Morgan Housel Talks GameStop, Bezos, and More

In this episode of Motley Fool Answers, host Alison Southwick and Motley Fool personal finance expert Robert Brokamp are joined by Morgan Housel, author of The Psychology of Money, to hear his takeaways from the GameStop (GME -3.94%) fracas, Jeff Bezos' stepping down as Amazon (AMZN 1.49%) CEO, and the seemingly never-ending party in the stock market.

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This video was recorded on February 9, 2021.

Alison Southwick: This is Motley Fool Answers, I'm Alison Southwick joined as always by Robert "Super Bro Champion" Brokamp. [laughs] In this week's episode, Morgan Housel is back to talk about how you should feel about GameStop, Bezos stepping down and what about that stock market? It just keeps going up. If the name isn't familiar to our newer listeners, trust me, you'll love him as much as we do. All that and more on this week's episode of Motley Fool Answers.

So, Bro, what's up?

Robert Brokamp: Well Alison, I got three things for you, No. 1, happy birthday Nasdaq. Yesterday marked the 50th birthday of the National Association of Securities Dealers Automated Quotations, now known officially as the Nasdaq. Up until February 8th, 1971 most trading was done in person on trading floors. For stocks that weren't listed on the exchanges, trades were done between dealers in the system that came to be known as over-the-counter. Prices for these OTC stocks were published and distributed on reddish pieces of paper, so they became known as the pink sheets. Pink sheets is still a term used for these OTC stocks although it's now all electronic. Even though these prices came on the pink sheets, in practice, the brokers basically had to place phone calls to other brokers around the country to determine the best prices. Very time-consuming, very cumbersome, not much transparency, but then came the Nasdaq, which was the world's first automated trading system. Originally, it was actually just an electronic bulletin board shared by 500 market makers from across the country, displaying the prices of the stocks that traded over-the-counter.

Gordon Macklin, the president of the NASD back then said this in a 1999 article in Traders Magazine,"It was an absolute miracle to be able to push a button and pull up on the screen everyone from all over the country and all of their current bids and offers. It was state-of-the-art, just a huge leap forward, coming from over-the-counter to over the computer, even in its most primitive stages was a thrilling lifetime experience." In 1975, Nasdaq developed a system by which trades could actually be executed electronically and then 1998 it became the first U.S. exchange to trade online. The value of the index at launch was $100, it crossed$1,000 for the first time in 1995 and then $5,000 in 2000, but then came the dot-com crash and then Nasdaq dropped to as low as $1,200 in 2003. It didn't cross $5,000 again until 2015, so that was basically 15 years of absolutely no growth, but since then, it has almost tripled, setting an all-time high where we are now around $14,000. That's a compound average annual growth rate of 10.4$since its launch. If it grows at that rate for the next 50 years, then Nasdaq will grow from $14,000 to $5.3 million in 2071. Today there are approximately 3,000 companies on the index, but the most popular way to invest in the index, the Invesco QQQ Trust, so named because of its ticker, QQQ, that actually holds just 100 companies, but they are the biggest of the big.

Top 5 holdings are, and you probably know these names, Apple, Microsoft, Amazon, Tesla, and Alphabet. The top 10 companies make up more than 50% of the index by weighting. The QQQ ETF has been on a tear returning an annualized 29% over the past five-years and an annualized 20% over the last decade, thanks to the significant outperformance of growth year, tech year, and larger stocks. At least until recently, which brings us to No. 2. Small has been spectacular over the very long term and we're talking like since the 1920s, smaller stocks have actually outperform larger stocks, but there have been periods when small stocks have underperformed and the decades of the 2010s was one of those, but the very recent past has been much different.

Just over the past three months, the S&P 500 has returned 11%. The S&P 600, which is an index of small company stocks, has returned 34% and micro-cap stocks, as represented by the iShares micro-cap ETF have returned 48%. That ETF, which I own, is up over 160% since March 18th of last year. So will small-caps repeat its long-term history and continue to outperform? No one knows for sure, but they're certainly cheaper than large cap stocks, which is sometimes, but not always, a hint about future performance.

Speaking of future performance, we now come to item No. 3. Bucs win and so will stocks maybe. This past week, I traveled to my hometown outside of Tampa, Florida to watch the Super Bowl with my family. As you likely know by now, the Tampa Bay Bucs beat the Kansas City Chiefs 31-9. What does this have to do with stocks? Probably nothing, but I will still highlight a couple of recent newsy items. The game was expected to be a high scoring affair. Before the game, Bloomberg published an optimistic article that featured the following, "Whenever the two teams combined for at least 46 points in the big game, the stock market went onto return on average 15.9% that year. Findings from S&P Global Market Intelligence show that's more than double the return when the offenses score less." Thanks to a dominating performance by the Tampa Bay defense, the total score was less than 46 points. That's not so encouraging. But wait, there's a Super Bowl indicator, a phenomenon first highlighted by New York times sports writer Leonard Koppett in 1978. The indicator says that the stock market does better for the full year after a team from the NFC wins the Super Bowl and yes, the Bucs represented the NFC this year. Is there any data behind the Super Bowl indicator? Well, a recent blog post from LPL research has the answer, they found that the S&P 500 has provided an average return of 10.2% when the NFC team has won compared to just 7.1% when the AFC wins.

An NFC winner has produced a positive return of 79% of the time, while the S&P 500 has been up only 65% of time when the AFC wins. The best post-game performance for stocks after all the previous 54 Super Bowls, 26.4% return after the Bucks won the Super Bowl in 2003. Does this mean that stocks will do well over the next year? Of course not, this is just a fun bit of Wall Street lore and probably an example of data mining gone awry, but it does give me the opportunity to acknowledge on the show that the Tampa Bay Bucs, the losingest team in pro football history are the world champs and that, Alison, is what's up.

[...]

Southwick: Wow, it's been, way too long, but Morgan Housel, a former Fool and now with the Collaborative Fund, is back to talk about just what the heck is going on in the world. GameStop, Bezos, the stock market, whatever, we're going to talk about things. Anyway, hi, Morgan.

Morgan Housel: Hey guys, how are you? It's good to be back.

Southwick: It's been, gosh, probably well over a year since we've talked to you.

Housel: Yeah, the world used to be normal the last time we talked.

Southwick: [laughs] Probably was a little bit normal.

Brokamp: Normaler.

Southwick: Normaler, yeah. For newer listeners, Morgan is a former writer with The Motley Fool and we're still on good terms even though he left us for the Collaborative Fund. I mean, he's pretty smart, I get it.

Housel: We're friends for life.

Southwick: We could still be friends, it's fine. He's also the author of the best-selling book The Psychology of Money, so we're just going to have a nice chat and get his take on what a goo-goo time this is for everyone. Hi Morgan, it is nice to have you back again.

Housel: It's always great to be back. I wish we do this more often.

Southwick: Careful what you wish for. Well, let's first start by talking about GameStop. Here's my huge oversimplification just to get us on the same page. At this point, everyone knows that a bunch of people on the WallStreetBets sub Reddit came together to drive up the price of GameStop stock and squeeze hedge funds that were shorting the shares, basically forcing them to lose a bunch of money; this became national news. Then, Act 2 came when Robinhood, the platform where a lot of the WallStreetBets folks do their trading, put a freeze on GameStop shares and then everyone started crying foul and that Robinhood was kowtowing to the hedge funds. This again, became major national news. Morgan, you wrote a column in response talking about feedback loops, and I want to get to that later. But first off, how do the GameStop fracas make you feel? Because I have so many conflicting feels.

Housel: I just think there's so many examples of things like this in the history of the stock market. Not exactly like this, but examples of the stock market is a place where businesses can raise money and investors can become part owners of those businesses, that's a theory. But so many times, it falls into these dark holes of these silly games that get played. The games are always a little bit different. This was a very extreme game that happened, but it just shows the big difference between trading and investing and this is what happened in the last month. I don't even know if you could call that trading. This was truly just a game that people were playing, but there were billions and billions of dollars at stake, so it all got silly.

For my understanding, the GameStop fiasco began on Reddit over a year ago when people were posting on the Reddit boards, on this WallStreetBets board saying, "Hey, we should all go out and buy GameStop, and these hedge funds are short, and we can have a short squeeze. This is a company that's near and dear to our hearts. If you grew up with video games, let's go do this." This started a long time ago and it started slow, and it all just exploded out of the middle of nowhere in the last couple of weeks. The most interesting takeaway of these things to me is how something can just lurk under the headlines forever and then just explode out of the middle of nowhere, and that as I wrote in the article that you referenced, is this feedback loop where so much of why GameStop really exploded in the last couple of weeks is because like you mentioned, it was national news. Everyone, whether you are an investor or not, knew about this. It was NBC Nightly News.

Every dinner table around the country, everyone's talking about it, and that's why it was going up. People were excited about it because the price was going up, and the price was going up because people were excited about it. Once you get that feedback loops going like that, it can just take on a life of its own and grow way higher than anyone expected. I had several friends, this was last week or two weeks ago, who texted me and said, "Hey, I bought a couple of shares of GameStop just to see what happens." They only bought it because the price went up, but the fact that they're buying it, was making the price go up. All these things just become self-fulfilling in a way that grows out of control. So it's fascinating from that perspective, and now in the last three days, it's all unraveling, and now you have a bunch of individual investors, many of whom were buying call options on this; they weren't even buying the stock, they're buying options which is highly levered who are going to end up losing everything, or close to everything, which adds to the narrative, which I think is a false narrative that the stock market is rigged against you and Wall Street is coming for you and they're all going to take your money. The fact that this all comes undone, which was perfectly foreseeable when a stock goes from four dollars to $500, you know it's all going to unravel.

But now that narrative that the odds are stacked against you is going to grow even more, and that's a tragedy from this. There was a survey yesterday that I saw that something like 30% of the country thinks the stock market is rigged against them, that Wall Street is rigging it against the individual investor, and I pointed it out that look, if you just owned an index fund over the last 30 years, you made 22 times your money and you'd beat 90% of professional investors. That's the fact, and the fact that a third of the country, even given that fact, thinks that the stock market is rigged against them is really unfortunate. But they think it's rigged against them because of things like this Robinhood fiasco. I just think it's sad that we have so many good opportunities to invest for the ordinary person in a way that didn't exist a generation ago. If you go back 20 or 30 years ago, a lot of investing was only for wealthier people, and now you have ETFs that have virtually no fee, you have no trading commissions. It truly democratizes, anyone can do it, but you have a greater portion of the country than ever before thinking it's rigged against them. So I think that's unfortunate.

The Robinhood thing, the brokerage that lots of these traders use behind it was an interesting scenario too which last week, as you mentioned, they put a freeze on buying GameStop's shares, and this created, again, a narrative of, "See? Robinhood is not on your side." They're part of Wall Street that's rigging the game against you. When actually what happened that we now know is that, and this gets wonky so I'll try to simplify it, but when you're someone like Robinhood, you use a clearing firm to settle the trades. If you go on and make a trade, you have to use a clearing firm that actually does the plumbing behind the scenes to settle that trade. The clearing firms, because there was so much frantic trading in GameStop, overnight they demanded that Robinhood post $3 billion in cash collateral as a down payment to settle this choice, and Robinhood didn't have that money. The only way that they can survive through the next day was to ban trading in GameStop. But they did such a bad job communicating that to the world that it just fueled, again, this narrative that Wall Street's out to get you and they're not on your side. There's part of me that says, "Look, this is all just a funny game to watch," and there's a part of that's like, "No, this has real world consequences." Beyond the billions of dollars that individual investors will lose, it's just such a ding in investor confidence that has lots of unintended consequences from it.

Southwick: I went to highschool with a guy. Of course, this is how these stories always start. I went to high school with a guy and he started constantly posting about how he was holding the line and he was sticking it to hedge funds, and of course, I'm rolling my eyes. But I was reminded of that scene in Mad Men where this young guy, and he's just been slighted by Don Draper in a meeting. Don Draper, for anyone who hasn't watched Mad Men, he's the boss, he's the guy in control. It's more nuanced than that, but ultimately he's this very handsome looking man in a suit who seems to have it all under control. This young guy who's just been slighted by him in the meeting, and the young guy confronts him in the elevator basically being like, "In that meeting, you just embarrassed me. You didn't even let me share my pitch," and this guy's parting shot to Don Draper to gain the upper ground is, "I feel bad for you," and then Don Draper replies as he leaves the elevator, he says, "I don't think about you at all." [laughs] It just reminds me, here is this guy I went to high school with who's like, "Yeah, I'm sticking it to Wall Street." I'm just sitting here being like, "Dude, Wall Street doesn't care about you at all." These hedge funds don't think about you at all and you can maybe beat them at their own game now and then, and on the fringes. But ultimately, you're nothing which is so dark. But also this guy was a schmuck in high school, so I don't feel too bad about negging him on my podcast.

Housel: I think you're definitely right about that in terms of they don't think about you, you're nothing. I think that's the reality of it when you are one individual investor among a stock market that's worth $100 trillion. But there is another side of the story that I think is really interesting and this is not a secret. This has been public information for a long time, which is that companies like Robinhood and other brokerages, the reason that they don't have trading commissions anymore, it's not because they've turned into charities and they don't make any money off of you anymore. They make the revenue and they make a lot of revenue by what's called payment for order flow. Which is if you will go into Robinhood and you say, I want to buy 10 shares of Apple. Robinhood is selling that order to another investing firm, companies like Citadel and Two Sigma. These trading firms that actually process the trade and earn the spread between the buy order and the sell order.

Those companies are paying companies like Robinhood hundreds of millions of dollars for that order flow for them to process and for them to trade around. They have a huge informational advantage because they know exactly what trades are going to happen, when they're going to happen. They have the data that says, "Hey, Joe Schmo wants to buy 100 shares of Apple at $90.10," whatever it is. They have that information that they can now use their enormous hedge funds to trade around. That's why these firms like Citadel or whatnot absolutely mint money. It's only a slight exaggeration to say every month there's a new story about the CEO of Citadel, a guy named Ken Griffin, who buys another $150 million apartment in Miami. They absolutely print money by buying this order flow from companies like Robinhood. That is, I think a legitimate outrage that people should, not necessarily an outrage, but that is part of the system where it's like you think you're getting something for free, "Hey, Robinhood, it's free trading." It's not free whatsoever. Just like the best analogy I think for this although it's almost cliche at this point is that Robinhood is like Facebook. You think it's free. You think it's a free product but it's not, no. You are the product. Your data is the product. You're giving them your data to sell and someone is monopolizing that data and skimming money off the top of that data in a way that is enormously profitable. I think that's a big story from this fiasco and that I think will end. I know there's a lot of push to end payment for order flow. Even though it's not illegal, it's not. I don't even think it's necessarily unethical; it's just that a lot of investors don't know that that's what's happening behind the scenes.

Southwick: One thing that gave me perspective of this was talking to Chris Hill, our dear friend over at MarketFoolery, Motley Fool Money. Because I'm seeing it on the news. When I'm seeing something about investing on the news in the morning, I'm like, "Oh wait. Wow, we're famous." I know it's not me literally but it's still like, "Oh, they're talking about us. They're talking about my team." I was talking to Chris and I was like, "Chris, oh my gosh. This is crazy and these lawmakers are maybe saying we need to do something." Chris was like, "Yeah, I don't even think we're going to be talking about this in two weeks." I was like, "Oh, OK then." You bring up a really good point that this has hurt people in that it reinforces this idea that they can't make money in the stock market, it's rigged. But do you see anything else that might change going forward as a result of this?

Housel: I think what's true is that, not to single out Robinhood too much, because a lot of the brokerage firms and investing firms do this, but the gamification of investing, I think, is a really dangerous thing. Robinhood has made it really explicit that investing should be a game. There's bells and whistles and when you sign up, you get a free hot stock to trade. They've really gamified it in a way that is great for user engagement. It's great for getting people to log in the app and hit sell, sell, buy, buy, and turn it into a video game in a way that's really dangerous, I think. There was a story last summer and this was all over the news when it happened. It was the cousin of a friend of mine who was I think 19 years old and he had a Robinhood account. He woke up one day, this 19-year-old, logged into his Robinhood account, and it said that his account balance was negative $700,000. It turned out, in hindsight, this was just a UI glitch. He wasn't actually $700,000 in the hole, it was just like a glitch of how they were posting options, trades, and the netted value. The details of it don't really matter, but he was not $700,000 in the hole. But he saw this, he panicked. He wrote a suicide note saying, "I'm sorry, I got my family into so much debt," and he jumped in front of a train and he killed himself.

Look, I'm sure that happens. Stories like that are unfortunately more common than we want to think. But that to me was just a perfect example of this like this is not a game. I know you want to gamify it, but this is real money. These are people's real lives, real savings on the line here. I think there's a sense of duty that all investment firms need to take in that. That even though we want user engagement, we want people to be happy and this to be fun and exciting, this is a real business and real people's money to deal with. Hopefully things like that and what's happened with GameStop and payment for order flow will wake people up to the seriousness of what investing is and that it is something that we need to take very seriously.

Southwick: I guess it's tough when things like GameStop and Robinhood make investing fun and exciting and fast paced when the best investing you can do as an individual investor is so slow and boring and you just wait and you wait. That's how you do it, but it's not fun and sexy.

Housel: We often need to remind ourselves that the purpose of investing is not to minimize boredom, it's to maximize returns. There's a lot of other fun things in life to do rather than hit buy and sell on there. But what's interesting about investing, relative to other fields is that, there's not a lot of other fields where someone with no experience, no education, no training, can just download the app and have the legitimate possibility of earning a lot of money. Whether they earned it by dumb luck or something else, they can actually do it. There's no other field that's like that. You can't just wake up one day and download an app and decide you want to become a chemical engineer or a heart surgeon or something and have success at it. But you can do that with trading. Particularly when you have a huge bull market like we've had in the last year, you can have people who have no clue what they're doing whatsoever who download the app and by the end of the day, think they're George Soros. I think that's a lot of where the confidence comes from in a way that that confidence just leads to overconfidence and then you have these stories about the huge amount of options trading going on. Then things like GameStop where you're going to have literally tens of maybe hundreds of thousands of investors who lose virtually all of their money doing this. The amount of trading that took place when GameStop, I should say, was at $350 a share was enormous. Now it's back down to $60 a share three days later. That's just so much money that got sucked out of the system. That's just sad and tragic to watch.

Southwick: But they stuck it to the hedge funds.

Housel: Did they? I don't know. [laughs]

Southwick: I don't know. I don't know if they did either.

Housel: A couple maybe.

Southwick: A couple.

Housel: A few. There were a few. But then of course, there's a story in the Wall Street Journal this morning about a hedge fund that exploited all of this and made $700 million off of it. There's always two sides to these trades.

Southwick: All right. Let's move on. In Amazon news, Founder and CEO, Jeff Bezos, has stepped down as CEO. Long time Amazon Executive, Andy Jassy, who's he? I don't know. I'm sure we'll find out. He'll become the new CEO, and Bezos will become the company's Executive Chairman; a not uncommon move for a CEO to just slide into and still have a somewhat influential role. What I want to know is how they kept this a secret. It feels like everyone was surprised. Morgan, did Jeff call you? You're in Seattle. Was he like, "Morgan, let's get a cup of coffee?"

Housel: We have dinner every other Wednesday, and he never; no I'm kidding. From what I understand, Bezos told the board six months ago that this was as planned, but they kept it such a secret inside that I read this morning that even senior Amazon managers, the top people, didn't learn about it until they read it in the paper two days ago. So they did keep it very secret, but from what I understand as well, not much is going to change. From what I understand, Bezos, for the last several years, has effectively been executive chairman in the sense that he's not that involved in day-to-day operations. He is really just doing the big major decisions at the top, which he's going to keep doing. I don't know if that much functionally changes, but what I think is always great, and that we underestimate, it's very easy to glorify celebrity CEOs, as Bezos was, and deserves to be, same with Steve Jobs, and Warren Buffett, and Bill Gates, whatnot, these big celebrity CEOs to really consider them the great men of business who are pulling the strings and guiding these companies forward.

Then often, when those celebrity CEOs step back, the company keeps going and does just fine. That was the case with Apple, of course. You can't overstate how important Steve Jobs was to Apple. He was Apple. When he died in 2011, and there were a lot of people who thought, what is the future going to be? At Apple's next product launch, we're going to say, "It doesn't have Steve Jobs' design, it's not the same." The answer was no. The company has absolutely exploded in the decade since he passed away. Same with Microsoft and the post Bill Gates era. Bill Gates was Microsoft. The company was him, and then he left, and the company went on to achieve huge heights after him. I think it'll be similar with Berkshire Hathaway, that was another, Warren Buffett is Berkshire Hathaway. But after he passes away, it's still a great collection of businesses that are going to keep generating a lot of profits, several crew, and they've hired people, great, talented people who can keep allocating the capital. This thing with Bezos and Amazon, it's just another reminder that good businesses are machines outside of the celebrity people who built them. Once you build the machine, the machine can keep going without the person who built it. I think that's what's happening with Amazon.

Southwick: Yeah, and getting back to your article about feedback loops, was this actually in your article that you called out, or did I pull this from something else? Basically, the idea that successful companies end up attracting hardworking, top-tier employees, and then this becomes this great virtuous cycle where Apple is going to keep attracting the best employees, the best people, and the company is just going to keep on getting better and better.

Housel: That's exactly what happened. You have companies, the top tier of companies; Apple, Facebook, Amazon, Google [Alphabet], those companies, they attract the best employees from Harvard, Stanford, MIT, the best engineers, the best managers. Because they attract those people, the companies keep winning. Because they keep winning, they keep attracting the best employees. Those things, like once you get in that loop, those companies can just keep winning for a long period of time. That's where Amazon is right now. If you are one of the top management minds coming out of Harvard Business School, Amazon's probably near the top of your list of companies you want to work for. That's why the company keeps doing so well. Then the same thing happens in reverse. If you are a company that's not doing very well, then the top employees don't want to work there. Then the feedback loop goes into reverse, and then you end up, something like Sears. Sears could not attract the best employees because they were a losing company. Once you get in that zone, it's hard to break out of that loop.

Southwick: All right. In his letter, Bezos wrote that, "In the executive chair role, I intend to focus my energies and attention on new products and early initiatives." Let's widely speculate. Bro, you too, what is he going to focus on? Who wants to go first?

Housel: I'll jump in. I think most of what he's going to focus on in the next five or 10 years is fighting antitrust. That's my bet.

Southwick: [laughs] Okay.

Housel: That's not even a bold bet. You can see where that's going. I think that was a lot of the reason that Bill Gates quit in 2000, is because the antitrust things that went on in the 1990s probably wore him out/realized that there needed to be someone who is more focused on that than he was. Gates was a product and business mind, and it's like you needed someone who is more attuned to that risk than he was. Maybe that's the same with Amazon.

Southwick: Bro, do you want to say space travel? [laughs]

Brokamp: Well, I was hoping. They had been dabbling in some solution to healthcare, and then nothing came off of it. But you do think in terms of when you think of Bill Gates, he did turn a lot of his energies toward philanthropy and making the world a better place. I hope that's what happens here, and I know he's expressing interest in solving the problem of healthcare with the costs going up two, three times the cost of inflation. That is unsustainable, so somewhere, you hope that he's going to find some way to make the world a better place for all of us. I hope it's that.

Housel: He's now unemployed and worth a fifth of $1 trillion. He's probably going to have a fun retirement.

Southwick: Right. Yeah, definitely. Bro got into my next question though, is what you wish he would focus on? Morgan, what do you wish Bezos would solve for you and the world?

Housel: This is not my idea either. There's a lot of people who have pointed this out, but if you could get Amazon to run the nationwide vaccine program, that would be great. What organization, not company, any organization is better at showing up at every American's driveway seven days a week? No one can do it better than Amazon. Better than the post office. If you could get Amazon's logistics to run the vaccine program, I think we'd all be in a better spot.

Southwick: All right. Before we move on to the next topic, let's play a fun little game of over, under. I'm going to say a number, and you have to say whether you think it's over or under. First up, number of Amazon employees. I'm going to set it at one million.

Housel: Over.

Brokamp: Okay. I need clarification. Do I think that is too high or too low? What's over and under mean?

Southwick: If you think there are more than one million employees, you would say over. If you think they have less than one million employees, you would say under.

Brokamp: Yeah, I would say over as well.

Southwick: Yeah. As Bezos stated in his letter, Amazon has over 1.3 million employees. So yes, over was correct. All right. Amazon Prime members in the U.S. I'm setting it at 100 million. Over or under?

Housel: Under, but not much under.

Brokamp: Yeah, so that's almost a third. Well, it's households, right? You said households?

Southwick: They just have it framed as Amazon Prime members, but I think if you have more than one Prime membership in your house, you're doing it wrong.

Brokamp: [laughs] I'm going to say under as well, but it's only a matter of time.

Southwick: Yeah. It's actually over.

Brokamp: Wow.

Southwick: They last announced that it was 142 million, which is bananas.

Brokamp: Holy cannoli.

Southwick: Yeah.

Housel: There has to be like 90% of households.

Southwick: Yes, right.

Housel: There's 330 million Americans, so there can't be more than 125-150 million households, something like that.

Southwick: Yeah. Now, you're making me doubt my Googling skills, but [laughs] you can all fact check me. All right. Last one; how many Amazon orders did the Southwick family make in 2020? I'm going to set it at 100.

Housel: Over.

Brokamp: Just to be different, I'm going to say under, but I wouldn't be surprised [laughs] if over is correct.

Southwick: It was over. [laughs] 115 orders, which is mind-boggling to me, that every three days, I was like, "Hey, look, it's the [...]" and then it comes to my door. Yeah, one thing that amazes me about Amazon is they create that sense of joyful anticipation that just diminishes to a shrug the moment you open the package, like we're all just chasing the consumerism drag in here for that next time, like that was 2020. Well, let's close with just some general stock market. What? I don't know if you heard Morgan, but we are in the middle of a global pandemic. We had a year of social and political unrest and the stock market just kept marching to new highs. Through this whole year here at Answers, we have been scratching our head. Morgan, what gives? I'm so confused, and now I'm just going to yield the floor. Talk; the stock market. Go.

Housel: Well, I think all investing history is this constant chain of, this doesn't make any sense. Why is the market going down so much? No one can really explain it. Why is it going up so much? No one can really explain that. The short-term is not supposed to make any sense. The long term does, but the short term is always a chain of confusion. I think the fact that we were all confused last year is par for the course. But if you were to try to explain why you had 20 million people losing their jobs, the worst economic crisis since the great depression with no exaggeration, and then the stock market went up 30%-some-odd and Nasdaq went up over 40% last year. If you did try to explain that it's something like this. Most of the economic damage from COVID, happened at, let's call it the main street level, the local dry cleaner, the mom-and-pop owned restaurant, the local car dealership that was who really got bludgeoned from COVID. The large corporations, the global corporations, by and large, did OK, if not really well.

Those are the companies that because of their access to capital, because of their global supply chains, because of their business models, tended to be the companies that could thrive in a COVID world. Particularly if you're talking about a stock market index, which is heavily weighted toward the big, huge companies. Google, Amazon, Microsoft, Facebook, Apple, those companies. They take about a disproportionate share of what we call the "stock market". So, because those companies were doing so well, there was this big disconnect between what the Nasdaq was doing and what was happening on your local main street. Those are two completely separate things. That's always been the case for the last 40 years, that big companies were doing much better than mom-and-pop companies. But that just got blown out of proportion in the last 12 months in a way that's hard to reconcile and you read the newspapers about millions of people losing their jobs.

Even right now, almost a year into this fiasco, the number of weekly job losses is much higher than it ever was during the peak of 2008. Where we are right now, today is way worse than what's happening than what happened in 2008 and yet the stock market is just booming. I think that's part of the explanation. The other explanation is that in the last 12 months, the U.S. government has spent adjusted for inflation more money than we spent fighting World War II, over four years. The amount of government stimulus that's being thrown at this to solve COVID is just completely unprecedented, way more than what we spent during World War II. Then you add on with what the Federal Reserve is doing, which is another several trillion dollars being pumped into the system. All that money will find a home eventually and since not a lot of it is being spent on vacations or going to the restaurant, a lot of it does find its way into the stock market. I think that's at least part of an explanation for it. I think those two things are probably the biggest explanations for what's going on. It's that the stock market is not main street, and there's just trillions of dollars looking for a home and it often finds it in the stock market.

Southwick: We have a lot of new members at The Motley Fool lately and they are loving it because everything is winning. But then I am here and I'm like, "Summer child, it won't last." But I only started investing like 10 years ago and aside from a few blips here and there, I'm a summer child too and I blame Bro, but I think his awfulizing has rubbed off on me because I'm like, "This is not going to last." Is there anything Morgan, where you're like, 'This is impending, this could actually really come down and hurt us if we don't do something about it at some point?"

Housel: If you were to say, 'Look, a lot of the reason the stock market is doing so well is because of government stimulus and the Federal Reserve." That's not 100% of it, but let's focus on that aspect of the pump that's going on. Then you would have to say for this to end, you'd have to make some coherent argument of saying, look, when and why would the government wake up tomorrow and say, "Okay, party is over, we're going to balance the budget and throw the economy into recession". The Federal Reserve is going to wake up tomorrow and say, "Party is over, we're going to jack up interest rates to 7% and end all this." That could happen. But I just have such a hard time seeing that ever happening, given that it is so in the politicians and the policymakers interest to keep the party going. That they're going to willfully pull that away, and it was different in previous eras when the party just never really got going that much between government stimulus and the Federal Reserve. It was just never really viewed as their job to stimulate growth to the extent that we are now.

The only experience we had with it was, again, during World War II, when there was so much war spending that it pulled the economy out of the great depression. But between, let's say, the end of World War II and 2008, there is a period where government stimulus from Congress and the Federal Reserve was not really that big part of the equation. Now, since 2008, it just absolutely has. Between the Federal Reserve, between Ben Bernanke in 2008, just flooding the system with trillions of dollars to prevent financial collapse, and the stimulus packages that took place it started in 2009, that just grew through today. It really is like a new paradigm of government support. Are there risks to that? Yes, of course, there are. But I think there are a lot of people that are just waiting for the old paradigm to come back and they think we're going to wake up tomorrow and Congress is going to announce that instead of doing a $3 trillion stimulus package, we're going to balance the budget tomorrow, and I think the odds of that happening are just very, very low.

To come back to your point, is there a point where this is all going to end? Is this party going to end? I think all excess does end eventually. But are we in a new world where even after it ends and it unravels, there's just a whole new bubble that gets blown from there? Maybe that's the new world and we saw this last March when the stock market fell almost 40% in a month. That was a huge unraveling that took place. But instantly, it only took two or three weeks for that to unravel before it got blown back up again. So maybe that's the new world. We're never going to hit a world where there's no recessions and no bear markets. That's never going to exist. But maybe the world that we're in is happening, but they are shorter-lived than they used to be because policymakers are so adamant on pulling out the bazookas at any sign of trouble. If there is one thing that's different today than it was in the past I think it's that. I think it's the willingness to use policy tools to prevent long-term economic collapse, including in the stock market.

Southwick: All right, Morgan, I think our time here is up. But I really appreciate you coming by the show and I think we're going to have you back again next week. Why not, please? Yes.

Housel: Let's just keep doing it. Yeah.

Southwick: All right. Forever and ever and ever. This is now the Motley Fool Answers and Morgan show. Morgan Housel, thank you so much for joining us for our listeners. You can read Morgan's column, it's over at the Collaborative Fund. I noticed that when I say Collaborative Fund, I often leave off the D. But there is a D there. It's not just collaborative fun.

Housel: It's a silent D.

Southwick: Follow him on Twitter, read what he writes. He's such a joy, as you can tell. You're just a delight. Morgan, we'll see you soon.

Housel: Thanks, guys.

Southwick: Well, that's the show. You can get Morgan's excellent book, The Psychology of Money, wherever all fine books are sold and seriously, it is a fine book. Our email is [email protected]. Send us your questions, comments, whatever. The show is edited [...] by Rick Engdahl. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody.