The Fee War Comes to Crypto (EP.342)

Episode Summary

Executive Summary: Animal Spirits covered conference takeaways from Future Proof and an agriculture/commodity event, then moved into big-picture investing themes: commodities’ weak long-term performance, the power of stocks over time despite brutal drawdowns, tech dominance, ETF/passive investing trends, crypto ETF launch dynamics, mortgage and consumer behavior, commercial real estate stress, and a series of pop-culture and personal life digressions, including Michigan football, movies, and streaming.

Main Topics: Future Proof and the value of in-person conferences (Priority: 5/5): The hosts promoted Future Proof in Huntington Beach, emphasizing networking, educational sessions, breakthrough meetings, and social time as a high-value event for wealth management professionals. Agriculture conference and commodity psychology (Priority: 5/5): Their Kansas City trip highlighted how farmers manage illiquid wealth tied to land and why macro, inflation, rates, and global supply/demand matter more for commodity businesses than for typical long-term investors. Commodities versus equities and asset allocation (Priority: 5/5): They reviewed annual returns and argued commodities are cyclical, useful tactically and as inflation hedges in the short run, but poor as strategic buy-and-hold allocations compared with energy stocks or equities. Stock market resilience and long-term compounding (Priority: 5/5): A major theme was how annual returns are chaotic, but long-term S&P 500 returns remain remarkably steady around ~10% per year, even after devastating bear markets. Tech dominance, mega-cap concentration, and market structure (Priority: 4/5): They discussed the continued dominance of tech stocks, the huge size of the MAG-7 relative to small caps and foreign markets, and the sheer scale of U.S. equity and Treasury markets. ETFs, passive investing, and the Bitcoin ETF race (Priority: 4/5): They examined ETF trading behavior, passive fund growth, and the launch of spot Bitcoin ETFs, including fee compression, custody dynamics, and likely turnover between products. Consumer, credit, real estate, and post-pandemic economy (Priority: 4/5): Topics included inflation easing, high food prices, tightening credit, surprisingly resilient banking and bond markets, and deteriorating office demand in downtowns and older buildings.

Key Arguments: Commodities are too cyclical and too hard to predict to be a core buy-and-hold allocation; trend-following or tactical use makes more sense. Energy stocks are likely a better way to express a commodities bullish view than owning commodities directly. The stock market’s short-term randomness contrasts with its long-term reliability; investors should focus on time horizon and survival through drawdowns. If investors cannot tolerate 50% equity drawdowns, they should hold more cash/T-bills and reduce equity exposure accordingly. The U.S. dominates globally because it has the deepest, most liquid equity and Treasury markets. Passive investing has become the majority of fund assets, but active managers should not expect some dramatic reversal. Bitcoin ETFs will probably create intense trading but also compress fees and expand access; the market may have already priced in much of the catalyst. Commercial real estate stress is visible, but a system-wide blowup seems less likely because risks are widely recognized and markets have had time to adjust. People are wealthier than common nostalgia suggests; many “the past was better” claims ignore major gains in homeownership, car ownership, and education. Sports, movies, and media remain culturally powerful because they create shared experiences, especially for families and fans.

Data Points: Future Proof dates: September 15th to 18th - Conference promotion for Huntington Beach event Breakthrough meetings: About 20,000 meetings - Opt-in speed-dating style networking at Future Proof Commodities return in 2023: -10% - Annual asset-allocation quilt discussion using DJP Commodities 10-year annualized return: About -1% to -2% per year - Used to argue weak long-term performance Energy stocks return in 2021: 53% - Sector quilt discussion Energy stocks return in 2022: 64% - Sector quilt discussion Energy stocks return in 2023: Just under -1% - Sector quilt discussion Consumer staples return in 2022: -0.8% - Illustrated how small annual changes can feel very different across years S&P 500 5-year annualized return: Almost 16% - Annualized return update through 2023 S&P 500 10-year annualized return: 12% - Long-term return chart S&P 500 20-year annualized return: 10% - Long-term return chart S&P 500 50-year annualized return: 11% - Long-term return chart S&P 500 since 2000 annualized return: Just under 7% - Likely worst 30-year period in modern history S&P 500 since 1928 annualized return: 9.8% - Includes multiple severe crashes MAG-7 market cap vs Russell 2000: 4x larger - Cited in discussion of mega-cap concentration and AI bubble concerns U.S. Treasury market size vs major foreign sovereign markets: Roughly equal to China, Japan, UK, France, Italy, and Germany combined - Illustrated dominance of U.S. capital markets Money market assets: $7 trillion - Goldman close-to-final mutual fund and ETF flow numbers 2023 money market inflow: $1.3-$1.4 trillion - Large relative inflow into money market funds U.S. equity fund inflows in 2023: $95 billion - Goldman fund flow data Passive share of fund AUM: 53% - Bank of America chart on passive vs active in fund world Passive share of fund AUM in 2009: 20% - Shows long-term shift toward passive investing SPY average holding period: 17 days - Morningstar ETF trading analysis IVV average holding period: 262 days - Morningstar ETF trading analysis VTI average holding period: 665 days - Morningstar ETF trading analysis QQQ average holding period: 15 days - Morningstar ETF trading analysis Bitcoin ETF average holding period example: 8 days - BIDO ranked near the lowest holding periods U.S. inflation rate June 2022: 9.1% - Compared with later 2023 easing U.S. inflation rate later in discussion: 3.1% - Inflation had come down materially U.S. unemployment rate: 3.7% - Macro backdrop remained strong Median family income for married couple with children under 18 (2022): $120,000 - Used to counter nostalgia about the 1950s family income myth Median household net worth: $192,000 - Used to rebut claims that most Americans have little or no savings Average checking account balance in cited net-worth stat: $8,000 - Matt Darling’s myth-busting example Office space vacancy in major U.S. cities: 19.6% - Wall Street Journal / commercial real estate discussion Highest office vacancy comparison: Highest since 1979 - Historical comparison from office market data Gold ETF launch year: 2004 - Used as a comparison for what Bitcoin ETF adoption might look like

Pivotal Quotes: "If you left future proof and you didn’t derive economic value... you should probably consider leaving the industry." — Michael/Ben (conference promo): Describing Future Proof as a must-attend wealth management event "I piss more money away in gold than I’m worth." — Conference speaker: A self-aware admission from a self-described gold bug "If you can’t handle those periods, then hold more cash." — Ben Carlson: Advice on surviving catastrophic bear markets and aligning risk with behavior

Implications: The episode reinforces a core investing message: ignore short-term noise, respect drawdowns, and match strategy to behavior. It also highlights ongoing shifts toward passive, mega-cap concentration, ETF-driven trading, and structural changes in real estate and media.