Small Caps Are Back (EP. 448)
Digest
The podcast begins with sponsor mentions for Y-Charts and Clearbridge Investments. The discussion then delves into geopolitical topics, including the US president's interest in acquiring Greenland and historical parallels. A book, "1913: In Search of the World Before the Great War," is discussed for its contrarian view on WWI's inevitability. The conversation shifts to financial markets, analyzing US and Japanese bond yields, market concentration, and the performance of various assets like gold, silver, and Bitcoin. Consumer health, household balance sheets, and real estate market delinquencies are examined, followed by an exploration of AI's potential impact on jobs and wealth, including its current capabilities and limitations. Personal anecdotes about home decor, DIY projects, and airline experiences are shared. The podcast also touches upon Coinbase and crypto regulation, the NYSE's tokenized securities platform, and the significant wealth transfer expected from baby boomers to younger generations. Finally, trends in the film industry, including Netflix content and upcoming releases, are discussed, alongside personal reflections on wrestling, family, and movie recommendations.
Outlines
Introduction, Geopolitics, and Historical Context
The podcast opens with sponsor mentions for Y-Charts and Clearbridge Investments. The hosts discuss geopolitical events, including the US president's interest in acquiring Greenland, and draw historical parallels. They also explore the book "1913: In Search of the World Before the Great War," which offers a contrarian perspective on the inevitability of WWI.
Financial Markets, Bond Yields, and Economic Trends
The discussion shifts to financial markets, analyzing the impact of geopolitical events on bond yields, including sharp rises in Japanese bond yields and US Treasury yields. Market concentration, particularly the dominance of mega-cap tech stocks, and potential rotations into small-cap and international equities are examined.
Consumer Health, Real Estate, and AI's Future Impact
The hosts analyze US consumer health and household balance sheets, noting strong equity positions. They clarify multifamily loan delinquencies and discuss the real estate market. The potential impact of Artificial Intelligence (AI) on jobs and wealth creation is explored, along with its current capabilities and limitations.
Personal Anecdotes and Emerging Technologies
Personal stories about home decor challenges and airline travel woes are shared. Brief mentions are made of Coinbase and crypto regulation, the NYSE's new platform for tokenized securities, and the significant wealth transfer expected from baby boomers to younger generations.
Societal Shifts, Wealth Distribution, and Market Participation
The conversation addresses societal preparedness for wealth transfer and demographic shifts. An analysis of household wealth distribution highlights growth in the bottom 50%, and the evolution of market participation, particularly through platforms like Robinhood, is discussed.
Entertainment, Film Industry Trends, and Market Outlook
Humorous anecdotes about sports betting and airline experiences are shared. The hosts discuss trends in the film industry, focusing on Netflix content and upcoming sequels, and share movie recommendations. They conclude with a brief outlook on the market, preferring geopolitical volatility over corporate earnings issues.
Keywords
Y-Charts
A financial data and charting platform for investment professionals to create client-ready visuals and streamline meeting preparation.
Clearbridge Investments
An active equity manager offering strategies focused on earnings growth, part of Franklin Templeton.
Greenland Annexation
The US president's expressed interest in acquiring Greenland, raising geopolitical and strategic considerations.
1913: In Search of the World Before the Great War
A book offering a contrarian view that WWI's inevitability was not as apparent at the time.
Japanese Bond Yields
Interest rates on Japanese government bonds that have recently seen a significant and rapid increase.
US Treasury Yields
Interest rates paid on debt issued by the US government, a focus of market attention.
Market Concentration
A market condition where a few stocks hold a disproportionately large share of market capitalization.
Small Cap Stocks
Equities of companies with small market capitalization, often considered to have higher growth potential but also higher risk.
Consumer Balance Sheets
The financial health of households, assessing assets versus liabilities to determine economic resilience.
Multifamily Loan Delinquencies
The rate at which owners of apartment buildings fail to make mortgage payments, indicating stress in commercial real estate.
Artificial Intelligence (AI)
Technology enabling machines to perform human-like tasks, with potential impacts on jobs and the economy.
Tokenized Securities
Digital representations of financial assets on a blockchain, enabling features like 24/7 trading and instant settlement.
Wealth Transfer
The intergenerational movement of assets, particularly significant from baby boomers to younger generations.
Household Wealth Growth
The increase in the net worth of households, with notable growth in the bottom 50%.
Film Industry Trends
Shifts in movie production and distribution, including streaming platforms and the focus on sequels.
Geopolitical Volatility
Unpredictable and rapid changes in international relations impacting financial markets.
Q&A
What is Y-Charts and how does it help financial professionals?
Y-Charts is a financial data and charting platform that provides ready-to-use visuals and customizable tools to help investment professionals save time on client meeting preparation and enhance client conversations.
What is the significance of the US president's interest in acquiring Greenland?
The US president's interest in acquiring Greenland from Denmark raises geopolitical questions about strategic positioning, potential resource acquisition, and the market's reaction to such unconventional proposals.
What is the main takeaway from the book "1913: In Search of the World Before the Great War"?
The book argues that the outbreak of World War I was not as inevitable as commonly perceived, challenging the notion that historical events are always clearly predictable in hindsight.
Why are Japanese bond yields rising, and what are the implications?
While the exact reasons are complex, rising Japanese bond yields could signal shifts in economic policy or market sentiment. A rapid, vertical rise is generally not considered a positive sign for government borrowing costs.
How has household wealth changed in recent years, particularly for the bottom 50%?
Household balance sheets are in strong shape, with significant growth in assets. Notably, the bottom 50% has experienced the largest relative gain in wealth since 2012, with increased ownership of equities.
What are tokenized securities and what benefits do they offer?
Tokenized securities are digital representations of financial assets on a blockchain. The NYSE's platform aims to offer benefits like 24/7 trading, instant settlement, and stablecoin-based funding.
What is the projected impact of the wealth transfer from baby boomers to younger generations?
Gen X and millennials are expected to inherit trillions in real estate and other assets over the next decade. This transfer could lead to significant changes in financial advisory services and housing markets.
How is AI perceived in terms of its impact on jobs and wealth?
There are differing views: some believe AI will automate jobs, making it difficult for individuals to generate wealth, while others see it as a tool that could lead to unprecedented prosperity and exploration.
What are the perceived limitations of current AI technology?
Despite advanced capabilities in complex tasks, AI sometimes struggles with simple, straightforward requests, leading to errors or nonsensical outputs, prompting questions about its reliability for basic functions.
What are the current trends in the film industry, especially regarding Netflix movies?
The film industry is seeing a trend towards optimizing movies for audience retention on streaming platforms, often prioritizing immediate engagement and plot repetition over traditional narrative structures.
How does the speaker's son react to WWE?
The speaker's eight-year-old son, despite enjoying wrestling and action movies, immediately recognized WWE as fake and stated, "They're not really hitting each other," preferring to watch "real stuff" where people actually get hurt.
What is the speaker's opinion on "The Running Man" remake?
The speaker found the Glen Powell remake of "The Running Man" to be a cheesy action movie. While not a high-quality film, he considered it entertaining and enjoyed it, noting it captured the vibe of the original 80s movie.
How does the speaker view geopolitical volatility in the stock market?
From an investor's perspective, the speaker prefers geopolitical volatility over issues with corporate earnings. He believes it's "jawboning and rhetoric" that ultimately doesn't hurt the market as much as a downturn in company profits.
What is the speaker's opinion on Netflix's content?
The speaker believes Netflix excels at producing crime series and mini-series, citing "The Beast" as an example. However, he feels they do not produce good movies, suggesting a focus on episodic content over standalone films.
Show Notes
On episode 448 of Animal Spirits, Michael Batnick and Ben Carlson discuss geopolitical risk in the markets, rising bond yields, why small caps are breaking out, running the economy hot, household balance sheets are in good shape, the end of money, the great real estate wealth transfer, the bottom 50% wealth gains, Netflix movies and more.
This episode is sponsored by YCharts and ClearBridge Investments.
- To download YCharts’ Top 10 Visuals click here: https://go.ycharts.com/the-top-10-visuals-for-clients-and-prospects?utm_source=Animal_Spirits&utm_medium=Original_Research&utm_campaign=Top_10_Visuals_Deck&utm_content=Podcast And start your free YCharts trial through Animal Spirits (new customers only) at: https://go.ycharts.com/animal-spirits
- International and emerging market stocks outperformed the U.S. in 2025. At ClearBridge, we believe this momentum can continue. Find out more at https://www.clearbridge.com/
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Find complete show notes on our blogs:
Ben Carlson’s A Wealth of Common Sense
Michael Batnick’s The Irrelevant Investor
Feel free to shoot us an email at animalspirits@thecompoundnews.com with any feedback, questions, recommendations, or ideas for future topics of conversation.
Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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