Homebuyer's Remorse | Animal Spirits 458
Summary
- Michael Batnick argues the current market sell-off is orderly, not recessionary, citing no spike in VIX, absence of 2% down days, and positive CEO comments from Arthur J. Gallagher and Paychex indicating no broad economic weakness.
- Ben Carlson notes historical context: average intra-year drawdowns are 14-16%, currently at 9%, and only two down years (2018, 2022) since 2009, suggesting corrections are normal and not predictive of recessions.
- Tech sector shows earnings growth (e.g., up 18% for technology) but stocks are down 12%, leading to multiple compression; Michael believes some compression is warranted due to AI investments shifting companies from intangible to tangible assets.
- Wealth inequality is highlighted with 430,000 U.S. households worth $30M+ as of 2022; Michael predicts AI will exacerbate inequality, potentially leading to socialist policies in the future.
- AI impact is debated: Michael sees it increasing inequality by enabling businesses to start with fewer people, while an email suggests AI could assist lower-skilled workers, extending their employment runway.
- Housing affordability discussed, with an email example of homeownership as a "money pit" due to costly repairs (e.g., roof, AC, porch) totaling tens of thousands, underscoring hidden costs beyond mortgage payments.
- Private credit faces redemption pressures and illiquidity risks; Michael warns against including alternative investments in 401(k) plans, calling it a potential disaster due to mismatch with investor time horizons.
- Crypto market cap is flat over five years despite new protocols; stable coins are a significant use case but may be viewed as a failure relative to initial decentralized ambitions.
- Energy market dynamics: disagreement on correlation between oil prices and energy stock returns, with Michael skeptical of data showing low annual correlation, emphasizing recency bias.
- Financial nihilism among younger generations (e.g., 80% of Gen Z) is noted, but Ben argues it's more prevalent online than in real life, where most people appear content.
Trade Ideas
Michael Batnick explicitly stated that at current valuations, such as Facebook trading at 16 times forward earnings, if you can hold stocks like Facebook and Microsoft for a couple of years, you will make money. Valuations have compressed due to market concerns over AI investments increasing capital intensity, but this derisking creates a long-term opportunity as earnings continue to grow. LONG because the stocks are considered cheap relative to earnings potential, and historical patterns suggest rebounds after drawdowns for mega-cap tech names. AI investments may fail to generate expected returns, leading to sustained earnings pressure or further multiple contraction, especially in an economic downturn.
Michael Batnick expressed strong concern about private credit, citing illiquidity, redemption pressures, and the potential for it to be a "disaster" if included in 401(k) plans, due to mismatched investor expectations. Private credit funds face challenges with markdowns, leverage requirements, and hot money inflows, making them risky for investors who may need liquidity, exacerbated by media scrutiny and ongoing redemption cycles. AVOID because of the high risk of capital loss, inability to access funds when needed, and structural issues that could worsen with economic stress or AI-related bankruptcies. If redemptions slow significantly and underlying asset performance stabilizes, but current dynamics indicate persistent liquidity and valuation pressures.
Up Next
This The Compound News video, published April 01, 2026, features Michael Batnick discussing META, MSFT, XLF. 2 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Michael Batnick · Tickers: META, MSFT, XLF