Most Stocks Suck (EP.414)

Episode Summary

Executive Summary: The episode centers on market normalization: the hosts argue that rising bond yields may reflect a return to more typical pre-2010s levels rather than a crisis, while equities remain supported by flows, stronger retail participation, and a still-resilient risk appetite. They also examine housing scarcity, AI’s growing impact on venture capital and academia, the expansion of private markets, and cultural shifts around spending, self-help, and media consumption.

Main Topics: Bond yields and market normalization (Priority: 5/5): The hosts push back against panic around higher long-term yields, suggesting rates may simply be normalizing in a world of more inflation, spending, and debt. They compare current yields to past decades and note that bond prices have not been uniformly weak. Equity flows, retail investors, and market resilience (Priority: 5/5): They discuss where money is coming from in the stock rally: taxable bonds, municipal bonds, wages, Robinhood deposits, and automatic investing behavior. They debate whether recent investor discipline is truly new or just a product of a relatively forgiving market backdrop. Housing market stagnation and aging housing stock (Priority: 4/5): The conversation highlights low existing-home sales, high mortgage rates, older homes being sold, and the lack of starter homes. They argue that housing scarcity is structural and that consumers/builder preferences have shifted toward larger, more expensive homes. AI’s influence on venture capital and education (Priority: 4/5): AI now drives a significant share of venture deals, and the hosts discuss OpenAI’s massive funding round and the implications of AI for schoolwork, grading, and the value of writing in one’s own voice. Private equity and retail exposure (Priority: 4/5): They revisit concerns that private equity may eventually push lower-quality assets toward retail investors while also acknowledging that many private-market areas offer genuine diversification and access to otherwise unavailable assets. Cultural shifts: spending, conspicuous consumption, and self-help (Priority: 3/5): The episode touches on resignation around high prices, the social pressure on the wealthy to appear less flashy, skepticism toward life-coach/self-help content, and how people judge others’ spending while defending their own. Media, movies, and personal habits (Priority: 2/5): There is a lighter segment on IMAX, Mission Impossible, Lilo & Stitch, streaming trends, and the hosts’ TV viewing habits, plus commentary on golf, breweries, and lifestyle choices.

Key Arguments: Higher bond yields may be a normalization story, not necessarily a bond-market crisis; the hosts argue current rates are more in line with the post-pandemic inflation/growth/spending environment. The market tends to only focus on one worry at a time: tariffs faded, and bond yields became the new concern. Despite fears about bonds, the sector is not collapsing; IEF is up this year and TLT/zero-coupon bonds have not been disastrous. Recent equity strength is partly fueled by flows out of bonds and money markets, plus wage income and continuous retail brokerage deposits. Retail investors may be better behaved, but that improvement may also reflect a benign environment with faster recoveries and fewer prolonged crashes. The odds of suffering a bear market rise with time in stocks; long-term investing works, but it comes with frequent and sometimes severe setbacks. Housing affordability problems are driven less by one-off rate spikes and more by structural underbuilding, aging homes, and a lack of starter homes. AI is becoming a major capital allocation theme in venture markets and a disruptive force in education and knowledge work. Private markets are both risky and increasingly important because large, profitable companies are staying private longer. A lot of modern consumer behavior looks like resignation: people accept higher prices, bigger homes, expensive leisure, and premium experiences as the new normal.

Data Points: U.S. 30-year Treasury average yield in the 1980s: 11% - Cited as historical comparison for bond yields by decade U.S. 30-year Treasury average yield in the 1990s: 7% - Historical comparison U.S. 30-year Treasury average yield in the 2000s: 6% - Historical comparison Current 30-year Treasury range: 4% to 5% - Described as the recent long-end range that has persisted for roughly two years IEF year-to-date return: +2% - Used to argue that bonds are not in a collapse despite anxiety IEF one-year return: about +5% - Used to show fixed income has still delivered positive returns Japan 40-year bond yield: 3.6% - Mentioned as an all-time high in a global long-duration bond market example Money out of taxable and municipal bonds in April: almost $50 billion - Morningstar flow data cited as source of equity-funding cash Money flowing into U.S. equities in April: over $21 billion - Morningstar flow data Robinhood customers: 26 million - Scale of retail brokerage participation Robinhood first-time brokerage accounts: 13 million - Half of customer base are first brokerage users Robinhood Q1 net deposits: $18 billion - Quarterly deposit inflows Robinhood annualized deposit growth: 37% - Growth rate cited from company deck Robinhood trailing 12-month deposits: $57 billion - Illustrates ongoing retail inflows Odds of a 20% S&P 500 drawdown over one year since 1950: 1 in 3 - From the flipped chart on bear-market probability Odds of a 20% S&P 500 drawdown over five years since 1950: 77% - Used to emphasize that setbacks are common over medium-term holding periods Odds of a 20% S&P 500 drawdown over 15 years since 1950: 100% - Used to show bear markets are nearly inevitable over long horizons Median drawdown of individual stocks: 85% - From Mobison/Morgan Stanley analysis of 6,500 stocks Median time to recover from that drawdown: about 2.5 years - Morgan Stanley analysis Share of individual stocks that recover prior peak: 46% - Morgan Stanley analysis OpenAI funding round: $40 billion - Cited in discussion of AI capital intensity OpenAI valuation: $300 billion - From the latest funding round Share of venture deals driven by AI: 1 in 5 - CB Insights quarterly venture report AI share of venture deals in 2022: 1 in 10 - Used to show acceleration in AI investment Existing home sales pace in April: slowest April pace since 2009 - Carl Quintanilla / market data cited Median age of homes sold in the U.S. in 2012: 27 years - Sherwood data on aging home stock Median age of homes sold in the U.S. now: 36 years - Sherwood data Share of U.S. homes built in the 2010s: 9% - Lowest decade share since the 1940s Share of homes built in 1950 that were 1,500 sq ft or less: 92% - Wall Street Journal housing article Share of homes built now that are 1,500 sq ft or less: 22% - Wall Street Journal housing article Median age of home purchased in Grand Rapids: 42 years - Example from Sherwood neighborhood-level data IMAX domestic box office share for Mission Impossible opening: 20% - Despite IMAX being a tiny share of theaters, it captured a large share of ticket sales Mission Impossible: The Final Reckoning domestic box office: $77.5 million - Opening weekend figure Lilo & Stitch opening weekend box office: $183 million - Memorial Day weekend lead film Total domestic Memorial Day weekend box office: $326.7 million - Record holiday weekend total Prior Memorial Day weekend box office record: $314 million - Set in 2013, not adjusted for inflation Average age comparison from IMF WEO: 70-year-old in 2022 ≈ 53-year-old in 2000 - Used to support the idea that older workers remain cognitively capable Self-improvement market size in the U.S.: $16.5 billion - Listener-provided estimate referenced in the discussion

Pivotal Quotes: "What if this is just what normalization looks like?" — Ben Carlson / discussion of bonds: Core framing for the bond-yield debate "The market only has room for one worry at a time." — Michael Batnick: Explaining why the market moved from tariff fears to bond-yield fears "The odds of experiencing a bear market also increase by holding period." — Michael Batnick: Introducing the flipped long-term risk chart for advisors

Implications: The episode argues that investors should expect higher yields, recurring drawdowns, and structural change in housing and private markets. For listeners, the message is to stay diversified, avoid panic, and recognize that “normal” may now mean more volatility, higher rates, and persistent competition for returns.