When Will the Next Bear Market Hit?

0:00Welcome to Ask the Compound. Show where you ask and we answer. Interest rates are rising and they're rising fast. The 10-year treasure was yielding less than 4% in early March for it before the war started. Now 5.3% has gone from 4.6% to 5.3% in the past month alone. That's a big move for government bonds. So where's the stock market volatility? Why isn't the stock market seeing some unpleasantness from this rate rise? Is it strange? Is it normal? I'm going to answer these questions in more on the show today. Let's do it. Our email here is Ask the Compound Show at gmail.com. Welcome to our channel. Welcome to Ask the Compound. We're watching live on YouTube and on Twitter, fire your questions. We'll take them live on the show. Duncan is coming from every middle-aged person's bedroom in their parents' house. They've turned it into an office-slash exercise room. Yeah, basically. The kids move out and you get a treadmill. That's what happens. I didn't happen to my house.

1:01Duncan, one lesson we learned from the show last week that you told me, inflation gets the people going. It does. It gets people angry, exciting, strong feelings. There are a lot of people in the comments like inflation is not a foregone conclusion. It's the government. We have another good follow-up question on rising prices on today's show. Excited to get to it. But first, today's show is sponsored by Fitnexa. I found another good use for my Fitnexa SamnyPod 3 last week. My daughter had a soccer game in Midland. That's like two hours away. So we carpooled. I'd do the short straw. I'm driving. So it's me, my 12-year-old daughter and her friend's slashed teammate in the car. And girls will be girls. So there's a lot of talking, gossiping, listening to music, and they did not want me in the conversation. Okay, fine with me. So I put my Fitnexa earbuds in. Right, this is how many pod three. To drown out the noise. I listened to an audiobook, the whole way there, the whole way home. It was like I was in my own little world. And they loved it because it kept me out of the conversation. I didn't want to be part of the conversation. It was a win-win. I finished an entire audiobook.

2:02There and back goes lovely. If you'd like to try them out for yourself, go to Fitnexa.com. And there's a $10 off coupon. ATC Tenet Checkout. Put an ATC Tenet Checkout. Fitnexa.com, you get $10 off. Your Fitnexa SamnyPod 3. You know, I put mine through a little test. I always, I have a song that is my go-to for testing out headphones and seeing, you know, how good the quality is. It's a palm of carton, let me roll it. And because there's a lot going on in that song, I'm sure you're familiar with it. It's used really well in Wickers Pizza movie, which I know you love. But yeah, I listen to that song and didn't disappoint. That's your sound test, okay? Yeah, I like it. That's my go-to. Good stuff. Alright, lots of questions today. Let's get to it. Okay. First today, we got one from, who's this one from? Brian. Brian. The stock market feels unusual right now because normally when Bond yields spike, so does the VIX. But this time, the VIX is declining. Do you agree that this market dynamic is unusual?

3:04What could it mean going forward? Alright, great question. It does seem odd that interest rates are screaming higher, but the stock market is doing just fine, right? The S&P is up double digits this year and 10-year treasurer rate is increased by 30%. Finance 101, they teach you the first day present value, PV, present value, equals FV, future value, divided by 1 plus R, R is the interest rate, taken to the end, which is the number of periods. And everyone's bored of their skulls, but here's the thing. The one plus... Is that the same thing as net present value? Yeah, so future value divided by 1 plus the interest rate. If the interest rate goes up, the present value should go down. That's finance 101. Interest rates rise in theory. In practice, it doesn't always work like that. I actually wrote something about this earlier this decade. So, when I was writing for Fortune, my editors asked me, hey, people are worried about inflation and rising rates. This is before it happened, like 2021, right before it happened. How did the stock market generally perform on rates rise? Chardonn. Daniel. The results were surprising. So, I looked at every time since 1950, that the 10-year treasurer increased by like 1%

4:07or more. And how did the S&P 500 do in that case? There was 14 instances. And 12 of them, the S&P was positive. And only twice they fell and it was a minor fall. So most of it, I think the average increase was 35% or something. And this was right before the 2022 bear market. So history showed rising rates did not hurt the stock market very much. So of course, what happened? 2022 bear market. Interest rates rose. Stock market got killed. It's held by 25%. It doesn't work all the time. But that was really more about inflation rising rather than rates rising. Rates rose because inflation was at 9%. Right? Today, rates are rising for different reasons. You could crumble about what the reasons are and why. But economic growth is strong. AI is spending is off the charts. The labor market is improving. The war in Iran has caused energy prices to spike, which has reignited inflation. So that's part of it. But the stock market is undeterred. Part of the reason is that earnings growth has been so strong this year.

5:09And I think what we can say is that interest rates hasn't had an impact on the market yet, but it's had an impact on valuation. So Daniel, chart on. Still this one from Exhibit A, chart Kid Matten team. This year, earnings are up 25% which is kind of mind-boggling. And P multiple has contracted double digits. So the stock market is up double digits. P's have contracted double digits, which is kind of surprising. You say, actually, higher rates means lower valuation. So the market is actually being kind of smart. It's just earnings growth has been so off the charts. So Brian Belisky, chart off, he's been on TKF before a few times, right? His team had a research report that. Yeah, he said, historically, the S&P has performed better during rising rates. So they say when rates are rising, you have an average gain of 14% and rates are falling and average gain of 7%. And again, it doesn't make sense in theory. But it does make sense if you think about it because most of the time when the rates are rising, the economy is actually doing well. It doesn't, rates don't always rise just because inflation is out of control. And most of the time when rates are falling, it's because the economy is in a free fall, right? The Fed usually cuts rates when things are bad.

6:11So from a finance 101 perspective, this makes no sense. It does make sense in the context of a strong-ish economy rising inflation and higher profits. Now is there a point at which higher rates will cause volatility in the stock market? It should. What is that level? I don't know. It hasn't yet though, right? It's surprising. If you were to told me at the beginning of the year, Treasury yields are going to rise well over 1%. What's going to happen to the stock market? I would have said, boy, that doesn't inflation is going to rise. Mortgage rates are going to rise. Treasury yields are going to rise. Boy, that doesn't sound good. I would have said stocks are probably down. It hasn't been the case. Yeah. Well, you know, I was complaining to you about this yesterday. I feel like bonds are just as hard to get right as stocks. Bonds are your archanimousest, Duncan. I mean, I think I made a fair point that you can always be in the wrong kind of bond. Right? It's true. I don't... Here's the thing. Especially, bonds to me are and should be a short-to-intermediate term asset.

7:12You take your long duration where you're being paid to take the risk. Unless long-term Treasury yields get to... I don't know. 7%, 8% to me, it's not worth the risk of the volatility you get from interest rate moves. You could time it perfectly, but I don't think it's worth trying. All right. Accents to me. Next question. Also, could as do you for just casually dropping, but you wrote for Fortune Magazine, you know? Yeah. Not the brag. I like that. Yeah. Next, we got one from Andrew. After hearing the disdain for VULs and whole life, I don't know what VULs would love to hear Jonathan Novy's thoughts on whether there is ever a use case for a permanent insurance policy, all term all the time. Or is there an argument to be had for other forms of permanent insurance? All right. You ask for an informed by name and you shall receive. Resident Insurance expert coming to you live from Reholtz Chicago. I don't know. I don't know. I don't know. It's funny.

8:12Jonathan, like Josh and Michael and I talk about the stock market all the time, occasional personal finance, but the majority of the questions we get from people, there's a lot of insurance questions, there's a lot of tax questions, there's a lot of like college 529 questions. It's these kind of things. And usually these insurance questions are, hey, my friend or my spouse or my parents were put into this product by their advisor. What do you think of it? So this person is asking a more general question. Why don't you tell Duncan what's a VUL? VUL stands for Variable Universal Life Insurance. In short, it's an investment based insurance product and yes, I harbor real disdain for that kind of thing. You've mentioned it. So you've said in the past, listen, for the over-willing amount of people, insurance is meant to manage some sort of catastrophic risk, not act as an investment vehicle or wealth building engine. But that's often how they are sold. Correct. So the question is, if that's not your intent to make it an investment vehicle, like when does this permanent form of insurance make sense? No, it's a great question.

9:12Let's begin by saying that it's the gross misapplication and overuse of insurance for the wrong reasons, which leads to what I believe is the underuse of it for the right reasons. Permanent insurance is fantastic for specific cases. Well, let's talk about a couple of them. And for all the people out there, lots of people say whole life and use the term whole life as a proxy for all permanent life insurance. It's not. It's a type of permanent life insurance. I'm just going to say permanent insurance a week and go. Anyone wants to know more about it. You'll have to find us like it's not that hard to get a hold of. But I'm just going to say permanent insurance that I'll point out the question. Which is one of the reasons that it can be so confusing because there are so many different types. I largely say avoid the investment part and also avoid whole life because I think it's a terrible rip off. But all that not being said. First case that you would consider using permanent life insurance. It's the best way and the safest way to guarantee that you deliver a legacy to beneficiaries

10:15if that's something you want to do. All you have to do is pay insurance premiums into a product that has eliminated or a full guarantee and you will deliver a benefit to your beneficiaries. That comes with trade-offs. But if an individual or a family wants to make sure to leave some sort of financial legacy, a permanent insurance product will put a floor or a guarantee under that legacy. What it does for people, and this is behavior really, really true, if an individual says, well, I don't want to spend all my money because I want to leave something then they may not enjoy the resources they have in their retirement because they're always worried about leaving something. How about actually pay for part of a legacy and say, all right, I can define exactly what I want. It's the difference between planning by default or planning by design. You could plan by design if you can. So if you do this, it can actually benefit two parties. It could benefit whoever's inheriting it because they know what they're going to get eventually. And the person who is writing the insurance policy or funding it can now enjoy the rest

11:15of their money and not have to worry about it. Exactly right. It's the easiest way to do it. When we talk about stuff like this, I'm speaking specifically if the case is right of what's known as second to die insurance, second to die or a survivorship ensures two people, typically a husband and a wife. It is significantly less expensive than single life insurance. So we use second to die all the time, and I'm going to talk about a couple of other situations where we would. Another case which you would use permanent life insurance. Think of an individual who has a defined benefit plan. And there is no joint insurviver option on the plan where that defined benefit plan goes away when that individual dies if it's single life. If that person's death would result in an impact on their family, like if they need that money when that person dies, you only have one choice. You buy insurance. Now, that also makes it easier to transfer the money to the next or is it still kind of complicated? Is it easier to make that handing the money down after you pass away? Is it easier? Or is it still have to go through a bunch of stuff?

12:18If you do your estate planning right, then they're both kind of easy. But insurance and insurance benefit is delivering an Alump some tax free. So you don't have to worry about things like what are the accounts that you're holding in it and stuff like that. Depending you should do your estate planning correctly, especially when you get to very wealthy people, when you're worried about things like transfer taxes and all that. Right. Not to like, there's not only one lane for this stuff, but this to me sounds like it is a vehicle for people who probably are on the wealthier side of things. It can be, although you'd be surprised how many people, when you say to them, would is legacy an issue for you and you ask them what's important to them. The first thing they say is we want to look after our kids. That is an issue for almost everyone we talk to. And if it is, this deserves at least a seat at the table or part of the conversation. Right. And is the reason that you would do this instead of just putting that money away into a brokerage account or something that if you take out one of these policies and then get hit by a car the next week, the full policy pays out.

13:18Is that the deal? I mean, yeah, that's part of it. Okay. Everything like this is a trade-off. But if you have time, it's not like a thing where it gets bigger, the more you put into it. Because then that would just be I putting money away. Typically, no, it doesn't get bigger than more you put into it. And I say typically because there's caveats with all of this stuff. But everything's a trade-off. If you have unlimited time and compounding, then insurance wouldn't be worth it. But you don't have unlimited time and compounding. You have limited time and lack of compounding. So yes, insurance. When you want to define your outcomes, it's really easy to use. Ben, you brought up this for wealthy people. This is another. And there are multiple uses of this when you want to talk about things like estate liquidity. So when we talk about estate liquidity, you think of families with closely held businesses or real estate interests. In some respects, if a family second of the family dies, and there is an estate tax liability

14:20that has to be paid, a family has nine months to pay it. If they don't have liquid assets, then they have to consider what's the first thing we're going to liquidate. Yes, there are extensions. You can file. I get it. The lawyers out there are all going to be yelling. But generally speaking, you have nine months to pay that. And then if you only have nine months and you have enough money, and you have to sell an asset, what happens if real estate values are low? And interest rates are really high. Now all of a sudden, are you selling an asset for 70 cents or 60 cents on the dollar? Right. To your point, this is covering another risk. Absolutely, estate liquidity. And the next one, I'm actually working on this right now with a client of ours, closely held business. The older generation owns the business almost 100%. One child works in it. The other one doesn't. When the older generation dies, they want to pass the business to the kids. What they're doing in this situation is setting up a situation where the kids will never like each other anymore. Because if they both own the business, but only one works in it, why does the one child

15:24who works in the business deserve the fruits of that business if they don't do anything? So insurance is a perfect way, estate liquidity through insurance is a perfect way to equalize what you might pass on to beneficiaries. It's also great for things like business succession planning and all that. Creating liquidity when you need it is a fantastic use of insurance. Right. And there's more of these two. I mean, you think of people with very large IRAs, especially people who have estate taxes. And IRA is the single worst kind of asset to pass to the next generation. Because if there's an estate tax liability, it gets double taxed. You levy in a state tax on the whole value of it. And then you also have that to pay federal income tax on those values. So you're talking maybe you deliver 25 or 30 cents on the dollar. You could take distributions from an IRA, fund an insurance policy in a trust outside of an estate, all that stuff. And now you turn double taxable money into non-taxed money.

16:29Because insurance death benefit is delivered free of any income tax and if owned properly free of any transfer taxes. So there's tons of uses of it. I love it. We're actually not just harbing on insurance. We're actually giving some use cases today. Chris, very important question in the chat. Is Jonathan, is that a mic or is that a death star? Both. This is the microphone that Duncan told me to buy like three years ago. Maybe even longer. Yeah. That's a classic. We got another insurance question. OK, up next we got one from Rachel. At 50, with a comfortable retirement already secured, I'm weighing my long term care options. A hybrid policy with a death benefit, a user-oos-it standalone plan, a variable universal white policy with an LTC rider long term care, or simply self-insuring. I'm also intrigued by an income annuity paying around 8% guaranteed, with no need to qualify based on two out of five activities of daily living.

17:29I'm leaning this way because the often cited two to three year average nursing homes stay feels misleading. In my experience, people either die fairly quickly or winger for five to ten plus years. With my mother and mom paying $14,000 a month now, I'm worried about what that could cost in 30 years. Or will robots change the game? There's a lot going on in this question. It's a lot. It's interesting. We've gotten some long term care questions from people and it's usually people who have seen how much it costs and it freaks them out. And they go, oh my gosh, I need to prepare for this. People are living longer, health care is improving. It's extending the life for a lot of people. My grandmother was in a home like this and I remember my parents talking about the cost and it does kind of boggle the mind. It's really, really expensive. Maybe the robots will save us someday, but it might take some time. The crazy thing is even the ones that aren't very nice are crazy expensive. Yeah, it's expensive. So, Jonathan, I'm sure most people roll the dice and try to self-insure. I imagine. Well, people with anecdotal experience of having ready for long term care, they don't

18:32try to self-insure. If they cannot, so that the kind of catch 22 is if you can afford to pay for the insurance, you might be able to afford the self-insure. It's the people who can't afford to pay for insurance or the ones who really need it. The 50-year-old here, if you're 50 and have a comfortable retirement already on target, I don't know the balance of your financial plan, but it sounds like you might be able to self-insure. Right. She said comfortable, right? Right. The reason this person would consider insurance, people like to mentally account for stuff. Insurance allows you to mentally account for the money you're paying for. You're bucketing it, right? It's over here. That thing is taken care of. It is interesting that she mentioned the annuity thing. I don't know if that's probably not the best form of it and you could tell, but one of the benefits, I guess, there's a lot of downsides to higher rates that we were talking about earlier. annuity rates have to be much, much higher now because rates are higher, right? Right. annuity rates are higher. I'm curious about the kind of product she's talking about.

19:33What that likely isn't is an 8% every year and then an 8% out. It might be 8% simple every year and then 8% out, but not 8% compound every year. I don't think there's a product that's good. Right. You could find right now an annuity that was 8% compound every year and then an 8% which are all right and it was a joint and a joint survivor which are all right. That right there, obviously, it's the needs for fixed income in a portfolio. Right. That's exactly what that would do and I would find that and tell people to buy it. I'm not sure that's what this person is looking at, but there are also long-term care annuities, which lever the amount you put in and give you a tax-repein if it. Typically annuities don't. You have an exclusion ratio when you withdraw from them. All these things are decent options. You have to weigh what the most important thing is. She talks about asset-based contract, standalone long-term care, or she says VUL in here and of course, start glitching. You would use a universal or an index universal policy with a long-term care rider.

20:34But at age 50, if she wants to any of these options, are they going to be relatively expensive? Are you thinking she's still OK? A lot less expensive when she's 65. So the benefit she would get by doing that now is the compounding on the benefit because cost of care is going to continue to compound. And if you fund a contract now, you will always attach whether it's a three or a five percent compound inflation rider on the contract. You start with a benefit now of let's say 7,500 a month or something. And then you compound that at three or five percent until you need the benefit. She doesn't need it. This person, the data shows this person's taking that in 30 years maybe. So you compound a 7,500 dollar a month benefit. Listen. Three to five percent, 30 years. That's a lot of money. It's probably not everything, but it's fairly significant. At 50, I don't know if Rachel's at my 40s, I'm rolling the dice on the robots.

21:35We're going to need, they're going to. My kids are going to be too self-state care of me. I'm rolling the dice on the robots. I think that, you know, what would be helpful here for other people listening is the question, when do you start to think about adding long-term care insurance to your overall financial plan? Right. There is no perfect time. Well, the thing we try to lean on is you think of disability insurance versus long-term care insurance. When the benefit from a disability contract would no longer be that meaningful, meaning you're in your late 50s or something, and that would, it's like an age 65 benefit. If that wouldn't matter that much and your retirement is pretty much taken care of, and you have some cash flow then, it's a kid's or maybe out of college or something, then you would consider adding a long-term care contract. Right. You've checked a lot of the other boxes, right? Right. You've checked a lot of the other stuff. You know, yes, it's expensive. And when we think about insurance, you think of low probability high impact events, and if something is low probability high impact, someone is likely going to insure it, the

22:38problem with long-term care is it's high impact, but it's high probability. Right. So people say, why is this expensive? Well, that's why. Because the likelihood is you're going to need care. Whether it's less than a year, it's half of all long-term care claims average less than a year, but the ones that go longer than a year, you're looking at three to four. So that's what this person's pointing out in her question. I mean, anecdotally, we all know someone who needed my grandma eight years of memory care. Right. Brutal. Every single dollar. They're extremely, very expensive. They're extremely, very expensive. Some were for my grandmother, yeah. Yeah. It's rough. Yeah, Dave and the chat says both of his parents need a long-term care memory issues, about $12,000 a month each. Yeah. Yeah, it's expensive. Makes sense. robots will save the day someday. Jonathan, we appreciate you being asked for by name. We'll have you back. Love to come back. Thanks, Jonathan. See you. Let's do another one. Okay. Up next, we got one from Curtis. Consumer sentiment is super negative.

23:40Why are so many people unhappy when there are so many positives in this economy? I thought it was because Wages hadn't kept up with COVID-air inflation, but I graphed Wages versus inflation on Fred, and it wasn't what I expected. I didn't think anything could keep up with that inflation, but Wages have mostly kept pace. I realized that doesn't mean many people aren't struggling, but what am I missing? This is something you and Michael talk about on animal spirits every week, and a lot of people are wondering. It's worth it. Curtis came with some charts. He gave a chart with a question. Let's show that. He wanted to Fred. He showed, since 2018 or so, he showed Wages, CPI versus Wages. You can see they're very close together. They basically tracked one another, almost one for one. Not bad. Inflation has kept up with Wages this decade, or Wages have kept up with inflation, which might surprise some people. Obviously, caveats are bound here. These are averages. People spend money on different things. Some people are doing better, some worse, obviously. But an aggregate, prices and wages are both up a lot this decade.

24:44The Wall Street Journal chart this week. Daniel, chart on. Huge change from the previous decade, in the previous two decades, when wages were stagnant, pretty much the, this is inflation-adjusted median household income, was stagnant essentially from 2000 to 2015-ish, and then has taken off ever since then. A lot of that gain has happened this decade, but we had some at the end of the last decade as well. Kind of surprising to people. I think there's a lot of reasons that despite inflation-adjusted wage gains, and again, that's inflation-adjusted, sentiment is so low right now. There's politics and social media and the housing market and war and all this stuff that's going on. I also mentioned animal spirits. I think sentiment indicators are more or less broken. There's certainly a lot of unhappy people right now when it comes to the economy, and inflation is a big reason why. I think when you mix it up with COVID, those two huge events happening together, right? It kind of felt like, for 40 years, it's like, oh, we kind of killed inflation. It's not really happening. We have disinflation or we have low inflation.

25:45And like I said, last week we talked about it. The topic itself angers people. It's theft, right? The government is stealing from me. I think a big part of this is like the psychological phenomenon of loss of version. This is sting, twice as bad as gains feel good. I wrote a couple of chapters about inflation in my book. I'm going to read a piece here. So in the late 1970s, when inflation was much, much higher, like running double digits for multiple years, they interviewed this guy who was a bread salesman in North Carolina. And it says he had seen his income rise from 9,000 to 15,000 dollars a year in five years. Now at the time, the median income was like 13,500 in 1978, okay? But he says I was getting along better on the lower income. It's all got to come into a point somewhere. I don't know where. And I ran the numbers on this. In the five years ending, 1978, CPI was up 47%, way higher than it was in 2020s. His income was up almost 70% in the same period. He beat inflation by 20%. And he was pissed. He said, no, I want to go back. I want the lower wages than the lower prices. And I think it's because the psychology of inflation, it feels like when your wages go

26:49up, it feels like this is something that I did personally. My hard work, I made this happen. When prices go up, you think they made this happen. The government and it's being taken away from me. I want my five dollar footlong back. I want to pay eight dollars for a footlong. The reality too is that a lot of people don't get raises every year, right? And so that feels like a fleeting thing that doesn't happen that often. Whereas inflation feels persistent, like it's always happening. And you add in the higher cost of housing, the higher cost of borrowing, I think. It's not just the fact that it's higher because, listen, we loved consuming this country. We love spending money. So if we're told you were able to borrow for way cheaper a few years ago and now you have to borrow for double those rates, that pisses a lot of people off. Right. They go, no, I want the ability to borrow. And it happened, I think the speed of the change, people didn't have a time to adjust. We didn't go from 3% slowly to 4, like it wasn't a slow moving thing. It happened all, it felt like it had happened overnight.

27:49For both housing prices and rates for everything. And I think that is the thing that really angers people may go, a few years ago I could about this for that and borrow that to do it. Yeah. So that's why the wage thing doesn't make people feel better about it. Even though the situation would be 10 times worse if wages hadn't kept up with inflation, then it would be pitchforks in the street, right? I think a lot of the most vocal people right now on social media over this, there are two young to remember the GFC. I don't think anyone who was old enough to remember the GFC would think that the economy is truly really bad right now. It's not even the same ballpark, it's not even the same sport. It's not remotely the same thing. So when I hear a young person talking about the economy being really bad today, I'm just like, I'm glad they have an experience with the GFC. Trust me. Because what I'm anchored to is being a bad economy. Yeah, inflation is not worse than losing your job, losing your job, losing your house,

28:52that those are, yeah, you're right. That was, lived to that too. Say hello to Peter in the chat from Japan. What time is it in Japan right now, you've been? It's got to be a wait, I don't know how to do that. 30, 30 in the morning or something, right? Because he said he lives in Japan, it's hard to watch these live. But he is. Like 14 hours ahead or something, I don't know. Okay. I can't keep up. Yeah. We have a lot of overseas people to watch the show, this is the show. Peter's a long time, a long time compounder. So yeah, thanks for tuning in. Yes, but I don't think that this is a problem that's going to be solved necessarily, like consumer sentiment. I think we're at a, I think we're at a low level for a while. I think this is just the way things are too. Fun times. Next question. Yep. I feel like we should do a whole episode on that topic, honestly. We could talk about that for a while. We could keep going, yes, there's a lot, a lot to cover. Okay. Up next, we got one from Gary. He is a grand Rapids hedge guy and I appreciate that. It's obvious no one knows what's going to happen next. But if you had to get off the fence, when do you think the next bear market and recession hits?

29:52And do you think the next bear market will accompany a recession or happen all on its own? I like to walk through these different scenarios since I just retired at 65, not to brag. Let's say you. All right. Do we sell the GrabBits Hedge T-shirts for sale at the item shop.com or is that one out? I'm not sure. It might be sold out. For being honest, not our best work. I blame Michael though. It was pretty bear boats, but you know what? A lot of people liked it. So Michael, this calls me a grand Rapids hedge guy because I like to look at both sides of things. I don't think that you can make definitive statements about the market very often because it's your people are so often proven wrong when they try to say this is going to happen or that's going to happen. That's why I like to look in the terms of probabilities. So let's do a chart on Daniel. Since 1950, 11 bear markets in total for the S&P 500, that's one every seven years on average. But there was also like five times where the market fell like 19% or so in change. Liberation day, I think was like 18.9%.

30:52So if we had those five, that's one every four and a half years or so. Right? Chart off. So we had one in 2022. Right. We had one in 2020. We basically had one for about two weeks in April of 2025 for the Liberation Day stuff. So that's three bear markets this decade. Two of them were over very quickly. COVID crash and Liberation Day were over very quickly. Liberation Day, the crash was over like a day when the market went up 10% or whatever. Do you think at some point there will be a caveat added that is like, oh, it doesn't count if it doesn't last for longer than a certain period? Because it's not really the same thing. It's not really the same thing. I guess. Okay, the 1987 crash, the stock market actually finished the year up despite falling 33% in a week, 20% a day. That's because it was up so much heading into that. But since World War II, there have not been a single decade with three drawdowns and excess of 20%. Okay? So we didn't really get there because of the Liberation Day thing, but it could have happened, of course.

31:53Things that have never happened before happen all the time in the stock market. The most obvious risk of staring us on the face is AI, right? AI is powering the stock market. Daniel Chardonn. AI conductors are accounting for like 62% of consensus EPS growth in 2027. Kind of insane. All that money is coming from the hyper scalers, giving money to the semiconductors. There's like, here, take it. Well, we're going to help you power your stock higher. AI is a huge part of the economy right now. The Wall Street Journal had this next chart that shows percentage of infrastructure spending as a percentage of GDP. They're saying AI dwarfs everything. Real roads, telecom, dot com, highways, all this stuff. Electraification. So it almost feels too obvious to say that a slowdown in hyper scaler spending will lead to a stock market sell off in a minor recession. But to me, that's got to be the most obvious risk right now for a bear market that coincides with a recession. I think it would be if that happened, right? Because let's say the Fed keeps raising rates and it's just that all the hyper scalers go, you know what, we can't take on debt anymore. It's too expensive. We're going to pull back a little bit or the ROI is not there.

32:57Mark Zuckerberg or Jensen Wang or one of these CEOs says, all right, we're going to get the brakes filled a bit. That to me seems like a recession is probably on the table and probably a pretty swift bear market. I can absolutely happen. Will it happen? 55% yes. That's my grand up attached. I didn't say 40% like an economist. Oh my God. 5545. That's fair, right? And when? When are you calling it? You got it at least. How long does that? In the next 24 months. Oh my God. This stuff is hard. That's the problem. The thing is, if I said yes, there's going to be a recession next year by March, who would get headlines. But would I be wrong probably? But so you do believe that there's a solid chance that with AI and robotics, we could see a recession, but the stock market continue up to the right. No, I think if AI pulled back, I mean, it would

33:57you would see a pretty swift one. I'm saying AI succeeding could put a lot of people out of jobs eventually, right? So that would be an economy, but the stock market and companies could be fine. Well, no, I think in that instance, then if productivity is rising, economic growth will be way higher. Right. Think about how big. Think about if AI really puts a bunch of people out of jobs and productivity is higher, think about how high the profits are going to be for these companies. So in that case, the economy is growing. It's not a that's not a fun scenario to do. So the robots might hire human assistance. Yeah, but let's come on. I don't know. We tax the robots somehow, but let's, I mean, unemployment is still 4%. So let's not go there yet either. Yeah. Okay. Okay. Just come on. Someone says I'm getting burned by how hot this take is. Yeah, it's it's pre-heating at 125, okay? Oh, man. Yeah, it's good. How many hot takes have there been about the economy crashing or the market crashing in the last 15 years? Yeah, I mean, I have to say like you've got dozens of shows you could watch if you really

35:00want people making bad predictions about what's happening. Fire in the background and stuff. Yeah, that's what it's not. Those people are never right. And if we do finally get a crash, they'll say I told you so. They'll and they'll run that clip every day for the rest of their life if they ever do anything right? Yeah. Okay. All right. One more. One next. We got one. Did you have any other hot takes? You looked like you had another one. No, I've already talked about Star Wars. I hear I'll save those ones. Oh, God. Okay. Last but not least, we got one from Garrett. You talk all the time about how you should never pay off a 3% mortgage early and how you wish you could have taken out even more money back with truck up, etc. Does that same logic apply to 0% APR financing on things like vehicles, furniture, appliances, etc. Obviously doing everything as a buy now pay way or scheme feels off. If it's actually 0% APR, shouldn't we also be doing that whenever we possibly can? Yeah. I listen.

36:01The only like it's one of those things like if someone's willing to offer you a teaser period for 0% rates, why wouldn't you take it right now, especially with inflation being higher? They did that for a flooring. We did a flooring in a house last summer. They're like, hey, we can give you, well, you pay half the balance now. We'll give you 0% for the rest of it until March 2027. And I'm like, what's the catch? No catch. It's just you pay all the back interest if you don't pay it off. So the only thing is, will you be financial responsible? And often I think people watching this show are fiscally responsible enough to know once it gets to that date, then you have to pay it off. Like, so you better be putting aside the money or have it sitting somewhere and waiting. But yeah, so many of you know this about 0% credit cards a few months ago. So, hey, I'm getting zero, and I looked and I found one from, I don't know, Bank of America or something, 0% for 22 months. Yeah, sign me up. We got a hot tub for our backyard. I put it on a 0% credit card for 20 months. It's ridiculous. They don't give you rear height maximums on those things that you can pay. Your credit limit's pretty small. But I don't know.

37:01I guess the, again, the one thing is, will you pay it off? And two is how much money are you really saving? Is it worth the time and effort to save a few hundred or maybe a few thousand bucks? That's the question. Right. I think for some people, it's about kind of like, I'm beating the system. I'm somehow giving it back to the banks. Zero percent. But if I don't know for a car loan, if they're offering you like a, whatever, two or three year, zero percent financing or whatever, like, yeah. Yeah. Why wouldn't you take that? Just, it's amazing. Obviously, read the fine print. A lot of these things are not as good as they sound, right? A lot of them say zero percent, and you look and there's a fee or with the credit cards a lot of times it's a three percent or four percent fee. I've done several with the three percent fee because it still sounds like a good deal to me. Well, that's for like a balance, usually, yeah, for a balance transfer. Like a balance transfer, right? Yeah, yeah, exactly. In the past, I know I have a big purchase coming. We're going to buy a new couch. We're going to buy something and, hey, let's just put it on that. Wait, are you right? If you're doing a balance transfer, there's probably going to be a fee there of some sort. But it's still might make sense. But it's a three percent fee isn't as bad, right? But sometimes it's four or five percent, which is harder to justify.

38:02Yes. But you have to think through, is it worth opening up another card and another account and another thing I have to pay attention to, and maybe I'll forget about it. If you're one of those people who can't figure this stuff out, that's the thing. I think for big purchases, it absolutely, why wouldn't you? That's completely fair. There's also people now opening checking accounts at a bunch of different banks to get the teaser intros of $300 for opening this account, $400 for opening this account. That sounds a bit much to me, but I respect the hustle. But again, for some people, it's not even about the money. The money helps, but it's about the game. That's what it's like for people with credit card points and stuff. I used to do all that. I would open every new credit card that got a bonus, right? 100,000 points, I did all those. Yeah. And then I got like 40 credit cards. I'm like, wait, I think I over-did it over here. Same. But yeah, it's, I don't hate this. And this is another thing, the 3% mortgage thing. We get two or three emails about this a week from me.

39:02Some people on my side, some people against me. It's another really big dividing line ticket item, right? All right. Good stuff today. Very strong opinions about it. Mike and Flashton. Thank you for asking good insurance questions for John. If he's been being asked where by name now, we do get a lot of questions people saying, hey, does this make sense? I'm glad we're answering these kind of questions. Ask the compound show at gmail.com. As always, send us your questions. We've got great ones. I get another awesome one for next week already. Showing something new ones already. We're going to have to have Nick Majuli crunch the numbers for us. Thank you, everyone, watching in a live chat. As always, thank you to people tuning in from overseas, somewhere else. We appreciate you. Thanks everyone. See you next week. Thanks everyone. See you next week.