Predictions For 2025 (EP.394)

Episode Summary

Executive Summary: The episode mixes personal banter with a wide-ranging market discussion centered on 2025 predictions, the durability of large-cap tech/AI leadership, retirement risks, housing and mortgage-rate lags, private markets concentration, and consumer balance-sheet resilience. The hosts argue that recency bias may be overstating permanence in today’s market structure, while also acknowledging that the Mag 7 and VC funding patterns reflect a real shift in how innovation is financed. They close with reflections on media, movies, travel, and consumer behavior.

Main Topics: 2025 market predictions and recency bias (Priority: 5/5): The hosts revisit last year’s predictions, score their accuracy, and debate bold 2025 scenarios. They emphasize that the market may either keep extending the AI boom or suffer a correction, and that investors may be too anchored to recent winners and outcomes. Large-cap tech, AI leadership, and concentration (Priority: 5/5): They discuss whether today’s concentration in the top stocks is a temporary anomaly or a durable new regime. Charts from GMO and JPMorgan are used to frame how the top 10 stocks and U.S. market share have changed over time. Housing, mortgage rates, and economic lags (Priority: 5/5): They argue that sustained high mortgage rates should eventually matter for the real economy, especially housing-related spending and employment, even if the impact has been delayed by the low-rate mortgage stock already in place. Private markets, venture capital, and startup concentration (Priority: 4/5): A deep dive into the collapse in small VC fundraising, the dominance of a few mega-firms, and how large public companies now effectively play the role of venture financiers through acquisitions and direct investment. Retirement, longevity, and regret (Priority: 4/5): They reflect on the challenge of outliving retirement savings and whether future regrets should override present-day lifestyle choices, using an article about Americans over 80 as a springboard for broader life planning. Consumer behavior, debt, and travel spending (Priority: 3/5): The hosts discuss high travel costs, vacation demand, and credit card debt levels, concluding that consumers likely still have room to keep spending unless labor-market conditions deteriorate sharply. Media, entertainment, and cultural decline (Priority: 3/5): They discuss movie attendance trends, the rise of sequels and IP-driven films, the shrinking relevance of traditional retail, and recommendations ranging from Wicked to thriller films and TV shows.

Key Arguments: Stock-market leadership can persist much longer than expected, but history suggests winners and losers still rotate eventually; investors should beware recency bias. The market could either accelerate into a bigger AI bubble or experience a sharp correction; a boring, average year is possible but not the base case they emphasize. High mortgage rates are a lagging but real drag on housing, builder activity, and related economic activity; the effects may just be delayed because many homeowners are locked into low-rate mortgages. Consumer spending may remain resilient because most workers still have jobs and many households can use credit, but job losses would quickly change that. The VC industry has become dramatically more concentrated, and the rise of mega-funds plus large-cap tech acquisitions means innovation is increasingly financed by giants instead of many small funds. AI is more likely to augment financial planners than replace them, especially for affluent clients who value trust and human judgment. Retirement outcomes should not be judged solely by later-life regrets, because people make choices under uncertainty and may have been happier in their earlier years. Private markets, retail, and entertainment all reflect a broader pattern of concentration and consolidation rather than broad-based participation.

Data Points: Ritholtz Wealth Management Naples event: February 19–21 - Announcement of a client/prospect trip and live TCAF event in Naples, Florida. Future Proof Miami: March 16–19 - Announcement of a Miami event on the beach, with a birthday celebration for Michael Batnick. Michael Batnick age: 40 - Discussion of his upcoming 40th birthday and the hosts’ debate over middle age. Wall Street Journal definition of middle age: 62 - The hosts cite a WSJ reference point for middle age. MicroStrategy-related prediction probability: +10,000 odds / 1% - Ben assigns a very low probability to a double-digit correction in the second half of the year after a strong first half. Amazon all-time-high gap: 624 days - Example of how long a major stock can go without a new high after a drawdown. S&P 500 all-time highs in 2024: 57 - Used to illustrate how exceptional 2024 was for market breadth and momentum. Trading days represented by 57 highs: ~20% - The hosts estimate 57 highs out of 252 trading days. Emerging markets returns in 2003–2007: 56%, 25%, 33%, 31%, 33% - Illustrates a highly unusual multi-year period of EM outperformance. VOO 2024 flows: $116 billion - Top ETF inflow figure for 2024. IBIT ranking in ETF flows: 3rd - Bitcoin ETF ranked third among top ETF inflows. AG ETF ranking in ETF flows: 7th - Bond ETF ranking used to discuss continued demand for fixed income. VC firms investing in U.S.-headquartered companies: 6,175 in 2024 - Down by more than 2,000 from the 2021 peak. Peak number of VC investors: 8,300 in 2021 - Shows the contraction in the venture ecosystem. U.S. VC capital raised in 2024: $71 billion - Described as a seven-year low. VC capital concentration: More than half of $71 billion raised by nine firms - Illustrates extreme concentration among large venture firms. U.S. online retail sales share: 15.6% today vs 11% pre-pandemic - Shows the ongoing migration to e-commerce. Clothing and general merchandise online share: 14.5% vs 10% pre-pandemic - Another example of online retail gains. Department/discount store count change: -40% - Biggest retail-establishment decline in the JPMorgan chart. U.S. private real estate transaction volumes: Down sharply - Used to suggest commercial real estate distress is a slow-moving issue rather than a crisis event. OpenAI valuation: $157 billion - Compared against large public companies and entertainment/consumer names. Big tech acquisitions: 870 companies - Google, Microsoft, Apple, Meta, Amazon, and NVIDIA combined acquisition count. Credit card debt as share of disposable income: Very low - Torsten Slok chart referenced to argue households still have borrowing capacity. Mortgage payment share going to taxes and insurance: Close to one-third - Wall Street Journal piece on rising homeownership costs. Metros where at least a quarter of borrowers spend over half of payment on taxes/insurance: 5 metros - Rochester, Syracuse, Omaha, New Orleans, and Miami. U.S. movie attendance peak: 2002 - Lucas Shaw chart showing long-term decline in tickets sold. Domestic box office ticket-sales decline since peak: ~50% - Attendance is about half of the 2002 peak. Top 10 S&P stocks long-run performance: -2.4% annually vs equal-weight rest - GMO chart covering 1957 onward. Top 10 S&P stocks since 2013: +5% annual outperformance - Shows the more recent era of concentration dominance. Effective mortgage-rate gap: Current rates still far above the effective portfolio rate - Explains why the housing market has not fully transmitted higher rates yet. Borrowers in selected metros: At least 25% spend more than half of monthly payment on taxes and insurance - Highlights the burden in some high-cost or high-tax markets.

Pivotal Quotes: "I think maybe, is that one of the reasons that people don't spend a lot of time planning for things like life insurance? Because they don't want to think about that kind of estate planning" — Michael Batnick: Opening discussion about life insurance, mortality, and avoidance of uncomfortable planning. "I think that recency bias could continue to work for two, three, four years. That's a good take. I firmly agree." — Ben Carlson: They discuss the possibility that current market leadership may persist longer than skeptics expect. "I just think eventually it has to make a dent in something." — Ben Carlson: On the lagged but inevitable economic effects of high mortgage rates and housing costs.

Implications: Listeners should expect continued debate over AI-era concentration, housing lags, and consumer resilience. The episode suggests investors should diversify, avoid overconfidence in recent trends, and prepare for a market regime that may shift faster than it has in the past.