Wait, Are We in a Recession??? | Animal Spirits 440

Episode Overview

• The hosts analyze the market's paradoxical reaction to Nvidia's blowout earnings, discussing it as a "sell the news" event and a sign of a healthy, cautious bull market.
• They explore the difficulty of picking individual winners in the AI sector, contrasting the decision to sell Google stock with the strategy of using a broad index like the Nasdaq 100 for exposure.
• The conversation covers the extreme sentiment swings in cryptocurrency, noting how Bitcoin's recent performance has challenged its "digital gold" narrative.
• Personal anecdotes from a Disney World vacation are used to illustrate the concept of a "K-shaped economy," alongside recommendations for recent movies and TV shows.

Key Concepts

• Market Reversal & Sentiment: The market sold off on Nvidia's overwhelmingly positive earnings, a classic "sell the news" event that historically can signal market tops. However, the quick recovery suggested a lack of follow-through selling and underlying caution.
• Sustainable Bull Market: Widespread doubt and fear of a bubble are seen as healthy characteristics of the current market, preventing a speculative melt-up and contributing to more sustainable growth.
• Individual Stock Picking vs. Indexing: The difficulty of investing in the AI race is highlighted through an anecdote about selling Google stock based on short-term news. A broader index like the Nasdaq 100 is proposed as a more practical alternative to picking individual "winners."
• Behavioral Investing: Investment decisions can be heavily influenced by media noise and emotional reactions, leading to premature selling or buying that deviates from an original, long-term thesis.
• Cryptocurrency Volatility: Bitcoin and other cryptocurrencies are subject to extreme swings in sentiment, with narratives evolving quickly. The "digital gold" thesis has been challenged by its recent performance compared to actual gold.
• The K-Shaped Economy: Disney World's "Lightning Lane" is presented as a real-world example of a K-shaped economy, where those who can afford to pay more receive a significantly different and better experience.

Quotes

• At 3:11 - "When the market tops on such good news after such an extended run, oftentimes looking back, that is how markets top." - Michael Batnick explaining why the market's negative reaction to Nvidia's stellar report is a historically significant bearish signal.
• At 6:07 - "I think that all of the reintroduction of risk and doubt is really what leads to sustainable bull markets." - Michael Batnick argues that the current environment of caution and skepticism is healthy because it prevents the market from entering a dangerous, speculative bubble.
• At 7:30 - "Anytime you've tried to do that, you've looked like an idiot. The market has been smarter than you." - Ben Carlson comments on how the market has consistently defied confident predictions about its direction over the past decade.
• At 26:07 - "Like, people still have Hotmail emails. Like the inertia is real and that was my thesis." - Michael Batnick explaining his initial reasoning for buying Google stock, believing that long-standing user habits would prevent a mass exodus to ChatGPT.
• At 26:51 - "Literally, like had I not been watching TV and had I just been like doing work or whatever and just like missed it, because the stock rebounded pretty fast, I wouldn't have sold." - Michael Batnick reflecting on how a random moment of watching a negative news report caused him to sell his Google stock, highlighting the role of noise in investment decisions.
• At 27:47 - "This is why I've been saying since the beginning, the best way to to invest in AI if you really want to do it... is the Nasdaq 100." - Ben Carlson arguing that instead of trying to pick individual winners in the AI race, a broader index approach is more practical.
• At 29:56 - "'Have fun staying poor' was on the cover of The New York Times." - Michael Batnick recalling the arrogant culture of early crypto promoters, which he believes contributes to the strong anti-crypto sentiment many people still hold.
• At 42:06 - "The wealth channel is going to bring your fees down." - Ben Carlson offering a positive take on private equity's move into the retail space, suggesting that competition will ultimately lower fees for all investors.
• At 49:33 - "'Stop it. Stop it. STOP IT!'" - Ben Carlson comically re-enacting the universal sound of a frustrated parent trying to control their kids while waiting in a long line at Disney.
• At 51:17 - "It just kind of gives me faith in humanity that... as a species, we are hustlers. Like this guy is driving Uber on the side, he's a private chef... people are going to figure this out." - Ben Carlson reflecting on an entrepreneurial Uber driver, expressing optimism in people's ability to adapt.

Takeaways

• Be wary of trading on major news events, as the market's reaction can be counterintuitive and lead to "sell the news" reversals.
• Embrace market skepticism as a healthy sign; a lack of widespread euphoria can prevent speculative bubbles and support a more sustainable bull market.
• To gain exposure to emerging technological trends like AI, consider a diversified index fund rather than attempting to pick individual winning companies.
• Develop a process to filter out short-term media noise to avoid making emotional, reactionary investment decisions that deviate from your long-term thesis.
• Be critical of popular investment narratives, especially in speculative assets, as they can change rapidly and may not hold up over time.
• Pay attention to everyday economic signals, as experiences like tiered pricing at a theme park can offer tangible insights into complex concepts like the K-shaped economy.