Why The Bull Market Could Last a Lot Longer (EP.238)

Episode Summary

Executive Summary: The episode focused on market commentary, arguing that 2021’s strong stock gains and high valuations do not invalidate long-term bull markets. The hosts pushed back on fear-driven media coverage about the Fed and inflation, discussed ESG indexing, hedge fund performance, supply-chain and lumber inflation, crypto adoption, and practical personal-finance questions, while also sharing media and movie recommendations.

Main Topics: 2021 market performance and bull-market context (Priority: 5/5): The hosts framed 2021 as an unusually strong year for stocks, then placed the current bull market in historical context using total-return data, drawdowns, and record highs. Fear-based media, the Fed, and inflation narratives (Priority: 5/5): They criticized sensational reporting that attributes market gains solely to Fed policy and warned that doomsday headlines can cause investors to make poor allocation decisions. Historical bull markets, valuation, and CAPE skepticism (Priority: 4/5): The discussion explored whether the current cycle could resemble prior multi-decade bull markets, and revisited debates over CAPE as a valuation tool. ESG indexing and passive fund design (Priority: 4/5): They examined BlackRock’s ESG push, arguing that many ESG products are effectively close substitutes for plain-vanilla index funds but charge higher fees. Supply chains, lumber prices, and inflation transmission (Priority: 3/5): The hosts discussed renewed lumber price strength and a long interview on global supply chains, emphasizing that logistics constraints are a real inflation driver. Personal finance and portfolio risk questions (Priority: 4/5): They answered listener questions about stablecoins, emergency funds, HELOCs, and whether high-yield crypto products are appropriate for short-term cash needs. Media, streaming, and movie recommendations (Priority: 2/5): The episode closed with entertainment recommendations and commentary on recent shows and films, including Ridley Scott movies and TV finales.

Key Arguments: Short-term stock returns are poor predictors of next-year returns; history shows little year-to-year signal after strong gains. Even if 2022 or a future year were down, the multi-year annualized return from 2009 onward would still be exceptional. Investors should not let doomsday headlines about the Fed or money printing override earnings, which are still the main driver of stock prices. The term "money printing" is often misused; QE is not the same as the government literally sending cash to households. Trying to avoid every possible risk can keep investors out of bull markets for too long; markets often price risks better than individuals do. ESG funds often differ little from standard index funds in holdings, so higher fees may not buy much beyond branding and values alignment. Hedge fund performance should be judged in light of net exposure; in a strong bull market, many underperform by design, but some results are still poor. For short-term reserves and emergency funds, high-risk yield products like stablecoins or crypto-lending platforms are inappropriate because the main risk is not yield fluctuation but platform failure or hacking. Inflation varies by income and shopping behavior; higher-income consumers who shop online may experience lower effective inflation than others.

Data Points: S&P 500 total return in 2021: 28.7% - Referenced in the lead-in as a simple way to track market performance including dividends. S&P 500 rise from March 2009 bottom: 812% - Used to illustrate the scale of the bull market since the financial-crisis low. Annualized return since March 2009 bottom: 18.8% - Calculated from the 2009 market bottom to the present in the intro. Average next-year return after a 20% gain: 9.7% - Historical S&P data going back to 1928. Average next-year return after a 30% gain: 9.9% - Used to argue that one strong year tells you very little about the next. Probability of positive next-year return after a 20% gain: 70% - Historical frequency of positive returns following a 20% annual gain. Years with more than three consecutive double-digit annual gains: 3 periods - 1942-1945, 1949-1952, and 1995-1999 were cited. New all-time highs in 2021: 70 - Presented as the second-most all-time, behind 1995. Record highs in 1995: 77 - Used as the historical benchmark for all-time highs in a year. Worst peak-to-trough drawdown in 1995: about 2.5% - Illustrated how calm a strong year can be despite frequent new highs. Federal Reserve balance sheet increase, 2008-2014: more than $3.5 trillion - Discussed in the context of quantitative easing and the misuse of "money printing" rhetoric. ESGU assets at start of 2020: $1.6 billion - BlackRock ESG ETF asset base before the major model-portfolio inclusion. ESGU assets later cited: $16.4 billion - Illustrated growth after BlackRock’s ESG push. IVV expense ratio: 3 basis points - Referenced to show how cheap broad index exposure is. ESGU expense ratio: 15 basis points - Used to argue ESG branding comes with a fee premium over plain index funds. Apple retention bonus: $180,000 - Reported as an unusual bonus to retain engineering talent. BlockFi yield product example: 9% - A listener cited earning 9% on stablecoins as part of a cash-allocation question. S&P 500 up years since 1928 with 30%+ gains: 17 times - Used to show 2021 was not historically among the very top years despite strong returns. Bull-market period from 1942 to 1968: 3,800% total return - A long historical bull-cycle example. Bull-market period from 1979 to 1999: about 3,000% total return - Another multi-decade super-cycle example. Netflix/Disney etc. not mentioned: N/A - No direct comparable data beyond entertainment commentary.

Pivotal Quotes: "You have to survive a bull market. Have we learned nothing?" — Ben Carlson: Used to argue that investors often underestimate how long bull markets can persist. "The point is literally the same arguments about money printing and the dollar going to hell and you shouldn't buy stocks. It's poison." — Michael Batnick: Strong rejection of sensational bearish narratives about inflation and the Fed. "Vanguard was mostly good enough." — Howard Lindzon (quoted by the hosts): Summarized why many investors did not switch to newer robo-advisors despite better technology.

Implications: Listeners are encouraged to stay skeptical of sensational macro narratives, judge long-term results with context, and be careful with high-yield cash alternatives. The episode reinforces disciplined investing, low-cost indexing, and avoiding overreaction to headlines.