Passive Income (EP.57)

Episode Summary

Executive Summary: The episode mixes market commentary with a long riff on the economics of content creation and “sellout” criticism, then pivots to several current events: the OptionsSellers.com blowup, private equity’s role in grocery bankruptcies, cash outperforming risk assets, Facebook and tech volatility, recession odds, and a set of listener Q&As on debt repayment, currency hedging, investing for a young adult, and CDs versus bond funds.

Main Topics: The economics and reality of content monetization: The hosts discuss a Rad Reads post about how difficult it is to earn meaningful money from writing, podcasting, affiliate links, and consulting, pushing back on the idea of “passive income” and defending sponsorships as part of how media businesses survive. Podcast sponsorships and accusations of being 'sellouts': They react to listener backlash over ads in the show, joke about the criticism, and explain that they plan to move the “talk your book” segments to Mondays to improve flow and add context. OptionsSellers.com and the dangers of leverage/speculation: A detailed discussion of the OptionsSellers.com collapse highlights how short option exposure in natural gas led to catastrophic losses, including accounts going to zero and some investors owing money, framed as speculation rather than investing. Private equity, debt, and grocery bankruptcies: The hosts examine a piece arguing that PE ownership and leverage, not just retail disruption, helped drive grocery chain bankruptcies. They debate whether PE gets a pass and note policy ideas like debt limits and fee transparency. Market volatility, cash returns, and asset class dispersion: They discuss how cash has outperformed stocks and bonds in the year discussed, how rare that is historically, and how most tracked asset classes had negative returns, reflecting broad risk-off conditions. Tech, Facebook, structured notes, and recession talk: The conversation covers Facebook’s weakness, Microsoft overtaking Apple and Amazon in market cap, the risks of structured notes tied to Facebook, and an Atlantic interview with Bill McBride suggesting no near-term recession. Listener Q&A on personal finance decisions: They answer questions about the debt snowball method, currency hedging for Canadian investors, whether to diversify out of inherited Disney stock, and whether a 2-year CD or intermediate bond fund is preferable.

Key Arguments: Content creation rarely produces truly passive income; it usually requires years of work, experimentation, and often consulting or other revenue sources before it becomes economically viable. A side hustle is best treated as a long-term, enjoyable project rather than a quick path to quitting a day job; persistence matters more than immediate monetization. The OptionsSellers.com case shows the difference between investing and speculation: if a strategy can go to zero or below zero, it is not an investment in the traditional sense. Investors should understand leverage, margin, and strategy risk before trusting others with their money, especially in opaque products or managed accounts. Private equity may contribute to bankruptcies by loading companies with debt, even if operating fundamentals were already weak; increased transparency and debt constraints sound reasonable. Cash outperforming stocks and bonds is notable historically, but the hosts caution against overstating the magnitude because returns across major asset classes remain relatively close. Quality and balance sheets may matter more in a downturn, though “own quality” can sound like pundit filler until market stress reveals dispersion. For personal debt payoff, the psychological benefit of paying the smallest balance first can outweigh pure mathematical optimization for some borrowers. Young investors should learn by doing, but the hosts suggest maintaining a core portfolio approach and not letting inherited or concentrated positions dominate. For short-term fixed income needs, the CD vs. bond fund choice depends on liquidity and overall portfolio context rather than yield alone.

Data Points: Amazon affiliate earnings mentioned in Rad Reads example: $8 - Illustrates how little revenue was generated relative to the effort of reading and writing about a book. Amazon minimum payout threshold: $100 - Used to underscore how small the affiliate income was. Sponsors/ads before Rogan episode: 7 minutes - The host fast-forwarded through seven minutes of advertisements before the Jake the Snake Roberts interview. Andre the Giant beer anecdote: 48 beers - Jake the Snake Roberts story cited during the Rogan interview recap. PE-backed grocery bankruptcies since 2015: 7 major grocery chains - American Prospect article claiming private equity owners were behind seven bankruptcies. Workers employed by those chains: 125,000+ workers - Scale of the grocery bankruptcy issue in the PE article. Regulatory leverage guidance: 6x EBITDA - Federal bank agencies’ suggested maximum debt level for bank lending to companies. Cash outperforming stocks and bonds in a year: Only 10 times since 1926 - Historical rarity of cash beating both major asset classes over a calendar year. Years when cash rose while stocks and bonds fell: 1969 and 1931 - The only cited years, besides the current one, when cash was up and both stocks and bonds were down. Asset classes with negative total returns: 90% of 70 asset classes - Deutsche Bank statistic referenced in a Wall Street Journal piece. Previous high share of negative asset classes: 84% of 37 asset classes - Historical comparison from 1920. Funds dumping Facebook stakes: 26 active mutual funds - Referenced as an example of sentiment shifting away from Facebook. Facebook share price in structured note example: $141 barrier; then $135 current trading - The note promised principal/coupon protection as long as Facebook stayed above 141; it fell below that level. Structured note coupon target: 20% to 21% per annum - Credit Suisse-style example of high-yield structured products pitched to investors. Debt snowball example starting debt: $125,000 - Listener describing total debt burden before using a debt snowball approach. Canadian investor portfolio allocation: 85% VOO / 15% total bond index - Listener’s current asset allocation in U.S. equities and bonds. Canadian dollar move cited: 30% versus the U.S. dollar over five years - Used to frame the hedge-versus-unhedged currency decision. Inherited Disney stock value: about $25,000 - Grandmother’s gift transferring at age 21. Two-year CD yield mentioned: 3.1% - Compared with an intermediate bond fund for near-term cash needs.

Pivotal Quotes: "The whole idea of passive income, I think, first of all, needs to be debunked." — Ben Carlson: In the discussion of Rad Reads and the difficulty of monetizing content. "If any part of your investment strategy has the ability to go to zero or less than zero, then yes, that is not an investment strategy. You're just pure speculation." — Ben Carlson: Commentary on the OptionsSellers.com collapse and leverage risk. "If no one complains about your price, it's too low. If everyone complains, it's too high." — Ben Carlson: Used from Harry Beckwith’s Selling the Invisible to explain pricing and reactions to their podcast sponsorships.

Implications: Listeners are urged to be skeptical of easy-money narratives, leveraged “income” strategies, and opaque products. The episode favors patience, transparency, and portfolio simplicity while acknowledging that media and investing both require monetization and tradeoffs.