Shownotes Transcript
Hello, welcome to Slate Money, your guide to the business and finance news of an absolutely world historically crazy week in economy, in markets, in everything. I'm Felix Hamann of Axios. I'm here with Elizabeth Spires of the New York Times.
Hello. With Emily Peck of Axios. Hello, hello. And we cannot do this ourselves. This week, we need to bring in the big guns. So we have the biggest gun of them all, Mr. Barry Ritholtz. Barry, welcome. Thank you so much for having me. I'm looking forward to a robust discussion. We're going to talk about a lot of things. We're going to talk about the tariffs. We're going to talk about the market volatility. We're going to talk about...
your book, actually, which is out now. Plug it. What is it? How Not to Invest, the ideas, numbers, and behaviors that destroy wealth and how to avoid them. All right. We are going to talk about pretty much the craziest week that I can remember since the pandemic. I don't even think that's arguable. It is a fun conversation.
And just in case you want some counter-programming, you should subscribe to Slate Plus because we have an important debate about leaf blowers. It's all coming up on Slate Money.
Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. Listen at schwab.com slash Washington Wise.
This message is brought to you by Apple Card. Apple Card is a no-fee credit card that gives you daily cash back every day. That's 3% back at Apple and 2% back on every purchase made with Apple Card using Apple Pay. Apply for Apple Card in the Wallet app on your iPhone today.
subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on credit worthiness. Rates as of January 1st, 2025. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com.
Okay, so we need to start with tariffs. The latest, as far as I can tell, and this is moving very quickly and getting clear information from anyone anywhere is very hard. US tariffs on China and China tariffs on the US are both now over 100%. They are like you come in and whatever you paid for the goods, you need to pay more than as much over and above that just in taxes to the local government.
And none of this makes any sense. Obviously, the markets hate it. The overall blended tariff rate that the US charges on imports, depending on how much Chinese imports plunge as a result of this, is going to end up somewhere in the range of 15% to 25%, which is just almost unthinkable in the world where historically it's been about two. Barry, I know that one of your big things is just to...
write out noise and news and try not to over index on what's happening right now. But if ever there was a week where everything changed, surely this was that week. Yeah, absolutely. We, we try and think about the world in terms of probabilities, war game out different scenarios. What's the best case scenario? What's the worst case scenario? What's the fat part of the curve, the middle that's most likely to happen. And,
And, you know, when we look at all this mayhem, kind of the best case scenario is, hey, these are negotiating tactics and take him seriously, but not literally goes the old expression. And that that's interesting.
If that turns out to be the case, then we'll look back at this the way we look back at the flash crash and some other very short Brexit and what happened with Greece as sort of a short-term blip. The worst case scenario is... Brexit was not a short-term blip, Barry. Like, Britain is still living through Brexit. I'm talking about as an American, but...
And specifically the Grexit threat, the Greece issue, the Greece debt crisis. Brexit, we're still dealing with the effects, and certainly the people in the UK have buyer's remorse. Let me just stop you there and ask Emily what you think about this idea of, in the best case possible scenario, let's say Brexit.
that Donald Trump has some kind of come to Jesus moment. There's like an intervention from Scott Besson and others. And he's like, oh, you know what? Nevermind. Let's just go back to the status quo ante and get rid of all of the terrorists. Like, even if we managed to go back all the way to where we were, you know, three weeks ago,
How much damage, how much permanent damage has been caused? A lot of permanent damage has been caused because trust in the United States has been weakened considerably. Our allies, our closest trading partners, Mexico, Canada, the EU, the UK, we've been mean to them.
We've levied tariffs on them. I mean, there is still a 10% minimum. There are these aluminum and steel tariffs too that are going to cost. There's tariffs everywhere. And beyond that, even we had JD Vance a month ago in Munich saying, you know, basically giving the middle finger to the EU and to the whole world order that has kept the
the U.S. economy flourishing, kept the global economy flourishing. Even if we go back to status quo, it's still status woe, I think, because... I like that. That's good. It's just this trust has really been broken. And we'll get into what's happening with the dollar and what's happening with bonds, but it's pretty ugly. And you know what I've been thinking?
All week has been because I've been having to write about tariffs like all economics reporters right now. And looking back at 2018, 2019, he did not dissimilar things then.
And there was disruption then, some of which we've never recovered from. Like, ask farmers in the Midwest. Their market has been reduced by something like 10 percentage points. Like, billions of dollars in soybeans they don't sell into China anymore because China permanently moved away from them. That had real consequences. There was a manufacturing slump. No one remembers this because COVID happened. All of our memories wiped away.
you know, but this, it didn't end well then. It's not going to end well now. There's no going back. There's also some irony to this in that it's probably increasing China's soft power. And given that China was Trump's primary target, it's been trying to seem like they're a far more reliable trading partner than we are. And that's a, that's going to be difficult to put that toothpaste back in the tube. There was a headline in
handled splat, the German newspaper saying that Europe was talking about doing a deal where they would put 0% tariffs on Chinese EVs. Wow. You know, like, it was like, what? Wild. This was an unthinkable headline just two weeks ago.
So, okay. So, and I want, firstly, I would just want to underscore and reiterate and say what Emily said is exactly right. That what we are seeing here is kind of the economic other shoe dropping to what we saw in Munich with JD Vance. And like, you know, Munich was a big fuck you to Europe. And this is another big fuck you to Europe. And at that point, everyone's like, okay, now we've got the message and you can't undo that message.
But, Barry, I just want to sort of like make it even worse here. You're saying that's the best case scenario. What's the worst case scenario? So before I go to the worst case scenario, let me just push back a little bit. You know, we all have a tendency to be stuck in the here and now. It's very difficult to look through this mess to the other side.
Forget the midterm elections, which historically have worked to the benefit of the party out of the White House. You can already see what's happening in the 2028 elections with people and candidates saying,
You need to elect somebody that the Europeans and our allies can trust, who can reform Pax Americana, that can bring us back to where we've been and all of the benefits we've enjoyed of the post-war economy, where we were economic, military, and political leaders. So the politics of this, the partisan politics...
the next cycle are really fascinating. The worst case scenario is that so much damage is done that that exact Pax Americana we're talking about, where the U.S. set up rules for finance and currency and trade and intellectual property and contract law and enforcement and go down the list, that has made America the wealthiest country in the world.
The worst case scenario is Trump has rolled the dice and it comes up snake eyes. And what does that look like?
First and foremost, and you see this in the bond market, is all of our outside creditors stop financing us. Second, the exorbitant privilege we enjoy of having the U.S. dollar as the world's reserve currency, the currency that all trade is operated in, goes away. And they put together a basket of the euro and the yen and the yuan and who knows what else. And so the thing that has helped raise interest
the standard of living around the world, but especially in the United States, when that goes away,
Just look at post-Empire Britain to see what happens when a great power fumbles its responsibility and ends up just another country on the globe stage. I will tell you what happens to someone who's vaguely familiar with post-war British history. He's from there. Is that you wind up basically –
You know, Britain was effectively bankrupt in the 1970s and kind of needed an IMF bailout. And, you know, we were a third world country. It was a terrible, terrible time. That's the risk. The worst case scenario is all of these amazing advantages that we accrued by not only being the good guys in World War II, but.
Coming to the rescue of democracy in the free world and then spending billions and billions of dollars to rebuild everything we bomb from Japan to Germany to Europe, all the soft power, all the goodwill we've accumulated. It's shocking to think about how much damage is being done.
even in the best case scenario. So I agree with Emily, there's a mark that this is going to leave, even if we manage to put Humpty Dumpty back together again. And I just want to point out that what you are talking about here, Barry, is really important just for
isolationist, protectionist Americans as well. Like you're talking about, well, the politicians are going to want to reclaim America's place in the world. And there are definitely Americans who care about America's place in the world. And there are definitely Americans who don't. But one of the things which I think has gone underappreciated amidst all of the noise here is that for basically more than 50 years, America's greatest export has been debt. We've
We have been able to borrow money at extremely attractive rates because of that exorbitant privilege that you are talking about. And when I say we, I don't just mean the U.S. government. I mean U.S. corporations, U.S. individuals. If you are in the housing market, if you are a corporate, if you are a sovereign, whatever you are, you have had astonishing ability to issue debt into the markets at
very attractive rates. You have been able to get lovely returns on that debt. Like that has been a great investment for you. The mirror image of the trade deficit that Trump hates is this thing called the capital account surplus, right? The capital surplus is the rest of the world.
financing America and pouring money into America. And we take that money and we invest that money and we get a return on that money. And that is why America has outperformed every other rich country in the world for decades. And this idea that we want to get rid of the trade deficit basically means we want to get rid of the capital account surplus. We don't want the rest of the world to fund us anymore. It's like, what the fuck? Of course we want that. Yeah.
So two really important things you said that I have to emphasize. One, that what you ended with is, wait, we print paper and give it to you and you give us cars and iPhones and stuff. That sounds like a great fucking deal, number one. But secondly, and this is really the unspoken tragedy of what we've been witnessing, inflation rates have come down. The past two prints have been great.
Bond yields were starting to head lower. Mortgage rates were starting to head lower. And the frozen housing market, which there's not only a shortage of homes that we've built, but just too many people with golden mortgage handcuffs that lock them in. So there's no supply. That was all unwinding and getting better.
And now I don't want to spoil this with sharing a number, but we've seen yields spike up the most since 1982. The 30-year treasury practically kissed 5%. That sent mortgage rates back over 7%. And that seems to be very in opposite direction.
of what a real estate developer like the president pays attention to, I think that should be making him very nervous. Okay. My Occam's razor theory about this is that Trump is largely economically illiterate. And so when he does this, here we have tariffs and now they're disappearing and then they're back again today. It's because that's what entertainers do, keeping people guessing. And it's just a terrible way to run the economy. What do you think is...
behind it in his mind. So that's a tough question. Michael Hiltzik at the LA Times today floated here are the four theories about what's going on. First, we've never had markets swing back and forth based on the whims of one person.
At least I can say he is consistent because he has been a fan of tariffs his whole adult life. The most beautiful word in the dictionary, call me tariff man, all that stuff. Maybe we should take him literally not seriously, but it's kind of hard to see. You know, the rumor was, or I don't even think it's a rumor. I think it's truth in his first presidency that,
Jared Kushner went out and said, let me find some economists somewhere that believes tariffs are a good thing. And after going through 99.9% of economists and academic professors and unable to find anybody who would say, no, no, tariffs are great.
They found the one guy. He was under a rock somewhere. And they were like, what is this thing under a rock? He's like, my name is Peter Navarro. It's even dumber than that. Jared was looking for some resources on China because he didn't really know anything about it. And he liked the title of Navarro's book, which was Death to China. So.
And when you think about, listen, I'm not the world's biggest Larry Summer fan, but Summers just said something the other day and it was just so insightful. He was speaking in the UK and he said, how many people in the room paid more than $10,000 for tuition?
No hands go up. You guys get free tuition. Is that predatory pricing? Is that dumping? No, you've made a choice and more free tuition, more kids going to college is a great thing. So we get to buy solar from China at a deeply subsidized price, reducing global warming, helping fight climate change. Why is buying stuff at a really low price?
With our paper that we print, why is this a bad thing? It seems like it's a good thing if you understand global trade and economics. And the other thing which you need to understand is that every single U.S. government in certainly our lifetimes and going back significantly longer than that,
has been bound by treaty obligations that were signed by previous governments. Like there's this basic sort of rule of law thing going on here, where if the US agrees to do something, then it does it, right? And that is what underlies all of the real fears about things like debt defaults is because it doesn't matter if the money was borrowed by a Republican or a Democrat, that obligation is an obligation on the sovereign and the sovereign has to service that debt.
And all governments understand this and all governments understand that when they sign something, it is binding on future government. Trump doesn't even consider himself to be bound by things he himself signed. The US Mexico Canada agreements. Like he just tore that thing up. He's like, I signed it. This is, this is the force of law. You know what? I'm just going to ignore it and tear it up. And like, no, if you don't consider yourself
bound by agreements signed by previous governments or even agreements signed by yourself, then there is absolutely no reason why anyone should trust the US on anything. And if you don't have that trust, you can't get any financing, you can't get any investment, you can't get any growth.
I don't think that Trump, I mean, you didn't ask me, but Trump voters, I don't want to speak for them, but they're really angry and they don't care. And they just want to burn it down. They want to burn it down. They don't, you know, and they have a point a little bit, a little point, which is like the global economy has worked well, but not for a lot of people.
people. We talk about those people all the time, like the lowest earners in the country, people in certain areas of the country. The jobs aren't as good as they once were. It's great. You can buy cheap stuff at Walmart, but it's no fun if you're on disability and that's all you can do is buy cheap stuff at Walmart. So people are like, oh, your precious economy that helped you fancy Harvard Ivy League people is going bad. Why would we even
care. I'm not quite sure why very rich people feel like that who have benefited from the global economy. Someone else needs to explain that to me, but I think it has to do with appealing to certain people that are okay. So, so first, you know, there are two very different issues. One is wealth and income inequality. And the other issue is the vicissitudes of global trade policy. And so that's hold that aside. There are legitimate problems and they need to be
Dealt with. But, you know, when a room needs to be repainted, you don't burn the whole house down unless you feel that there's no hope and nothing will ever change. And that's the danger of the sort of performative.
extremist, demagogic rhetoric that we've seen over the past 30, 40 years, but nobody is better at it than the current president. And so you end up with very tribal, very partisan thought process. One of the things about the very wealthy, not just dealing with them as clients, but professionally knowing a lot of them is I was shocked to
at how 08, 09, when everything froze, uh,
radicalized a number of people I knew who were billionaires and sent to millionaires. They started buying up farmland in Montana and Maine and like just to get away from the roving murder gangs that were coming. And I want to live off the grid and buy some firearms. And, you know, the two, I love this. The two most important commodities are bottled water and lead.
preferably in a 38 caliber. And I heard a lot of that shit post financial crisis. And then the monetary decade that sent stocks up 14% a year for the best decade in a long, long time, sort of ameliorated the, that worst thing. But there's definitely this degree of paranoia that comes with too much money. I don't know how much money is too much money, but just go through Twitter and look at the crazy rantings of billionaires and
both pro and con what the president's doing. And it's like, oh, that seems a little, gee, I guess I have no... Cliff Asness said something so delightful the other day, referring to a few people who were screaming. He's like, you know what's the best part about having some money? I don't have to kowtow to anybody and I don't have to be performative on Twitter. I say what I want, let the chips fall where they may. I'm paraphrasing. But Asness is one of these guys that
Very logical, very rigorous, doesn't get sucked into the...
at least not the way other people have, and said, what's the point of being a billionaire if you have to kiss all this ass? Haven't you graduated from that? And so some of it is just purely performative and some of it is paranoia and some of it is just people flexing power and influence that they didn't realize they had when they were speaking softly and logically.
This podcast is brought to you by Progressive Insurance. Do you ever think about switching insurance companies to see if you could save some cash? Progressive makes it easy. Just drop in some details about yourself and see if you're eligible to save money when you bundle your home and auto policies. The process only takes minutes, and it could mean hundreds more in your pocket. Visit Progressive.com after this episode to see if you could save. Progressive Casualty Insurance Company and Affiliates. Potential savings will vary. Not available in all states.
This episode of Slate Money is sponsored by NetSuite. We really, really right now have no idea what the future holds for business. Nothing has ever been less certain than it is right now.
And the crystal ball, I hate to break this to you, is not coming anytime soon. So until then, over 41,000 businesses have future-proofed their business with NetSuite by Oracle. It's the number one cloud ERP. It brings accounting, financial management, inventory, and HR into one fluid platform with
With one unified business management suite, there's one source of truth giving you the visibility and control you need to make quick decisions. With real-time insights and forecasting, you're peering into the future with actionable data. When you're closing the books in days, not weeks, you're spending less time looking backwards and more time on what's next.
Whether your company is earning millions or even hundreds of millions, NetSuite helps you respond to immediate challenges and seize your biggest opportunities. And speaking of opportunity, you can download the CFO's guide to AI and machine learning at netsuite.com slash money. The guide is free to you at netsuite.com slash money. That's netsuite.com slash money.
Barry, can I use this opportunity to segue into markets? Because we do need to cover markets. And you just mentioned Cliff Asness, who is a quant trader. And what we have seen in the stock market, and I want to get to the important markets in a minute, but let's start with the one which isn't important, which is the stock market. What we have seen in the stock market is absolutely little.
ludicrously insane degrees of volatility. And I just want to run down this list that I threw into Axios Markets on Friday, because it's worth just going down the list. Thursday, April 3 was the first day after the tariffs were announced. We had a 5% loss in the stock market. That was the quietest day in the stock market that we've had since then.
The following day, there was a 6% drop. The following day, there was like this reverse flash crash where stocks went up 8.5% on this headline from Kevin Hassett that was false but turned out to be true. The following day, they went down 6.8%. The following day, they went up 9.5%. The following day, they went down 6.3%. This is super, super insane volatility like we only see in periods of extreme crisis and
as your book quite reasonably says, like it's a very good idea in general to tune out volatility. But since you mentioned cliff and since you mentioned like the quant trades, my question for you is like, how much of this is kind of algorithms are going to algorithm. So I think two things are happening with the wild market volatility. Um,
The first, and I think this is to reference back to Occam's razor, nobody expected this sort of wild over the top tariffs. And so what the market was saying, right, and I'm always cautious about reading my own narrative into with hindsight bias, but I think it's a pretty fair statement to say
markets expected a certain degree of corporate revenue and profits, a certain degree of economic activity. And they thought there would be some tariffs, but modest and a negotiating tool. 47 was basically doing what 45 had done in his prior term. But suddenly the market says, oh shit, this is serious. There goes one, one and a half, 2% of GDP consumer spending there. Anything that goes up in price means they have that much less discretionary cash to spend.
businesses are freezing. Hey, how can we build a factory? How can we hire people if we don't know what the hell the tariffs are going to be, the import costs are going to be? So everybody kind of froze. The market sell-off was saying, we are now expecting lower economic activity, lower, and you see it in oil prices, lower consumption and much lower revenue and prices. So that kind of makes sense.
The thing that I think is kind of fascinating is the largest one-day gain on the NASDAQ. You mentioned we closed the day, what was that, last Wednesday, plus 12.5% on the NASDAQ. The previous biggest one-day percentage gain for the QQQs, the NASDAQ 100, was
was January 3rd, 2001. It was over 14%. And think back to January 2001. It was still a long way to go before we got to March 03 and the ultimate bottom was made. But since I brought up Greece and the European debt crisis, go back to 2011, minus 4.8%, flat, minus 6.7%, plus 4.7%, minus 4.4%, plus 4.6%.
plus half a point, plus 2.2, minus one, plus 0.1, minus 4.5. Ben Carlson pulled those numbers. When you see that sort of up and down craziness, it's telling you that there is some new information that the market hasn't digested yet. The collective expectation of future revenue and profits hasn't been reflected in price. And this surprise is really problematic. Last thought on this.
Think about how the Fed communicates with the market. Hey, in a couple of months, we're going to be raising rates. Hey, next month, we're probably going to be raising rates. Hey, the data series we look at are this, this, and this. We prefer PCE to CPI, but here's what we're looking at. Hey, this is the week we're raising rates. They hold their meeting. They have a press conference. Here's why we raise rates. The transcript gets released a month or two later, right? Transparent.
functional, communicative, professional. Now compare that with liberation day where it's, you know, kaboom performative tariffs and the market said, what the fuck is going on? Just look at the difference between the white house communications and the fed communications to understand why we're seeing this insane volatility spike and
If this would have not been big footed, had we sort of eased into it, even if you disagree with the tariff, the way they were implemented was just so heavy handed and just so amateurish. And the market is showing you why. There's this book that came out in 2020 called
And we were all a little bit distracted in 2020. And I think it kind of didn't get quite the recognition that it deserved.
It was Mervyn King, he used to run the Bank of England, and John Kay, the economist, put out this book called Radical Uncertainty. And there's this longstanding distinction in economics between risk and uncertainty, where risk is something where you can sort of quantify it, and you can say there's a this percent probability of this and a this percent probability of that. And then uncertainty is like, I don't have the information needed to work out what the probability of various different outcomes are. And then there is this new world of,
where there's this thing called radical uncertainty, where not only can you not put a probability on what the outcomes are, you don't even know what the possible outcomes are. The set of possible outcomes is unknowable. It's known unknown. And on top of that, you have a whole bunch of unknown unknowns. And that world of radical uncertainty is a world where
The stock market cannot do, you know, a discounted cash flow analysis on future profits or future earnings or whatever, because they have no idea what the world is going to be tomorrow. And that is a world where you can't sort of say, oh, well, what the stock market is saying is that something, something, something, because they don't know because no one knows anything. And we're in this world now of no one knows anything.
Well, in political science, there's a framing device that says things happen because you're looking at a first image, a second image, or a third image. And the third image is international relations, state actors, how they operate with each other. The second is state-level decisions that are really policy-based.
And the first image is always just an individual. And in most policy analysis, the individual explanation is the least significant one. But I think we are in a totally different environment now that goes back to what Barry was saying about the one guy.
Right. How do you deal with the whims of a single person? Consumer sentiment, CapEx surveys, CFO surveys, they're meaningless. We used to do that to get a sense of a soft measure of the economic impact.
vibes in the country. Now it's like, what did he have for breakfast? Okay, let's figure out what happens next. I would love to have the Donald Trump breakfast indicator. You know, like what happens when you have sausages? You used to have the briefcase indicator with Alan Greenspan, how thick or thin the briefcase was. By the way, it never worked, but...
But yeah, what if he has oatmeal? What color tie is he wearing? Yeah, all of this kind of stuff. How many Diet Cokes has he had? What was his last golf game? French toast, great. If he had oatmeal, we're all buckle yourself in. It's going to be a bumpy ride. But Barry, let's get on to the really meaty markets, the one that matters. Let me ask you, what matters more, the dollar or the bond market?
Well, they're so tightly interrelated, it's hard to pick one or the other. Normally, you know, the famous James Carville quote about the bond market, normally the bond market is the adult supervision, right? There used to be things known as bond vigilantes, and when they were unhappy with the government policy, they would let you know and rates would go higher.
Right now, we have taken for granted the dollar as the reserve currency, and that's a mistake to do. I suspect a big part of the bond sell-off, and remember, yields and bonds move inversely. When you sell bonds, the yield moves up.
I think a big part of what we've been seeing has been repatriation of capital that was in dollars back into home country currency, right? So you don't even need the Chinese to sell their bonds. They just have to not buy bonds and that is going to send yields higher. But what we've seen when you have stocks sell off historically, uh,
Money rotates into the, you know, riskless trade of U.S. treasuries. When you see stocks and bonds selling off and we're not seeing the Fed raising rates. So just in a non-rate rising regime, when they both sell off, that tells me people are bringing their cash home. They're selling dollars by selling bonds and stocks and taking their yen, euro, won and what else back home in their own currency.
Sorry to be a bummer. I mean, I think we've been bumming this whole episode so far. There's not a lot of rays of sunshine in this week's podcast. I apologize for that. But yeah, so I think, Barry, there is a weird paradox here, right? Which is that we have a
flight to quality, but there's no quality anywhere. It's a flight to safety, but we're not getting the flight to safety. There's a flight to safety. But yeah, there's no safety in treasury bonds. There's no safety in the dollar. But then if you're taking your dollars out and putting it into, I don't know, the Japanese market, that's going down as well. Everything everywhere is going down. Yeah.
What we are really seeing is just risk premiums on every single asset on the planet going up, which means that the value that every single asset on the planet has been repriced with a higher risk premium, and therefore it's worth less today. And you don't even need a huge amount of capital flight in order to cause that repricing. I mean, one of my theories that
you know, I was talking to the great Dave Raleigh at Loomis sales about this is that we are going to see years and years of capital flows out of the United States. Like what we are talking about, if you're talking about like large European institutional investors, that kind of thing, they do not make these decisions over the course of a week. There are portfolio committees, there are asset allocation committees, there are board meetings, there's, there's,
A million different things need to happen before you make a long-term decision to say, like, we had a 35% exposure to the US stock market, and we want to bring that down to like 25% or 20%. But people will be making those decisions. They will be like, we don't want to be overweight in the United States anymore. And that long, slow, sort of large flow of
capital out of the US, in contradistinction to the flow of capital into the US that we've considered to be completely normal for the past 80 years, what we are seeing in the dollar right now could just be the beginning of a very long and much, much bigger trend. And the dollar could be much, much weaker over time. That's the worst case scenario. So
Slate Money is sponsored this week by 1Password, which tries to get us out of little shortcut habits that are very dangerous. Think about a corporate or a college campus. There are these nice paved brick paths between buildings, and then there are the desire lines, the shortcuts.
that get worn through the grass when people don't want to take the official safe route. And those shortcuts are what security people online really worry about because most security tools only work on the known paved paths. And then people take shortcuts. They, you know, use the same password here and there, that kind of thing. And that's where the security problems arise.
This is where 1Password Extended Access Management, the first security solution that brings all unmanaged devices, apps, and identities under your control. This is where it comes in. It ensures that every user credential is strong and protected. Every device is known and healthy. Every app is secure.
I have one password. I use it literally every day. I do not have the same password on any two different places because it makes it just incredibly easy to be secure. 1Password Extended Access Management solves the problems that traditional IAM and MDM, these Stanford Identity and Access Management, Mobile Device Management problems.
These things have existed, but 1Password solves problems that these things cannot. It's security for the way work happens today, and it's now generally available to companies with Okta and Microsoft Entra, and it's in beta for Google Workspace customers. So secure every app, device, and identity, even the unmanaged ones, at 1Password.com slash money, all lowercase. That's 1Password.com slash money.
This message is brought to you by Apple Card. Apple Card is a no-fee credit card that gives you daily cash back every day. That's 3% back at Apple and 2% back on every purchase made with Apple Card using Apple Pay. Apply for Apple Card in the Wallet app on your iPhone today. ♪
subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on credit worthiness. Rates as of January 1st, 2025. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com.
Can we just start talking to Barry about, at this point, what I'm caring about, which is all the money I have in the stock market through my 401k? It's not really money. It's just paper. And if no one wants to buy that paper... I really hate when you talk like that. It's like, can you not... It's a mark on a computer record. Like, I need to eat, live, support people. I mean, what should people just start buying? International stocks? There is no safety. There's nothing to buy.
There's nowhere to hide, Emily. There's nowhere to hide? I want to retire. I got to agree with Felix on this. When you have a global trade war started out of left fields, look, there are legitimate issues, right? China is frequently a bad actor. They steal people's intellectual property. They hack companies.
companies and take their data and their plans. It's always amusing when they roll out a fighter plane based on stolen plans from Northrop Grumman or whatever it is. They're a bad player and we need to deal with them. But they're also so integrated in
into the global economy. And this is the tragedy. We had them kind of in a difficult place where they were ripe for negotiation and some concessions. Their economy had been slumping. You know, they have been moving a billion people from the farms to the cities. When China isn't growing at five, six, seven percent, there's real danger of political unrest, social unrest,
And so there was an opportunity, call it the art of the deal, to cut a really good
trade agreement had we begun this on, you know, frenemies terms, not firing a shot across their bow and declaring economic warfare on the whole globe. And so, you know, there are two issues here. One is what are the end goals of the tariffs? And two is, is this the best methodology to achieve those goals? We have lots of issues internally. We
We have lots of legitimate issues with China. The question is, is this any way to achieve that? Is this any way to run a supermarket? No, it's not. That seems to be the market's response. But Barry, what we are trying to do here is pivot elegantly to your book. Okay. You got my attention? Correct me if I'm wrong.
But if there's one message that people should take from your book, it's like, don't
make any kind of investment decisions in the middle of a crisis. Absolutely. I mean, stop and think about it. There's a quote in the book that I love from Bill Bernstein. He's a neurologist who became an investor and he said, your entire investment success is dependent upon you controlling your limbic system. That's the amygdala and all the dopamine receptors in the brain responsible for fight or flight
If you fail to control your limbic system, you will die poor. That's like quite a heady statement. And so when the market's down five, six, 7%, a few days in a row, when it's up 12% in a day,
that gets our fight or flight response really stimulated. And I can tell you that just if you listen to the last 35 minutes of this podcast, like our limbic systems are on fire right now. Our hair is on fire right now. And it is totally rational and reasonable for our hair to be on fire. And we have all the reasons in the world for our hair to be on fire. But you just need to have a little bit of awareness that your hair is on fire. And when your hair is on fire, it's a really bad time to make decisions.
The, you know, the subtext to don't make emotional decisions, the rational, intelligent part is, and bring a lot of humility to the table because as the first part of the book discusses, nobody knows what's going to happen. It's obvious. No one anticipated what Trump was going to do with tariffs, despite him talking about it for 40 years. We were still surprised that,
And stop and think about how much of what we listen to, watch, read is just rank speculation, opinion, just, you know, just the worst sort of, I don't know what's going to happen, but here's what I think is going on. How about stop pontificating and just say, we don't know what's going to happen. And
You need a portfolio. I don't want to put on my, you know, advisor hat, but your portfolio has to be robust enough to survive this sort of nonsense or Brexit and Grexit or even the financial crisis. And that means, you know,
being diversified, owning the world, even when the entire world feels like it's going down the crapper. To be fair, the U.S. is getting shellacked. Europe looks not so bad by comparison, especially after underperforming for the past five, 10 years. So when you think about
You know, I like to say the time to read the instructions on the seat back in front of you is on the tarmac when you're waiting for your time to take off. At 30,000 feet and the left engine is flamed out, that's probably not the best time to try and make a calm, rational decision. And I'll just add that we are at the end of a very long bull market. Everyone has been talking about how stretched valuations have been in the United States for a while, especially in the stock market. And...
you know, valuations were high a year ago and valuations today are basically where they were a year ago. So like on the one hand, that means they have further to the fall, but on the other hand, that means you're still actually not poor compared to. Oh,
Also, everything is happening in our minds, right? Like we're all sitting in our homes with our nice backgrounds. You know, we had our nice coffees this morning. That was expensive coffee, but it was worth it.
still employed at the moment. It's not that bad, right? I mean, it's just, there's a lot of bad news, a lot of panic, a lot of, as you said, paper wealth disappearing every minute of the day.
It really makes you nervous, but I would say it's not that bad for us. But if you were planning on retiring in the next couple of years. That's the biggest challenge. Yeah, that's different. I heard Barry on Marketplace this morning saying like, if you're going to retire in the next like six months or next month, you are in a bad place. This is the one place where Emily and Elizabeth and Barry all think one thing. And I am on the other side of this.
Yeah, let's get into this. Should we do a little nerdy detour into retirement math? It's three against one. Let's do it. And the idea of it really matters where the markets are on the day you retire rather than like two years previously or two years subsequently. 100%. This is what you believe and this is what Emily believes. And I
I'm not sure I believe this. And the reason I don't believe this is that I don't think that the day you retire is a particularly important day. I think that the day you retire is sure, it's the day that you stop paying into your retirement accounts. And they start, you know, becoming a source of income rather than just a sort of, you know, future spending.
But you're taking out 0.3% perhaps of your retirement account each month to spend money. And you have the other 99.7% that is sensibly invested in the diversified portfolio of yada, yada, yada.
And 99.7% of a diversified portfolio is still basically the same thing. And it will just keep on doing that. And when the portfolio is high, you feel a bit richer and maybe you take out a bit more in nominal terms. When it goes down, you feel a bit poorer. Maybe you take out a little bit less, but ultimately you are, you know, you have this money and you can spend it. And I don't think it makes a huge difference like,
oh, if you retire right now, this would be bad. But I know everyone disagrees with me on this one. Barry has numbers, I think. Yeah, this is called the sequence of returns problem. And you could just, Felix, map this out on an Excel spreadsheet and you'll see the impact.
plus 10%, minus 10%, plus 7%, minus 2%. Just randomly pick a bunch of years and then put them in different orders. And there's a huge difference if in your first year, you're like 2024, plus 25%. Because remember, as you draw money down, that money doesn't compound. And
And, you know, Bill Sharp is called, Nobel laureate Bill Sharp is called this the thorniest problem in all of finance.
4% is what we use as a rule of thumb, but is that really the right number? If inflation is high, if the markets are low, if all these factors happen, it affects your standard of living because A, you're taking less money, but B, the market down 15% and you take out 3% or 4% that year. So now it's not just 4%, it's 4% from down 15% that never has the ability to compound.
But just run the numbers or Google it. You'll see sequence of returns. Oh, I buy the arithmetic. I'm not quibbling with the arithmetic. I'm just quibbling with this idea that by convention, year one is the year you retire. Why is year one not five years before the year you retire or five years after? Because you start drawing down. That's number one. And number two, the other caveat to this is longevity.
It's not merely, all right, I'm taking 0.3% a month instead of 0.4% a month or whatever the numbers are. It's, hey, if I have a few million dollars and I retire at 65 and my parents live to their 80s or 90s, hey, I have a 25, 30 year horizon. And if the first couple of years of my retirement are...
2000, 2001, 2002, there's a genuine chance that I'm going to outlive my money. That's where the sequence of returns is so challenging because by the time you get to the end, the person who retired into plus 24, plus 10, plus five,
will have done better than the person who retired into minus 15, minus 20. It's the starting point of the drawdown cost. Whatever you take out at a discount, at a market sell-off, no longer compounds going forward. And I do think that this is the one place where financial advisors can
really help is things like if the market is down a lot when you are 61 and retiring, you have a decision to make, which is when do I start drawing social security? And I normally want to delay it as much as possible because actuarially speaking, that increases your total social security income. But maybe if you want to keep that money invested so it can have the opportunity to go back up, then there are reasons not to.
These are things which you need to sort of talk through with someone objected. Right. It's complicated. The numbers are complicated. We have no idea what inflation is going to be. We have no idea what market returns are going to be. And so you're making a best guess based on historical data. And that historical data kind of assumes that the future is going to look like the past. And what we learned last week is
hey, maybe the future isn't going to look like the past. And by the way, I wrote a big cover story for Wired Magazine in 2009 called The Formula That Broke Wall Street. Gaussian Coppola. I remembered that piece vividly. That was a groundbreaking, not to blow smoke up your ass, Felix.
I think that's the most influential thing you wrote. And I can't tell you how many people on trading desks said to me, hey, have you seen this? This is dead on. So the fact that you did not give me a heads up about this, the fact that I remembered Gaussian Coppola was like, holy shit, this is really something that people are talking about. And that was a big deal.
You're going to explain what it is, right? It's not like a movie directed by Francis Ford Coppola. That's a whole other hour. Well, so no, I'm not going to explain what the Gaussian copula function is. But what I will say is that the big, deep...
intuition behind the Gaussian copula, which was this formula that blew up Wall Street, was precisely this assumption that the future will resemble the past. And what happened? We wound up in a world where house prices across America all went down at the same time, which had never happened in the history of America. The future
did not resemble the past. It was completely different. The Great Depression is the only analog you can come up with. And everyone blew up. And so, yeah, you cannot assume that the future will resemble the past. But as a working assumption, it's kind of the best we've got. You know, the quote in the book that I love comes from Paul Graham. And I'm actually going to pull it up because I don't want to mangle it. But when he talks about experts, one of the things that is so fascinating...
is experts are experts in the way the world used to be. And if you think about it, if you think about that line, anybody who's talking about the future, anybody who's talking about the markets, anybody who's talking about all these things, it's because they developed a previous expertise in a previous world. And you have to be really cautious when you extrapolate that expertise forward. We've seen that from a bunch of people over the past couple of years.
And it really is how people get into trouble. Again, back to the idea, we all need to be a little more humble and have a little more humility about how we think about the future. Wall Street in particular, which is such a
fake it till you make it kind of place. When they used to do training programs, you would join a big house. The first week was modern portfolio theory and asset allocation. And the next 51 weeks was sales training. Here's how to close. I just saw Glenn Gary, Glenn Ross. Here's how to close the good leads.
And here's how to project confidence and all this stuff. So you end up with this false bravado that just permeates the whole industry. And you really need to kind of say, there's a lot of stuff I don't know. And I need to be aware of my blind spots and understand exactly how little I know about the future. P.S. This goes back to Socrates and Aristotle. None of this is new. The only thing I know is that I know nothing. That's 3000 years old.
Yeah.
Maybe, maybe we should have paid more attention to in the past election. I'm just saying the last time unemployment was really high, the last time the treasury markets went nuts was the last time we had President Trump in office. I'm not blaming President Trump for the pandemic. I'm just saying maybe.
Maybe we have a precedent. Coincidentally, the same people are in charge. I have my own personal theory that we might actually not have had the pandemic if Hillary Clinton had been president. But that is a whole other theory. At the very least, you could say we might have had a better outcome if we were more serious about prevention and vaccines and less focused on bleach and ivermectin. Let me ask you about this.
The one thing that really has changed out of all recognition in the past five years, which is the behavior of individual investors that you and I are both old enough to remember when people like Carl Richards would come out and talk about the behavior gap and say, like, the biggest mistake that individual investors make is that when stock markets plunge, they panic and sell.
And now we are living in a world where individual investors, whenever stock markets plunge, they pour in and buy aggressively with huge amounts of money. And if you look at the data from Fidelity and Wealthfront and Interactive Brokers and all of these places, the individual investors are, every time it goes down, they just buy and they buy everything in the site. And no one is panicking and no one is selling. It seems to me to be a
very different reaction function than we are historically used to. And I'm interested in what you make of it. So I'm a little older than you. I have a little more gray hair than you. So I have a vivid recollection of not just the pandemic, but the financial crisis and the dot-com implosion. And I even remember 87, I was in grad school and seeing how that year played out. And so a lot of this is simply muscle memory and recency effect.
When you are rewarded for buying the dip, and let's be blunt, since March 09, it's over 15 years. Every time you BTFD'd, you were rewarded for it. Sometimes it took a few months, but usually it was pretty quickly. When you look at the market sell-off from October 07 into March 09, it took a while for people to realize, oh, this isn't working anymore.
And to break that habit, especially in 2000, if you look at how wild and volatile the markets were 2001, 02, right up to the launch of the Iraq war in 03, like that by the fucking dip worked great until it stopped.
And so until people get spanked, until their muscle memory is broken and, oh, this doesn't work. Hey, it's been working for 15 years. Why are we going to stop now? Well, down 10, 15 percent. It feels like it's still working down 25, 30 percent. Those dip buyers are with very few exceptions are going to go away.
This podcast is brought to you by Progressive Insurance. Fiscally responsible. Financial geniuses. Monetary magicians. These are things people say about drivers who switch their car insurance to Progressive and save hundreds. Because Progressive offers discounts for paying in full, owning a home, and more. Plus, you can count on their great customer service to help you when you need it. So your dollar goes a long way.
On which note, we should have a numbers round. Elizabeth, do you have a number? My number is 20, and that's percent. And I'm going to say 20%
And that's the amount more of egg-dyeing kits people bought this year as opposed to last year. Wait, more egg-buying kits? This is coming from POS, you know, the company that sells little colored tablets. And this is in spite of egg prices and internet trends of people now dyeing potatoes and onions instead of eggs. Although I ran the, you know, do you want to do an Easter onion hunt by my kid? And he was not particularly enthusiastic about it.
And then this was in a time story. And the theory was that sometimes when people are in volatile political and economic environment, they prefer things that are nostalgic for them and remind them of happier times. So that may be why people are biting the bullet and buying eggs and dying them. I have a related number, which is 18,000, which is the number of chicks that Family Farm and Home sold in the first quarter of this year.
If you want to start raising chickens, you have to start by buying chicks. And you can buy chicks at Family Farm and Home or Traxosupply or whatever. That 18,000 chicks that they sold in Q1, that's Q1 2025. What was the number in Q1 2024? 1,700. They went up like a tariff. Wow.
I live in a tony suburban neighborhood and not five blocks from my house. There is a sign, eggs for sale. People are literally raising chickens to sell their eggs. I am thrilled. I can't hear their early morning. As long as they don't have a rooster, it's fine. Emily, what's your number?
80%. 80% of Chinese film box office revenue now comes from domestic Chinese movies, and that's up from 60% before 2020. I didn't realize this, but the Chinese movie industry is going strong domestically. I remember back in the day, Titanic was really big in
And even more recently, Marvel Endgame may have just raked in cash from China, but that's no longer as big of a thing. They have their own industry. They crank out their own blockbusters. They have like a $2 billion movie now that people are going to see that I can't pronounce the name of, so I'm not going to try. I just became interested in this because, you know, as part of the trade war, China is, you know,
putting more limits on American films in Hollywood. And it's been really bad for Hollywood. Like our poor Hollywood is not doing very well. Those actors making $20 million a movie, they might have to cut that to like 18 million dollars. There's a lot of other people working on the movies, but I think ultimately it'll be good for the movies because when China was a major market and it's still a major market, but when it was really big,
Like there would be a lot of movies made and they would sort of soften them politically to make them work in China. So maybe this is like going to make movies better. The politics of the Top Gun movie was so vague because they needed to make sure they could sell it into every single market. Yes. So maybe that trend is falling by the wayside thanks to the end of globalization. Barry, what is your number?
So I pulled three numbers. We already talked about treasury yields. We already talked about one day gains in NASDAQ. That leaves me with 31%. And I apologize for talking my book. We encourage you to talk your book. Okay. So there's a study I discuss in the book.
31% of people who panic sell into market corrections and crashes never return back to equities. And so when you stop and think about all of these horrific scenarios that are scaring the shit out of everybody, so
sometimes with good cause. When we look back at 08, 09 and people panic sold in January, February, March 09, almost one in three of those people say, ah, this equity thing isn't for me. And they then proceed to miss one of the greatest decades in stock market history, the 2010s. It's really a shocking moment.
And I can't tell you how many people, how many emails we got. Hey, I followed you out of equities in 08. But when you jump back in in 09, I thought you were crazy. And now it's 2012, 2013, 2014. I don't know what to do.
And the answer is you have to scale in emotionally as opposed to just, it's better mathematically to lump sum by two out of three times. The lump sum is the winner, but people just get panicked out. They can't admit error and they just damage their long-term retirement prospects, portfolio prospects. It's a shocking academic data point. Barry, we are going to have you back
and start talking about some real talk about who should be investing in the market, who should not be investing in the market and all of that kind of stuff.
But not this week because we have to talk about leaf blowers. That is going to be in the slate blaster. This is it for the main show. This has been spectacular. Thanks so much, Barry Ritholtz, for coming on. Thanks to Merit Jacob and Ben Richmond and Shana Roth and Jessamyn Molly and the whole Slate crew for putting this thing together. And we will be back next week with even more Slate Money.
If you work in quality control at a candy factory, you know strict safety regulations come with the job. It's why you partner with Grainger. Grainger helps you find the high quality and compliant products your business needs to inspect, detect, and help correct issues. And the sweetest part is, everyone gets a product that's as safe to eat as it is delicious. Call 1-800-GRAINGER, clickgrainger.com, or just stop by. Grainger, for the ones who get it done.