreme annual returns to become massive compounding stories NVIDIA annual return over available history: 33.4% per year - Highest 20-year return in the U.S. stock data set NVIDIA employee net worth poll: 36.6% answered over $20 million - Twitter poll cited as a sign of extraordinary employee wealth creation Population with stock portfolios over $500,000: 30% - Torsten Slock chart on household wealth and asset ownership Population with homes over $500,000: 37% - Same Torsten Slock household wealth chart Interest on non-mortgage consumer debt: Up 50% year over year - Wall Street Journal chart on borrowing costs Interest on mortgage debt: Up about 15% year over year - Shows mortgages are rising more slowly than non-mortgage debt costs Average credit card balance: $6,000 - Used to discuss how much revolving debt households carry Household debt since pandemic start: Up 25% - Compared with CPI growth CPI since pandemic start: Up 21% - Used to argue household debt is only modestly up in real terms Real increase in household debt since pandemic start: About 4% - Calculated from debt growth versus CPI Households planning to move in next 12 months: 18% vs. 14% previously - Shows a spike in moving intentions, likely tied to expected rate cuts or easing mortgage rates U.S. box office spending in 2023: $8.9 billion - Used in comparison with video game spending U.S. video game spending in 2023: $57.2 billion - Far exceeds box office spending Video game spending per box office dollar: $6.43 - Charter chart comparing entertainment spending Netflix subscribers: 277 million - Illustrates scale of the streaming leader Netflix quarterly profit growth: 44% year over year - Bloomberg reporting referenced in the discussion of streaming dominance Netflix profit versus 2019: More than sevenfold higher - Shows how far profitability has rebounded Netflix top 10 shows viewing hours: 33 billion hours - Used to demonstrate its dominance in U.S. viewing Disney top 10 shows viewing hours: 5.3 billion hours - Far behind Netflix in audience engagement Apple TV+ U.S. TV viewing share: 0.2% - Highlights Apple’s limited viewing footprint Households earning $245,000+ holding excess savings: More than three-quarters - Used to argue excess savings are concentrated among high earners Inflation decline example: 9% to 3% - Illustrates the speed of recent disinflation Historic comparable disinflation: 9.8% to 3.5% in the 1980s - Used as one of the few similar episodes in recent history

Pivotal Quotes: "Don't mix your investing in politics." — Michael/Ben: Core investing advice during the election discussion "The stock market doesn't care who the president is." — Michael: Argument that market outcomes are driven by broader forces than who occupies the White House "Let the market do the worrying for you." — Ben (paraphrasing Bill Miller): Used to explain why investors should avoid overreacting to political uncertainty

Implications: Listeners should expect election volatility and political noise, but not treat it as a reason to radically alter portfolios. The bigger story is a still-resilient consumer, powerful compounding in winners, and a market/economy shaped as much by luck and timing as by policy.