Episode Summary
Executive Summary: The episode ranges from a market/economy update to a long AI discussion and lighter culture/consumer segments. The hosts focus on the delayed path back to market highs, the Fed’s difficult inflation-vs-banking balancing act, tightening credit and regional housing weakness, and how AI may bring both productivity gains and major downsides such as scams and misinformation. They close with personal anecdotes and media recommendations.
Main Topics: Market drawdowns and the long road back to highs (Priority: 5/5): The hosts examine how long it typically takes for markets to recover from peak to peak, arguing that investors should expect frequent drawdowns and prolonged periods below all-time highs. Fed policy, banking stress, and inflation tradeoffs (Priority: 5/5): They criticize the Fed’s communication and argue that rate hikes may be less about solving inflation than about breaking things, while acknowledging rate cuts could help stabilize banks if needed. Credit tightening and recession risk (Priority: 4/5): The discussion centers on whether banking turmoil will significantly restrict credit, with the view that tighter lending standards are likely but the magnitude is uncertain and often overestimated. Market concentration and the dominance of big tech (Priority: 4/5): They note that a small handful of mega-cap tech names are driving most of the S&P 500’s gains, highlighting how narrow the rally has been. Housing market fragmentation and affordability constraints (Priority: 4/5): The hosts describe a split housing market by region, low inventory, high mortgage-rate spreads, and a surge in all-cash buyers relative to first-time homebuyers. AI optimism vs. societal downside (Priority: 5/5): A major segment debates AI’s future: productivity gains for knowledge workers versus greater scams, disinformation, labor disruption, and social harm. Consumer behavior, retirement, and media/personal anecdotes (Priority: 3/5): They discuss retirement security, Social Security reliance, travel habits among millennials, home services frustrations, ticketing fees, and media recommendations like Daisy Jones & the Six and Killers of the Flower Moon.
Key Arguments: Investors spend far more time in drawdowns than at all-time highs, so expecting constant market progress is unrealistic. The Fed’s inflation-fighting playbook is still centered on breaking demand or financial conditions, but that approach may be poorly suited to today’s banking issues. A banking crisis can be easier to solve than inflation because rate cuts or backstops can quickly stabilize bank balance sheets and deposits. Credit tightening is likely after banking stress, but market participants may overestimate how severe the contraction will be. The S&P 500’s performance is being carried by a very small group of mega-cap technology stocks rather than broad market strength. Housing is not one national market; conditions vary sharply by region, with the West and parts of the Southwest weaker while much of the East remains stronger. AI will likely be transformative and useful for specific work, but its harms—scams, misinformation, and labor-market disruption—may outweigh the benefits for society as a whole. Social Security remains crucial for retirees, especially those who made poor investment decisions and depend on it for the majority of spending. Millennials appear more willing to spend on travel and experiences than previous generations, even while delaying other major purchases.
Data Points: Days since last S&P 500 all-time high: ~450 days - Measured from January 3, 2022 peak to the episode date. Average days from market peak to new all-time high: ~1,200 days - Historical average since 1950 across prior bear markets. Length of 2020 peak-to-peak recovery: 181 days - Referenced as an outlier recovery during the pandemic shock. Length of 2013 peak-to-new-high cycle: Almost 2,000 days - Used to show how long recoveries can take. Chance of all-time highs on a trading day: ~5% - Speaker cited long-run history to argue highs are rare. Current S&P drawdown from highs: ~15-16% including dividends - Compared with the worst point of the bear market at over 25% down. Apple + Microsoft share of S&P 500: 13.3% - Noted as the highest concentration on record. Megacap tech year-to-date performance: +19% - Apple, Microsoft, Google, Amazon, and Facebook/Meta were cited as the main drivers. Rest of S&P 500 performance ex-megacaps: Flat - The other 495 companies were said to be unchanged year to date. S&P 500 year-to-date performance: +3% - Attributed almost entirely to the five mega-cap stocks. All-cash offers vs. first-time homebuyers in 2022: All-cash purchases exceeded first-time homebuyer purchases - Cited as evidence of weaker access for younger buyers. Share of homes purchased by first-time buyers in 2022: 26% - Down from 34% in 2021. 30-year fixed mortgage spread over 10-year Treasury: 320 bps vs. historical 195 bps - Used to show unusually wide mortgage pricing. Mortgage rates move: 7.0% to 6.5% - Redfin said daily average mortgage rates fell over the weekend. Pending sales under contract within two weeks: 46% - Indicator of fast-moving, supply-constrained housing demand. Los Angeles mansion tax: 4% above $5M; 5.5% above $10M - Seller-paid tax going into effect April 1. Social Security share of couple’s spending: ~60% - A retired Maine couple spending $50,000 annually receives about $30,000 from Social Security. Bank deposit concentration at SVB: 10 largest deposit accounts held $13.3B - Illustrated the scale of wealthy depositor concentration. Nonzero Bitcoin addresses growth: Fastest since early 2021 - Attributed to the recent banking crisis and flight into Bitcoin. Millennials taking 3+ domestic flights: 18% - Compared with 10% of Gen X and 6% of baby boomers.
Pivotal Quotes: "Investing sucks for a long period of time. That's why you get paid." — Michael Batnick: Explaining why market recoveries are slow and drawdowns are normal. "The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the internet, and the mobile phone." — Bill Gates: A quoted framing of AI’s historical importance before the hosts debate its effects. "I think the bad is going to outweigh the good? Yes, definitely." — Ben Carlson: Summarizing his view that AI’s societal risks may exceed its benefits.
Implications: Listeners should expect continued volatility in markets, ongoing credit tightening, and a more uneven housing picture by region. AI may boost productivity, but investors and consumers should also prepare for fraud, misinformation, and labor disruption.
From the Transcript
Of bear markets and duration. So it sounds like we're about to drop a similar post. We'll see who does it first, probably you. But wait, one more thing I just want to say: we've written this post a million times about on average, even during great decades, on any given day, on average, you're 11% away from the all-time high. It's not as close as you'd think. Yeah, investing sucks for a long period of time. That's why you get paid. Yes. That's the point. That at the worst spot, we were down 25%, a little more than 25%. Now it's 15% or 16, I think, if you include dividends. But we're still a good ways away from getting back to all-time highs if that's what people are anchoring to. I was doing this morning and I did it kind of by hand through Excel. I've got all these spreadsheets that I use, and I calculated this. It took me, I don't know, 20 minutes. But I thought, yeah, if I had an AI assistant in my ear, I'd say, Scarlett Johansson, please do this for me. That's my AI use case. Well, what were you doing? Maybe AI could already do it for you. What were you asking? What were we trying to do? Oh, this thing? Yeah, just the number of days between one high to the next. I kind of just did it eyeballing it.
And went into Bitcoin. So, I guess these are people that are already in the crypto universe that are already messing around with this stuff. That's that. Do they have stablecoin CDs yet? Not quite as attractive when CDs give you 4%. Here's a quote: We're pivoting to AI now, new topic. The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the internet, and the mobile phone. It will change the way people work, learn, travel, get healthcare, and communicate with each other. Entire industries will re-examine. Orient around it, businesses will distinguish themselves by how well they use it. Ben, I'm guessing you know who this quote is from since I have the link on there. But do you know who wrote this? That's Bill Gates, right? That's Bill Gates. So I listened to Derek Thompson and Kevin Roos talk about AI last week on plain English. And
What? Like, if the banking thing gets out of hand, and I'm not suggesting that it's going to, but they could just say, okay, we're going to take yields from $475 down to $275. Boom, problem fixed. Bonds are whole. Banks are softened. It is true. And it's kind of happened a little bit with rates falling. I kind of feel like the banking crisis is over. I sure hope so. There still are going to be ramifications from this, like tighter lending standards potentially and that sort of stuff and consolidation. But I think the crisis part of it, I think that's over. So there's been a lot of talk about the credit tightening and. Loan slowing and what that's going to do to the economy. And hard to think that doesn't happen. But Mark Dow made a very good point. He said, Everyone's sure this recent banking turbulence is going to cause a significant contraction in credit. It's likely to cause a contraction and credit, but there's no way we know how much. I'm guessing people are more likely to overestimate it than underestimate it. Don't we overestimate everything, though? Yes. Isn't that just the way that we're. I was thinking about this as I've been diving more into the AI stuff. Actually, that's out of the way.
About Animal Spirits Podcast
Animal Spirits is a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, listening to and watching. Look for new episodes every Wednesday morning. See our disclosures here - https://ritholtzwealth.com/podcast-youtube-disclosures/