The Giant Mindless Robot Driving Stocks Is Starting to Falter | Mike Green

Summary

• Passive Flows: April saw record, largely mechanical inflows (401k rebalancing, CTAs, vol-targeting) that drove a sharp market rebound, aligning with a high flow-to-price multiplier.
• Danger Zone: If passive share exceeds ~65% (vs. ~53–54% now), a volatility event becomes likely due to insufficient discretionary capital, with a 2–3 year runway implied.
• Income Shift: Emphasis on transitioning from asset hoarding to income investing via long-term bonds (~5% yield) and long-dated TIPS (~2.7% real), especially within tax-advantaged accounts.
• Market Outlook: Bubble-like conditions persist as flows dominate price action; when flows moderate, equity returns could materially underperform recent history.
• AI and Labor: AI is reshaping hiring dynamics (low-hire/low-fire), boosting demand for older workers with domain expertise and depressing entry-level hiring.
• Key Mentions: Flow dynamics explain a significant portion of moves in mega-cap names like Microsoft (MSFT) and Nvidia (NVDA); SPY and the historical XIV episode illustrate mechanical risks.
• Retirement Strategy: Oversaving is common; with Social Security plus bond/TIPS income, many need far less than “25x income,” reinforcing the case for dependable income streams.
• Implementation: Simplify is developing products to exploit flow dynamics; current focus blends risk-managed income strategies while predictive models mature.

Transcript

There there are some signs that we are starting to see a bit of a slowdown. Um prior to the April run, we saw some diminishment of 401k flows. My hunch is that part of what is ultimately happening here is is that boomers are actually working slightly longer and millennials and younger, the Gen Z, are having trouble finding jobs. that's creating some disruption in the process. But the simple reality is those 55 and over hiring is up dramatically. Employment rates are down um in part because of things like AI, the return of manufacturing or the need to return to manufacturing. >> Yeah. Sorry to interrupt, Mike, but that doesn't sound like a trend that's going to get any better anytime soon. Boomers will continue to retire and AI will probably diminish the need for younger workers to replace them at an equal rate as in the past. Well, that that would certainly be the the implications of something like AI. Welcome to Thoughtful Money. I'm Thulful Money founder and your host, Adam Teert, welcoming you here for a very special discussion with my good friend Mike Green. Mike is portfolio manager and chief strate uh chief strategist at Simplify Asset Management, which holds I've lost track of how many billions in client assets you guys now have. Mike gets bigger every time I introduce you. What is it? What is it? >> You've been fortunate. It's It's a little over 14 billion now. >> Oh my gosh. Uh I think the last time I I talked to you, I don't even think it was 10 billion and that wasn't all that long ago. So you guys are really doing great. >> We're We are definitely holding our own. >> All right. Um, well, look, Mike, um, lots to talk about. We actually just hit on a really rich vein right before we turn the camera on here, uh, which I want to make maybe even the meat of this sandwich here today, but I want to get there through, uh, a couple of topics that you're well known for. We'll call this Mike Green's greatest hits. Um uh I was just talking with our mutual good friend Bill Fleinstein the other day and um he brought your name up as he often does around the topic of passive capital flows and um you know basically banging the drum that really nothing much matters besides the the giant mindless robot of these these passive capital flows. So um first off I just want to get an update from you. Where are we on them? Um I I know you've been continuing your research on them. Last time we talked, I think you had actually done uh recently released a white paper that was showing uh that you've sort of proven a correlative factor uh that the passive foe actually passive flows actually really do um the data validates your your theory that you've been out there begging for a long time. So anyways, um any advances on the research side of things and just where are they right now? What's the state? Are they still rising? I mean, they must be because we're at all-time highs in the stock market the day we're talking. >> Well, a combination of of retirement flows and some driven by rebalancing as well as systematic strategies like vault targeting, CTAs, etc. actually led April to be the like offthecharts record inflows versus anything we've ever seen. That's exacerbated by flows into things like levered ETFs where if you properly track the price impact of those because they are effectively taking one of your dollars and buying two or more of the underlying and doing it in the same transaction it has a a an even more levered basically the square root of two impact on the flow components as well. So this has just been April in particular was just an extraordinary period. May has slowed and the performance of the market has basically matched that over that time period. And so when we look at what happened in April, it was just a mechanical bid that came through that forced extraordinary short covering and amplified exactly the sort of stuff we would expect to see amplified in a passive inflow. The largest companies, the most volatile companies are those who basically took off and ran with the most aggressive components >> in defiance of basically every narrative that exists out there, right? Concerns about AI, etc., all thrown into, you know, the dumpster heap of history alongside higher interest rates are going to bring back value investing, right? >> And the war. >> And the war, forget, let's let's not forget the war, which apparently we're losing, right? Um, so you know, this is this is unfortunately really an extraordinary testament to the type of stuff that I've been highlighting and writing about for the last several years. Um, with that said, there there are some signs that we are starting to see a bit of a slowdown. Um, prior to the April run, excuse me, um, we saw some diminishment of 401k flows. My hunch is that part of what is ultimately happening here is is that boomers are actually working slightly longer and millennials and younger, the Gen Z, are having trouble finding jobs. That's creating some disruption in the process. But the simple reality is those 55 and over hiring is up dramatically. employment rates are down um in part because of things like AI, the return of manufacturing or the need to return some manufacturing. >> Yeah. Sorry to interrupt, Mike, but that doesn't sound like a trend that's going to get any better anytime soon. Boomers will continue to retire and AI will probably diminish the need for younger workers to replace them at an equal rate as in the past. >> Well, that that would certainly be the the implications of something like AI. And I've talked about this fairly extensively. There was a phenomenal paper released by the Ricks Bank, the central bank of Sweden earlier this year that um took advantage of the natural experiment of the Ricks Bank being among the first central banks to hike interest rates in 2021. Um and the question that they tried to evaluate is is the decline in hiring tied to the increase in interest rates and the contractionary effect that that has on many types of purchases or was it tied to AI? And what they found was that the vast majority of job loss that occurred over the 22 23 tied to the increase in interest rates. But within companies, they found an entirely different phenomenon, which is what we refer to as the low fire, low hire environment we're experiencing. >> There's been a dramatic increase in value for those who are older and have what's called domain specific knowledge. They know how to do their jobs. >> And there's been a tremendous diminishment in the value of people who need to be trained. And so what we've actually seen is crazily enough an 84% increase in the hiring rates of those 55 and up and a 25% decline in the hiring rates of those 29 and old and younger. This has really only been replicated or preceded by one period in history that I can point to which was the early stages of you know kind of the first parts of the industrial revolution. As we transitioned from the industrial revolution largely being about power generation, coal used to power things like textile mills and looming facilities. And we began to move into the actual manufacturing and automation of manufacturing. >> A lot of your listeners will be familiar, I know you spent time in Northern California, you know, with the popularity of Victorian houses in that era. The reason Victorian houses were popular was because new manufacturing techniques dramatically lowered the cost of things like filigree, wood trim, etc. That was done because we automated that process in the early stages of the industrial revolution in the early parts of the basically the 1830s is kind of the easiest way to think about it. Um that process was very similar to this one. It created an explosion of demand for trained artisans, those who knew how to do this because they were required to design the jigs that would ultimately be used in the automated factory. But it simultaneously destroyed the apprenticeship business. And so historically, we had always had guilds with masters and apprentices. Apprentices were brought in, paid minimal wages. Basically, they worked for food. They were taught the trade and then they became masters in turn. The industrial revolution broke that process and destroyed the pipeline of apprenticeship to mastery and created conditions of highly cyclical highly damaging cycles of unemployment. Just to give reference to it, while we often think about the elevated unemployment in the Great Depression where it hit 25%. In New York City and Philadelphia, which were manufacturing centers, in the panic of 1837, unemployment hit 63%. So, you know, this has precedent and I agree with you. I don't think it's going to be anywhere near that extreme. I want to be very, very clear. But I just want to parameize where we have seen this type of behavior before. Today, those senior employees are being used to train the AIS instead of the young workers. And that is because we are genuinely questioning, will there be a need for them? >> Right. And and sorry to interject again, but I I'm curious why you don't think it might have the potential to be as bad or even worse when you combine not just the AI, but with the potential coming robotic boom. >> Well, the simple the simple answer is that I don't know. Right? So I want to be very clear on that. Um but when you think about the uh proportion of our activities that flow through into the market-based economy versus the early parts of the 19th century, discretionary income that actually transacted at market-based prices was very low as a fraction of total spending. You likely grew your own food unless you happen to be in New York City. And so could we see this sort of phenomenon in urban environments in which service jobs like you know fast food uh cashiers rapidly gets replaced by automation or or cooking or delivery via uh trucks etc. These are all very large employment bases. It's entirely plausible that many of those jobs go away and there is no alternative for those workers. But that's a that's a very strong statement and it's not one I'm prepared to make right now. >> Okay. All right. But but you're maybe the right way to say it is is you right now you you don't have reason to suspect it's going to be at as large as the industrial revolution disruption, but you're keeping an eye open. >> Yeah, I'm definitely keeping an eye open for it. And and and again part of what I want to convey is that you know this creates understandable anxiety as this narrative increasingly permeates through our society that you know you are replaceable you are a horse um you know it's a really terrible message to convey to people because at the end of the day they aren't horses >> right >> you know we are mammals and I want to be very clear on that that you know there's more similarities between us and a horse than people might take on first uh on first glance, but that fear that effectively we're going to become domesticated animals, that ultimately we exist to serve the the whims of our masters is not really an accurate representation of what an economy should be, >> right? And it's not constructive. I mean, a there's plenty of opportunity that'll get unlocked by this new technology and to just deliver a demoralizing message that just sends it gives a mal incentive to the youth to just give up versus lean into the potential opportunity. You know, it's that's that's toxic. Um, okay. So anyways, um we we get off on a slight tangent here because you were saying um while we just had the biggest month ever uh for positive passive capital flows, you are seeing some signs that things might be moderating and some signs that some trends going forward that say, hey, this this might be a moderating trend, right? So say the the retiring of the boomers while not hiring their replacements at a good replacement rate. >> Yeah, I I think that's right. And so we have to consider both the demographic component of it of the retiring boomers, the vast majority of them will be retired over the next decade. Um as well as the simple reality that we are now creating undermployment conditions for the next generation means that those 401k flows are are increasingly at risk. >> Yeah. And the thing sorry to interrupt but the thing for me about the passive capital flows at the end of the day when I you know take notes with what you say is you're basically just saying look folks it's just math right and the math right now is over has been overwhelmingly on on one side but there's a period of time if we keep doing the math out where that math might shift to be overwhelming on the other side and and be aware of that because as fun as it's been for so many on the ride up it could be equally unfun on the way down. >> Yeah. I mean that that I think is the unfortunate component. As always, I think there are opportunities that are created and we'll probably talk about one of them. You know, what I'm always looking for is areas of the market that have been neglected. And you know, if you listen to the advice that I've given, I think people oftentimes, you know, they either think that I'm a crazy bull because I'm like, look, this is going to continue and markets are going to continue to levitate and go higher. But understand that's not telling you about health, right? That doesn't make me bearish. That's actually me telling you like, hey, this casino is going full boore and not only are they, you know, plying you with alcohol, but they're dropping cocaine on the tables. The, you know, the simple reality is that like that is, you know, the components of a truly epic bubble, which is part of what I think we're actually in. The other side of that though is is that means that investment has to be directed away from another area. It's crowding into the speculative areas of the market in part because people are so afraid, right? They're afraid they're going to lose their job, therefore they have to earn 20% every year in their savings in order to achieve their perceived objectives. The simple reality is that's increasingly untrue and it's really untrue for the older generation. There's extraordinary opportunities that are being created by components of passive that create neglect. We'll talk about those. But that means that we also can't all get out at the same time, right? People have to decide they're going to do something different. And that in and of itself creates the feedback loop where if more people wake up to this opportunity and recognize that they're now investing to keep up with the Joneses as compared to what their individual needs might be that they, you know, if they wait, they're going to join the crowd that tries to get out at the same time. and that could very well impair their their financial future. >> Um, all right, Mike, you're you're you're laying the groundwork now for the the meat of the sandwich, but before we get into it fully, couple final questions here on passive capital flows. Um, you said that there were just a bunch of things that just I think you said mechanically um happened in April to make it such a overpowering month. So, when you look at the the S&P, how it was really kind of in the process of rolling over and then all of a sudden it just on a dime reversed and we've had one of the the most violent um bounces I guess in the market in history. I think it's something like 10 trillion in market cap um has been created in just the past couple weeks. Um, is that just due is how much of that do you think is is mechan mechanistically related to just the math of the passive capital flows versus any sort of other major change that okay all of a sudden investors got a lot more positive or there was you know people were expecting a ceasefire a ceasefire to the war are all those other potential triggers that we're talking about what were responsible for that that rebound is that really just stuff we're wasting our time with. Is it really just about the mechanics of the passive flows? >> Unfortunately, like let's reverse engineer that, right? So, you've heard me use the math that suggests the multiplier on passive flows is now in the range of about 22 times. >> 10 trillion worth of market cap appreciation would translate to roughly, you know, $450 billion worth of inflows. Our math suggests there was $400 billion worth of mechanical inflows. >> So like you know it's doing exactly what we would expect it to do in response to those flows. >> And those flows were generated by 401ks particularly target date funds systematically rebalancing on threshold basis. we because of the relative outperformance of bonds into the April lows that created conditions where bonds needed to be sold and equities needed to be bought. Um that was one source of inflow. That inflow as it began to drive markets higher forces CTAs to cover their short position. As the market continues, CTAs flip from a short position to near a full allocation long position. >> Mhm. V targeting strategies reinvest on the collapse in volatility that occurs as that begins to settle down. And then we also have things like risk parody and others that are smaller players in this. But at the end of the day, like we can mechanically identify these flows that came into the markets and it has nothing to do with the war. It has nothing to do with economic outlook. Everything I literally just described to you has no discretionary component to it. So, it's really hard after I talk to you, Mike, not to just think, well, it's just all about the capital flows. If if they go up, markets go up. If they go down, markets go down. I'm pretty sure I'm singing from the song sheet that you want me to be singing from here. My question to you is just, so why at on the front page of the Wall Street Journal do we just not have a dedicated section every day that just says, "Hey everybody, this is what's happening with capital flows. If you want to read about everything else that's going on in the world, fine. It's all beneath this. But the thing that matters is what's happening with capital flows. So, let's keep tracking it closely. What why isn't the world doing that right now? Well, I you know, the simple answer is that we should, right? Um but it's not a very satisfying narrative, right? It's much more fun to look at the S&P as a price level without, you know, and attach the traditional narrative to it. It's more fun. But I mean, at the end of the day, folks want to make money, don't they? I mean, look at the thing that's going to make you money. >> It it's one of the reasons that when I appear in financial commentary or I'm asked, you know, what's going on? People will ask me and and this is a regular conversation, right? I will get a a phone call from a press outlet saying, you know, do you have any comments on why markets are up today? And my answer is, well, we have positive inflows. What would you expect? >> And their response is, well, yeah, but what about earnings? What about oil? What about Trump? You know, etc., etc. And the answer is it doesn't matter. >> Yeah. >> Like I mean to the extent that oil can actually you know the surging oil prices can cause investors to change their allocations or the marginal discretionary investor to say I'm going to buy more oil related stuff like sure that has an impact. I want to be very very clear but the reality we saw in April was not actually about that. And that that to me, you know, Mike, I know people listen to you and, you know, will debate whether they think you're right or wrong or whatnot, but >> I I don't think there's much debate about that. Most people assume I'm crazy. >> No, most people most people, the one word I hear mentioned you about you the most by far, and I think it's very true, is smart. So people might not necessarily accept what you're telling them, but they know that it's well thought through and well argued. But April is is is about the most compelling evidence I've seen of your framework to date where you had a market that that really did appear to finally be rolling over under the weight of all the other things that we could talk about besides passive capital flows and it just reversed in a millisecond. And there really doesn't seem to be any other great explanatory reason except what you're providing here, which is just the the capital flows changed and and that that that is the tide, you know. >> Yeah. I I mean I I I will uh send you a a copy of our flow analysis from Tier One Alpha um that highlights this. I could probably just share it on my screen. Give me a second to pull it up. But like it, you know, the minute you see this, you're like, "Oh, okay." It all unfortunately makes a ton of sense. Um it it doesn't make it feel good, right? And it does, as you said, highlight the framework and it is the same framework unfortunately that then suggests um you know this does not end well. But that's you know that that's a point still to be proven. >> Okay. And you know, as you're pulling it up, um, as you guys invest based off of this, are you able to anticipate it and say, "Okay, we think flows are going to be higher next week for reasons x, y, or z," and you try to position ahead of it, or do you just play it on a play-by-play basis? Oh, okay, it's rising today, so we're going to we're going to lean into it until the data suggests that it's starting to fall. So we we are increasingly focusing on the predictive models that identify things like the movements of CTA, V control, risk parity, 401k rebalancing etc. And so we do have some insights around that. There remains a discretionary component to it and there remains uncertainty as to forwardlooking metrics like what is going to happen to employment or as we're starting to see from companies under stress they're reducing their um voluntary matching of 401k benefits and contributions. >> Um those are things that are just candidly outside of the purview of what we attempt to do. um which is you know does create challenges but it but at this point like it's kind of crazy when I talk with my team we're getting very close to being able to explain north of 50% of the move of stocks like Microsoft Nvidia etc simply on the basis of these flows. >> Okay. Um that's super cool. Uh just rough broad brush in terms of how you're allocating capital right now. H what percent of it is trying to be predictive versus what percent of it is just trading what is happening? >> Yeah, unfortunately the predictive models are are things that are in development. So we're starting to write about it. We're starting to incorporate it into our outlooks, but the the reality is is that there are not yet products out there that are working off of the predictive framework. I hope to change that over the next six months. >> Okay. So it's in the lab, but things are looking good in the lab. I'm curious. I was working the lab late one night. Yes. >> Yeah. Okay. Your your financial version of the monster mash. >> Exactly. Let me just share very quickly that um chart of flows. >> Sure. >> So this is actually looking at it going back over time. This is again just an isolated segment of the flows. It does not include things like the short covering that emerged from um hedge funds which we have strong evidence for as well. That's another data set that we're starting to build in. Um, but you can actually see over here to the right, we've never seen anything like this. We exceeded about $350 billion dollars of inflows in basically the blink of an eye. >> Mhm. >> Right. And the vast majority of that actually came through things like CTAs, etc. Now, you'll notice that we've separated out SPY, V, etc. These tend to be additional contributions over and above the 401k component. This is that part that is very, very hard to basically forecast. I can't tell what's going to happen on the discretionary side. Um, or at least I can't directly tell what's going to happen on the discretionary side. But, you know, when you ask me about April and the crazy rally and what's happening to flows, you can see both components. The flows slowly turning negative and ultimately pushing us into the correction that we experienced followed by the extraordinary reversal in the opposite direction. >> Yeah. How worried were you getting between the fall and um early April? Because the from that chart the trajectory seemed to be pretty downwards. Were you starting to feel like this could be it? >> Um actually we were kind of in the opposite camp. So at our commentary at tier one which we write you know on a daily and then weekly basis. Um, in terms of much fuller node, you know, we kept emphasizing that what we were seeing was were indications that yes, flows had turned negative, but almost every part of it was suggesting that the markets had already crashed. And so, you know, our quantitative models were saying risk off and we had to respect that. But at the same time, all of our commentary was focused on everything we are seeing says that this is basically over and you know, it it can get worse. there is the potential for it to get worse. We didn't see the 401k flows etc decline in a meaningful fashion. Um but you know this this this had all the indications of a market that had already crashed and as we disagregated the flows that became very clear that that that's what had occurred and the reversal of that is again what we experienced in April. >> Okay. And April was the highest u high water mark on your chart series there. I know you can't know for sure, but do you think of it now as sort of an aberration like that that was just kind of a weird confluence events that made it so high or are we just entering a new era where the amplitudes get higher and higher? >> I I think there's more evidence for the second statement than the first one. Um, you know, there there there is a feedback loop that is created as markets continue to march higher. There's stronger and stronger evidence for an alternative interpretation, which is, hey, markets just go up, right? They always go up or the Fed has our back or they're not going to, you know, and by the way, the Fed did absolutely nothing but speak hawkishly over this time period. So, I'm not quite sure where that narrative comes from, >> but although QE did resume, even though they don't want to call her QE, but yes. >> Yeah. Although the the the impact of that I think is is strongly debatable among other things but you know I I will accept that that's totally fine. So let's assume that it's QE right well then the evidence is very clear. You should just be in equities 100% all the time and any opportunity you get with the market draw down is an opportunity to pile in. Now again I'll emphasize we didn't actually see that much discretionary movement. Most of this was systematic in structure. >> Mh. >> And so I do think that there is, you know, an idiosyncratic component to this is the akin to sailing on the open ocean and encountering a rogue wave. Um, is it going to happen again? Sure, it absolutely can happen again, but it does require a spe a special confluence of events. >> Okay. Um All right. Well, we're going to move on in just a quick second here, but um when I was talking with Bill, he reminded me uh of something you and I had talked about in the past, which is um you know, you're you're you watch the passive flows closely because a you want to make money while this trend is continuing to work in the direction it is. Um but you're not in love with the reason why these passive flows exist and why they're so influential. and you do worry about an inflection point where things start to flip into reverse on a more secular basis. And I'm trying to remember the metric that you've cited and I'm not even sure if Bill mentioned it, but he mentioned that it was sort of percentage based. And he said when you get, you know, over 65% or whatever, that's when you said you'd start to get worried. A, am I remembering this correctly? And B, what is that metric? >> Yeah. So this is actually the subject of a paper that I just released with Hari Krishnan um who wrote the book the second leg down and Stephen Stefan Sturm who is a professor of mathematics at worcorester polytenic um you know we basically created a an analysis in which we used a closed form mathematical solution to show that if you exceed about 65% passive share and just to parameize that we're about 53 54 right now gaining about 4% a above 65% there is not enough discretionary capital left that is really capable to respond to the volatility signatures that begin to emerge past that level and it becomes like the XIV trade that you've heard me talk about before >> it basically becomes a guarantee that a volatility event will occur that can't be offset by discretionary flows and so That was what I was looking for in the XIV. If you remember the statistics that I shared with you on that, about 70% of the daily trading volume was tied to the inverse VIX ETF complex. That allowed us to get to the point that we were able to articulate fairly cleanly that this event was a not not just a possibility, but a probability, a high probability event. My analysis was it was roughly 95% certainty that within a 2-year period from when I began to analyze the XIV that an event would occur that would drive the product to zero in a single day. It happened 6 months later. So, you know, you can decide I was too conservative and that's, you know, candidly probably right. Um but that same phenomenon exists now not for a $2.5 billion ETF but for a $73 trillion market >> market >> and that's that is a source of genuine fear >> and just to make sure people are following when you say currently at a 53% passive share does that just mean of the trading activity in the markets in a given day 53% of it is is made up of the giant mindless robot. >> No, I want to be clear on that. So we estimate that somewhere in the neighborhood of about 60% of all trading activity is tied up in the passive complex whether that's uh the creation redemption process for ETFs or mutual fund rebalancing or you know that that type of process now is approaching rapidly those levels but discretionary trading is still significant both on the retail side and on the asset manager side. The real crazy part there is how those ratios have flipped. So if I go back to 1995, which is give or take when I started my career, about 80% of trading activity involved discretionary active managers. Today we would estimate that number is down around 7 to 8%. >> In 1995, retail traders, what are typically referred to as noise traders, >> were about 10% of the market. Today they're about 20 to 25% of the market and so they have grown significantly. The irony of course is it means that experiences like the GameStop saga in which you know retail traders convince themselves that they could really give it to the hedge funds. >> They're kind of right. They're three times our size, right? They are much bigger in aggregate than we are. I I illustrate this in my upcoming book with, you know, the classic uh illustration of a shark being pursued by a school of fish that is formed in the shape, you know, >> powers activate, right? Of a bigger shark, right? Um and that that unfortunately, I think, is a key component of what we're actually seeing. >> Okay. Um, and and just to try to get a sense of of where how close or not we are to the danger zone. You said we're currently at 53%, you get worried when it's around 65%. What's the trajectory like? Is it just hanging out around 53? Is it rising slowly? Like, >> well, it's rising and not so slowly. So, passive is gaining about 4% a year. So, you know, the math would suggest we're about two and a half years out. Once it gets inside kind of that 2-year window, there's tools that are available to start playing it. And you know, I well, I hate to say I look forward to that opportunity. I think that there will be trades to be done around that. >> Okay, I guess last part on this. Um, so let's say we get there, we're on the doors stop of the danger zone. Um, and you are thinking, okay, it's about to be game on. Here's how I want to play it. Um, is that do you expect that to be an environment where people like you who are aware of this and sort of have a pre-planned playbook for this will do great, but the vast majority of participants in the market are going to do poorly because those passive flows, you know, all of a sudden the giant mindless robot starts headed in the other direction. >> Uh, I mean, it would be presumptive to say yes to that, right? I mean, I would hope that I'm able to take advantage of it. At the same time, I acknowledge that, you know, predicting stochcastic events by definition is stochcastic, right? It could happen four years out. So, >> yeah. And my question isn't so much, are you going to make a ton of money? It's more when this thing gets into the danger zone, these ever rising markets where buying the dip was always the best strategy and we've all just had this nice wonderful rocket ride because of the positive capital flows. that era is going to end and it's going to be a much less enjoyable market for the vast majority of people. Yeah, I think unfortunately that's the case and as that settles in like the the easy ma the easy math the the math behind it is that what we have experienced through a combination of two factors the introduction of defined contribution relative to defined benefit and the introduction of passive to facilitate investing in that defined contribution framework >> are two once in a-lifetime phenomenon that are unlikely to repeat themselves. Both of those have a valuation increase impact. The shift to defined contribution, as we'll talk about later, requires people to save dramatically more because you're now self-insuring instead of mutually insuring against an uncertain retirement. >> The implementation of passive is more subtle in its components, but it basically drives capital into the largest companies and the most volatile companies. That in turn perverts the cost of capital analysis leads to all sorts of bizarre shenanigans like we're watching happen in the technology industry right now where much of the profitability has become circular and inflated by equity valuations. Um and so you know we are creating conditions where that eventually has to be reversed under demographic features and the higher volatility that emerges. Um, and that's the unpleasant experience. That would be like going, you know, I I I I want to be clear. I hate to use these examples because they sound pre-programmed, right? But, you know, that is the experience of investing in the 1920s versus investing in the 1930s. And um, that's something I think people are very poorly positioned to evaluate. >> All right. And uh, I just want to become real mercenary for a second here. So, let's say somebody watching this is saying, "Okay, I'm really worried about the probability of of um these capital flows switching in the other direction and the markets getting dragged down and all that. I don't want to be collateral damage there. I want to trade like Mike. Um, obviously they could become a um they could potentially become a client of of yours there at Simplify. Do do you actually have funds, etc. that folks can invest in to kind of write out this strategy or do they have to be a special type of investor like an accredited investor to work with you guys? Like I'm just trying to help the little guy who's watching this video who says, "Hey, if Mike's got a strategy, I want to try to ride those coattails." How could they do that? >> Well, as I said, you know, the the plan is to introduce products that begin to take advantage of and exploit this phenomenon. Um, a lot of my research in the last six months, seven months has actually been directly on this subject of what can you do now that the peak of the hill is effectively within sight. Um, it is, you know, I want to be very very clear. There's two answers to that. If you think the peak of the hill is in sight but still not here, there's one type of strategy that you want to pursue. If you think that the peak of the hill is here, which I don't think, I want to be very clear on that, right? then there's an entirely different type of strategy. And so facilitating those two is kind of a one-two step. >> Um I'm working on products that allow people to express both. I look forward to sharing with you the information around that as it occurs. I have started to roll it into products that I manage. I have started to roll it into um the design of new products around this stuff. But you know it it is speculative. I want to be very clear. It is my view supported by the evidence and I'm always happy to share that with people about what is likely to occur but it's a human making a forecast and you are subject to error on that. So like you know it's just not that simple. I I want to be >> those are the right disclaimers but for the person who has mentally made up their mind I think Mike's got a better beat on this than I do. I want to be like Mike. It sounds like what you're saying is is hey, you know, stay tuned because hopefully simplify will be rolling out products that you feel are ready to graduate from the lab. In the inter room, is it just to read your stuff? Um, or is there some other way they can participate? Because I mean, simplify does have >> we do have investment options. And I want to be clear that I think many of the investment options that we we offer at Simplify are primarily focused around the idea of how to use derivatives to increase income while reducing some elements of risk. Um you need to obviously consult your financial advisor. You need to consider that. But at the end of the day, we do have products that are designed to facilitate the transition from asset hoarding into income. And I think it's really critical people to understand that that is the transition that is likely to matter over the the next cycle. We have basically created conditions through the defined contribution shift that require people to save an extraordinary amount of money in the hopes that that money will last them through their retirement. That has perverse effects. We can talk about those in detail. But at the end of the day, you do need to figure out how to convert that into income. You can either choose to hope that markets will still be bid and you can sell your equities slowly to obtain that income or you can begin the process of transitioning it into various forms of strategies that automatically sell create synthetic selling or put you right into fixed income which has the characteristics of converting capital into income on a continuous basis. And candidly I wish there were better choices and this is one of the areas that I'm spending some time trying to figure out. I wish there were better choices in things like annuities that allow you to have some comfort about spending down principle as well as simply tapping into the income. I think that's really going to become a critical tool as we move forward in changing our retirement planning to a more thoughtful uh process. But I I don't anticipate that happening in this administration or another administration. And candidly, it's one of the reasons I speak so publicly about this stuff because my hunch is there's going to be another pakora commission just like we saw in the early 1930s. And I want to make sure that the evidence is out there so that those who are at fault and can be blamed for this aren't able to say, "Well, how could we possibly have known?" >> Mhm. >> No, the world needs more people doing exactly what you're doing. Hey, quick question on this. I had um a retirement specialist on the program not that long ago, a guy named Ed Slott, and um you know, he tries to really simplify things for for people and he he spends a lot of time talking about Roth IAS because he's just like it's a great vehicle. There's nothing better than tax-free. He said uh and I'm a I'm a huge um income lover of income for retirement and the only thing uh that's better than income for retirement is tax-free income. Um, so he talks about owning a lot of, you know, income assets inside of a a tax-free account like a Roth. Do you agree with that strategy? >> I I I I do very much and actually would suggest that that's one of my frustrations right now is seeing Americans that have accumulated an extraordinary pool of assets keep those assets into something that I think is far riskier than they fully understand. and they're seeing the historical behavior that is driven by the combination of a switch to passive investing and the inflows associated with defined contribution plans and not understanding that that is a temporary phenomenon and they are missing the opportunity that has emerged in places like fixed income in particular you and I have talked about longdated tips for example offering now a 2.7% sort of return for 30 years >> people don't understand how incredible that is, right? Um, you know, we can >> just to be clear, folks, that's a real return he's talking about. He's not talking about nominal 2.7. He's talking about net of inflation. >> Yeah. I mean, just just to again put that in perspective, over the entire history of the S&P 500, which has been among the best performing markets in the entire world, if not the best performing market in the entire world, inflated by this shift to define contribution and the rotation to passive, your real return has hovered in the neighborhood of 5%. Right? That's with everything going right. And so we're we're suddenly talking about an environment in which you can get almost that >> with a guarantee from the US government, which I know you're going to turn around and say that's not worth the paper it's written on. Well, if that's really the case, then why the hell are you compiling, you know, so many assets in dollar terms, right? What you're really saying is is that I should go buy guns and gold. >> And you know, that's, you know, I I don't know how more easily to explain the breakdown in American society. if you really believe that the answer is guns and gold, it's really hard to be a productive member of society. >> Um, so I just want to reiterate something you said there, which is um looking back over the past couple decades where we've had this rise of the the the passive uh capital bid. uh that has created the always buy the dip market that that has performed just unprecedentedly well. You've had great returns right on the equity side. You're saying its overall return is not that different from your strategy there of of of uh you know smart income generating assets that give a positive return. Right. And if we go into this new world order you're talking about you expect where passive capital flows start to break down equities should definitely really underperform in that environment versus what we've gotten used to. But but the the income strategy you're talking about is still going to perform the same. Right. So, like why why why ride a horse that looks like it's going to break a leg in the future when you can ride a horse that looks like it's just going to continue doing exactly what it's been doing and running about as fast. >> Yeah. I I mean that's part of the point that I try to emphasize. Again, I want to be clear as long as the rotation into defined contribution and retirement flows continues and there are demographic reasons to believe that that is at risk. There's also, as we were talking about with employment, potential risks associated with that avenue of deterioration and flows. Um, you know, you're going to see great returns, right? Um, my analysis of the return profile of the S&P 500 over the last 5 years is that about 15% a year, which is almost the entirety of the return to the S&P 500, can be tied to this quote unquote passive factor. Mhm. >> Um, you know, that suggests that if it reverses itself and that becomes a minus5%. That we're looking at a very different return profile. And candidly, people will be slapping themselves on the forehead and saying, gosh, I could have had a tip or I could have had fixed income. >> Um, and >> just to be clear, that that is your default expectation is that at some point in a couple years, we will enter that that world. You could be off by a couple years, but yeah. >> Yeah. I mean, or I could be wrong. I want to be totally clear, but I don't think I am. And I I candidly hope I'm wrong, but I don't think I am. And and unfortunately, as you know, the my projections for how markets will behave, etc. has largely played out. Um and so if if I you know, if I project that forward, that does have to reverse at some point. And there are two answers to that. massive debasement of the currency to, you know, solve everything, which is certainly the guns and gold solution. >> Yeah, your gold will help you there. Yeah, >> your gold will definitely help you there. You can use it to throw at people and steal their food. Um, you know, or we will effectively just suffer through a Japan-like scenario of an extended period of very negative returns um that call into question all the models that people have built and their assumptions. >> Okay, so let's get let's get to the Whoop. Sorry. >> No, I said that just unfortunately seems to be the outcome. >> Yeah. Um, and look, I I I know you don't love delivering that message, but you're doing it to help people be aware of of what you think is coming so they can take smart action now. Okay. So, a lot of people watching this will say, "Okay, Mike, come on, man. Tips like that's so conservative. Um, and I got to make money to retire. I got to get a big pile." Right? So this this goes to the point of what we were talking about right before we came on air. So there was a a poll that was put out on X this morning by Dave Colum who I think many viewers are probably familiar with. Um why don't you tell them about the poll and why don't you tell them about sort of the opposite message you're taking from the poll results that you think most people taking the poll are taking from it. So Dave Colum put up a poll and hopefully you can snapshot it to show listeners so they're not um operating in uh you know a sense of disbelief and and just to be clear this is the subject of my my weekend substack this weekend uh which will be available free. It's one of my social commentary pieces and so that you do not have to have a paying membership in order to see that. >> Okay. And here's the poll right here. Um so people can see it while you're talking. >> Yeah. Okay. So so Dave Colum asked the question. That's a very thoughtful question. Assuming you have no alternate sources of income, it's just you and your spouse. If you wanted to retire at 65, how many multiples of your pre-tax annual salary would you consider the minimum necessary in your pre-tax sheltered retirement account? Gave people the choices of 10, 15, 20, or 25 or more. And the really key takeaway here is how Adam voted. Um, I'm joking about that. But the real key takeaway here is is that, you know, 50 uh I'm sorry, 63% of the respondents believe that they needed 20 times or more in order to secure their retirement. Now, I just want to point out a couple of obvious dynamics. one. This is >> And while you're doing that, let me just say, I mean, I I almost randomly picked an answer here, but but I was sort of did the quick math of all right, somebody's making a hundred grand, so they probably need like 2 million to retire on. That was the, you know, I think a lot of for a lot of people that's a conventional Yeah, that makes about sense 20 times. >> Yeah, I so I think that's right. Um I think that is some of the thought process behind it. Um, part of that also is because people tend to be told in some some form of framing that they need something like 25 times their spending in order to live by the 4% withdrawal rule, right? So, if you're going to draw down your your retirement bucket at 4% a year, spending 4% of it like a charity does, >> um, that that's going to put you into a situation where you basically need what you just described. I'm making $100,000. Therefore, I need 20 times that or 25 times that to get the 4% withdrawal rule. >> And and sorry, just to make it real practical for people, it's sort of like I think I'm going to live to about 90, right? So, I basically want to have 25 years. If I'm retiring at 65, I want to have 25 years worth of income. And that 4% is basically just me keeping up with inflation. >> Yeah. Well, it's not actually that, but yes, I I understand it. I mean the inflation component to that is going to be 2 to 3% in most people's models. People are very worried about higher inflation right now. You know again I'm relatively sanguine about most people's experience of inflation currently. It is pretty remarkable that we've engaged in a war in the Middle East that is um radically cut the supply of oil and led to an explosion in the price of gasoline among other things. And we are getting inflation that's like 3 1/2%. Right? So you know to get significantly higher is going to really require you know stretching your brain a little bit. Um there's also just the simple reality that the strongest predictor of inflation is actually labor force growth and that is in the process of turning negative. We now are in kind of our fifth consecutive month of negative labor force growth which is one of the reasons I think that the overall inflation picture is relatively muted. But the you you roughly outline that idea. If I earned nothing on my capital, I could spend for 25 years and therefore 25 times is what I need. There's two separate components of that. First, that 25 times is supposed to be 25 times your spending. If you are spending your pre-tax annual income, you are running massively, you know, massive personal deficits. You aren't actually doing that. Let's just be very clear. You're actually spending post tax income and you are also spending post tax, postretirement savings, FICA taxes, 401k contributions, your employer match of that 401k contribution, etc. Um, all of those are impairing, and that's a terrible word to use, but they are impairing your ability to spend. When you factor those out, people are on in general spending about 70% of their pre-tax annual income. >> So what you're actually doing if you're saving at 25 times, you're saving 36 times your spending, you now can earn absolutely nothing and live for 36 years on that 4% withdrawal rule. >> Um, so one, there's just a misunderstanding of pre-tax versus post tax. It's tied to things like 401ks and Roth IAS where your contributions are generally tax deferred or even tax-free once you've paid the tax initially on them. The second thing that's happening though is the realization that you're self-insuring against very low probability outcomes. Right? You can currently go out and buy to take your $2 million example. You can currently go out and buy a 30-year bond. Right? The 30-year bond yields around 5%. That means that you could accomplish exactly your stated objective and never touch your principal on the number that you just gave me, >> right? And not have the market risk of the the stock market either >> and have none of the risk of the stock market. Right? That gives you some idea how neglected coupon bonds are at this point, right? And nobody wants to hear it. Nobody cares. And the reason why is because, well, we don't believe inflation. We think inflation is going to run rampant, right? That then immediately says, "Okay, well, take a look at the 30-year tip. >> 30-year tip is 2.7% yield right now." Right? That actually compensates you for CPI inflation. Oh, Mike, you're crazy. CPI understates inflation. I recently read Shadow Stats and it tells me, right, absolute garbage. Among other things, recognize that the vast majority of people when they get older don't have housing inflation in the way that it's measured in CPI. That is a fixed expense, almost a non-expense because you've probably paid off your mortgage and you're left with radically reduced spending in terms of cash flow. And so all of these statements don't hold water. What we've created is a culture of fear in which people believe that they have to massively hoard to fund a retirement that is actually going to be higher spending than the life that they had leading up to that retirement. It's the ultimate form of austerity. It's self-imposed in a, you know, Arthur Dimsdale form where they're whipping themselves with a cat of ninetailes for perceived sin and taking extraordinary risks that they don't have to take. This is what I mean when I say invest for what you need, not what your neighbor wants. >> So, this is bigger than what you're just saying there. So sort of what you're saying there, Mike, if I'm following correctly, is people have actually been influenced to to save more than they need to, right? People are people are essentially saving too much here. And um you know uh maybe that's a high quality problem, but uh you know, one of the things I think you would say is is um in the process of saving too much, people are chaining themselves to work longer. They're they're they're working hard to save as much of their income as they can. They're not really living life the way that they could be along the way here. Right. So there's there's there's that issue, but I think it's a bigger issue than that, right? Because you're saying because they are they are working to save more than they need. There's actually effects for the younger generations that are trying to come up. Correct. >> Yeah. So this is Keynes's paradox of thrift. Instead of it happening on a homogeneous basis across an economy, Keynes's observation is my spending is somebody else's income. >> Mhm. >> When we think about that as a composite aggregate, an increase in the savings rate will lower aggregate incomes so everybody receives a little bit less and it actually proves somewhat counterproductive to our society. >> Right? The economy will grow slower than it otherwise would. >> Right? in this case because it's actually along a demographic split where the old are those who have accumulated extraordinary assets that they are genuinely fearful about their capacity to fund their retirement and I understand that I want to be very clear I do understand it but because that is that saving is isolated in the older generation the matching component to that is that the younger generation is starved of their spending they are experiencing the paradox of thrift and reduced reduced incomes. And that of course then creates feedback loops. Part of the reason why Dave Colum posts things like this and why he emphasizes so much savings is because he's genuinely fearful that his children have not had the same positive experience he's had. And so he's simultaneously saving for them. >> Right. So then he oversaves even more to have money to leave to his kids. Yeah. >> Right. And so what he's effectively doing is establishing a bequest that will hopefully make up for the loss of income that they experienced as society in its totality was engaged in this behavior. This is why we are seeing phenomenon like my $140,000 poverty line where young families are increasingly finding it impossible to make ends meet. Right? the infrastructure that they require, the houses that are occupied by the boomers and the lack of the relative lack of housing that has been created for them because of things like nimiism and regulatory frameworks that have restricted housing development that didn't exist for the boomers when they came of age. And we built more houses in the 1970s than in any decade in US history with roughly half the population we have today. um you know that younger generation is scrambling and trying to figure out how do I get some of these assets that these old people are hoarding. How do I buy into stocks with a positive expected return because the old people have accumulated so many stocks and driven their valuations to the point that there's no real dividend yield associated with it. It's simply price appreciation. >> Mhm. >> And if it's going to be price appreciation, you know what? I should go find the most volatile, you know, uh, most speculative stuff out there because clearly none of it means anything anyway, right? The economy is clearly going to, I think the technical term is from their experience. And so they're incentivized into gambling and speculating and behaving in a way that ultimately we know is dilitterious and counterproductive, but they don't see an alternative, >> right? and and that strategy that stretching for speculative risk is the worst strategy to be pursuing if the future unfolds the way that you think it will with the c the passive capital flow shifting. >> Unfortunately, that's right. >> Yeah. Okay. So, I'm going to suspect, Mike, that we've got some folks that are listening here and saying, "Wow, wait a minute. This is not what I expected Mike to say, and it sort of sounds like he's telling me to save less for the future." Is that the message you want people to take away from this? Uh, it depends on who you are and where you are in the process. Um, you know, the simple math is when you think about those numbers that came from Dave column, let's just take a family at $100,000, right? You have $100,000 worth of income. What proportion do you need to save in order to actually get to that end result where you are not going to be impaired versus your current income? Well, Social Security, if you're making that amount, you're about twothirds of the way to the maximum contribution that you could get out of Social Security. You're going to receive somewhere in the neighborhood of about $35,000 a year from Social Security. That in and of itself gets you to 35% of that pre-tax income and about half of your overall spending level. Mhm. >> So now all of a sudden you need to start asking yourself, how much do I need to achieve so that I can spend half of that, another $35,000 at a 5% interest rate. You're talking dramatically less as a percentage as a multiple of your income. You know that getting 35,000 out of 5% works out to somewhere in the neighborhood of 700,000. That's only about seven times your income. >> Okay? And now people will say, "Oh, geez, Mike, I don't want to be like betting that everything's going to go perfectly, so I want to have a lot more left over as a cushion." I don't necessarily telling people not to do that, but I know one of the things that you think is is well, let's say you do that and then you get old and infirm, you're basically going to be handing that to the government uh or private providers for long-term care and stuff like that. um where if you if you got to the point where you had no assets, a lot of that stuff would be covered at least under current Medicare provisions. Correct. >> A lot of that would be covered. Right. So that end of life care is very much in question. And if you approach Medicare, you get within 5 years of when you need to tap into Medicare for an assisted living or a a nursing home, god forbid, or um even worse, obviously hospice type care, the government is going to attach the assets that remain um before they will allow you to uh utilize public resources on that. the scenario I just laid out. You've got $700,000 in principle, seven times your income, and you haven't touched it because you're spending 5% of that, >> right? And so you've got $700,000 that's sitting there that the government's going to steal from you, quote unquote, steal from you to pay for your end of life care. Your ideal is that you flip it into an annuity that matches up against your life expectancy. But that's the problem. I don't know what my life expectancy is going to be. If I keep working like this, it's probably going to be 58. But if you know I live to a normal expectation, I'm not going to make it even 30 years from now. Life expectancy for a 55 year old man is somewhere around 85. >> Mhm. >> Right. So that 30-year bond not only gets me there, it makes sure the government has a lot of money to take from me, which is nobody's objective. >> So I'm just curious, Mike, and again, this is something that people are going to have to sit with to really, you know, First, I understand like I I want to be very clear. I'm not discouraging people from saving. I just want to highlight that this the manner in which we've chosen to construct our retirement creates this paradox of thrift where the older generation is freaked out and thinks they need 25 times. And the reality is they need a fraction of that >> of that. And so the fact that they're trying to save to that 25 and they're hoarding assets drives the price of assets higher lowers the forward expected return and is actually screwing up your kids' lives by reducing the quantity of income that's available to pay them salaries and to give them the career opportunities that you had. It's a perverse system. We've introduced anxiety amongst the old and we've reinforced anxiety amongst the young who are the systems working against them. >> And just to tie it to the the first part of this discussion, you know, that that um that fear of well, I need more so I got to keep working and keep putting it in my retirement accounts is what directly feeds into the giant mindless robot that is distorting asset prices. that is creating the wealth divide between the halves and the have nots that is driving this unaffordability crisis and for the other reasons you mentioned too just sort of diminishing the prospects for the younger generation. So it it to your point it is all these feedback loops that that actually are creating issues that in a perfect world we would say well wait a minute we don't want this and so what do we need to do? Well maybe you know part of this is changing behavior. Um, so part of it could be working less, part of it could be savings less. And I could I can I can hear people's minds really rebelling at at those two thoughts? >> Would would your recommendation be for those that are that are working and saving um to say, "Hey, you know, find out what you truly need and and save that much, but then if you're going to keep working, like I don't know, pu push that money to your kids earlier or something like that." that like some something that helps offset the the deletterious effects of the actual working and you know working and oversaving if you will. >> Yeah, I want to emphasize it's oversaving that is a problem. I don't think it's saving is is an issue but this paradox of thrift that canes introduce and I just you know again I want to remind people Kane's famous expression practical men who fancy themselves exempt are slaves to a defunct economist. We're all trapped in a model in which we fantasize that we can get along on our own, right? Our ancestors pulled themselves up by their bootstraps. I can do it, too. I got to be responsible. I don't trust the government, etc. I'm not encouraging you to trust the government. The simple reality is the behaviors that we see from our elected officials are catastrophic and in many ways the antithesis of what leads to increased trust. I'm not ignoring that by any stretch of the imagination. But I am saying that the cost of that is becoming society corrosive. We are creating the system that we fear and it is being driven by the narrative. Candidly, my analysis plays into this. It's all going to collapse. Therefore, right, you need guns, and steel, >> right? Or you just need a crap ton of savings to survive what's coming, >> you know? And and the simple reality is, you know, as as uh the the Ostrogoth king said to the Roman citizens when he took siege of Rome and demanded everything they had. They said, "What will we be left with?" And his answer was your lives. Everything you have materially can be taken away. The question is, is your life worth living? >> And I think increasingly we're seeing the deaths of despair and the societal corrosion that people aren't living full and complete lives. They're not having children. They're not getting married. They're not conducting themselves in a manner publicly that encourages people to look at them and say, "Hey, you're an upstanding person. I want to listen to you." >> Right? >> Instead, we're basically watching a variant of reality TV. >> So, I'm right there with you, and we talk about this a lot on and off camera, Mike. Um one of the challenges here is um you know we we have had a um you know deterioration in community I think both in the communities in which we live in socially and and even to a certain extent with just the the nuclear family and so we don't have as strong of a confidence that well hey if I'm just unlucky in this process and it turns out I ended up saving a little bit too less or something bad happens to me that I've got this safety net around me that's going to support me, which again adds to that fear of well then I got to put as many nuts away for winter as possible, right? Um so um you know we we we've got that factor that's that's at play and there's just a collective action question here too which is like well okay so if I ratchet down what I'm saving for myself but everybody else isn't well then I'm going to be worse off versus all of them in the long run. So why you know it it's kind of like the like you know Why why should we be cutting carbon emissions when China is making way more than we ever would? Right. Um so how do you I'm just curious. I don't know if you have the answer, but how do we how do we get beyond that that fear of like, well, I don't want to be the only one to do this and then be the one who's relatively screwed. >> Well, the quick answer is first, you know, evaluate what you just said, right? I don't want to be the only one, right? So I don't want to actually be a contrarian, although I fancy myself one and I play one on TV, >> right? I don't actually want to be a contrarian because that creates risk. Well, we we are a social species and we are a hurting mammal species. We behave like zebras. We group together in groups because it raises the protection value. And so, nobody wants to go off on their own. The simple reality is some people have to lead. Right now, I'm not suggesting that the answer to that is for me to go out and start spending like wildfire, although my wife occasionally accuses me of that. But the simple reality is is that it requires some courage of what you want. What is enough? And that is often the hardest thing for people to articulate. What's enough? >> Yeah. >> Million enough? Is $2 million enough? You know, if you only have $2 million, >> there are risks. Probably got to get three just to be safe. Maybe four. Let's go for 10, right? Because my neighbor has 10. It's really hard. These are really hard questions and they're really hard things to answer for very obvious reasons. And part of it, part of what makes it easier is actually believing in that community that we've allowed to neglect and to decay that there will be people to take care of you. Right? You know, just as I was in the process of writing this piece, I had to do a quick errand and I'm driving back. I mean, I live in Annapolis, Maryland, and I'm driving back along a street called Compromise Street. there sitting on the street is a guy holding a sign saying homeless vet and I literally stopped and I you know asked him would you mind if I took a picture of you because I'm writing a piece on retirement security in the United States and I paid him for his time etc. Nice guy by the name of Tommy. Um, but the simple reality is is that everyone fears being Tommy and we shouldn't. We should have a society that takes care of people. >> So, I'm I'm right there with you. Of course, the the the big word in that sentence is should. >> Um, and uh, you know, is it something that the government should be enforcing or not? And I mean, there's just all sorts of questions around that. Um but but I agree with you that it's sort of like the Michael Jordan, you miss 100% of the shots you don't take. You know, unless there are people who are out there starting to lead, no one's going to follow, right? And and one thing I will say that I try to do on this channel is it's a wealth buildinging channel. We talk about money all the time, but I do try to frequently take a beat and remind the audience that money is is a means. It's it's not the end in itself, right? Your goal is not to die lying at top a huge pile of money. um your goal is to have a fulfilling life. And and so what is true wealth? And for me, the research is pretty clear. It boils down to three things. It's quality relationships. It's having purpose in life. And it's having good health. And if you have all those those three things, you you're basically winning life. And money can be a catalyst. It can be a nice uh supplement. Um but it is not true wealth in and of itself. And so you got to remember remind yourself what your why is. And you know, we're kind of talking a lot around the the quality relationships part of this, which is, hey, you know, I if I happen to be unlucky, who can I rely on? >> Yeah. I mean, those who those who have followed my work know that I tell this story. In 22 2022, my wife and I became empty nesters. We were living in Northern California, Marin County, beautiful. >> Not too far from me. Yeah. >> Not too far from where you were. Um, and we puttered around our house for about a year and we looked at each other and we're like, what are we doing? like we're just waiting for the kids to come home and visit us. And so we decided to sell the house and travel for 18 months. And our our objective was all right, well, let's figure out what comes next. And I'm very fortunate. I want to acknowledge that. And I I always say this, like it's incredibly lucky that I'm able to take off for 18 months, continue to get paid, continue to do my work, >> and be able to experience all sorts of different stuff. >> Yeah. I I just want to let folks know, though, it's not because you were a child of a silver spoon. I mean, you worked really hard to create the success that allowed you to do that. >> Yeah. I mean, I grew I grew up poor on a farm. Um, you know, so yes, I and I emphasize I was very fortunate. My forehead is overly large and I worked very hard. And so I've gotten to the point that I'm able to take advantage of some of that stuff. But my wife and I decided, all right, let's travel around and see what's next. And so we spent 18 months. We stayed in basically a month in each location. And we tried all sorts of different places around the United States up into Canada, etc. And what we found every time we went to a destination, a Park City, a Jackson Hole, etc., was that the people that were there would greet us with open arms and say, "Oh my gosh, you should absolutely move here. It'll be fantastic. We can hang out all together all the time and and you know, there'll be so much that we can do." And the entire time that we were there, it was completely focused on the interaction between, you know, my wife and I and our hosts or whoever we were visiting that happened to live in that area. And it was all about the destination, right? Um, I realized these people are lonely, like their kids don't live near them, etc. And every time we went somewhere where their kids lived within 15 minutes or a grandchild was nearby, the interaction was much more, hey, I I hope it's okay. the kids are coming over for dinner or the grandchildren are spending the night so that their parents can go out. Don't worry, we've got a bedroom for you. You'll be fine, you know, but I just want to make sure you're okay with that." And my my wife and I would react to that and say, "Oh my gosh, of course we're okay with that. We love kids. We love this." And we realized that's what we want in our life. And that's why we ended up in Annapolis. We chased our youngest son here. He's at the US Naval Academy. He's about to graduate. That's why I bought a place in Philadelphia because my oldest son lives there and my daughter lives in New York City. It puts me very close to both of them while my youngest son goes off and, you know, hopefully doesn't sink, but floats around the bottom of the ocean in a submarine. Um, the simple reality is is that you build your life around family and you build your life around your friendships and you build your life around your community. because of my career and my relocation, there's not a place that I'm tied to, but there are people I'm tied to. >> Right. And this is kind of one of the big takeaways I I have from your your message here, which is um there are downsides to oversaving, even though I'm still sure people are like, "Come on, Adam. I can't get my brain wrapped around that yet." There are downsides to oversaving financially, more society than than everything else, but still even individually. And the key thing is to determine what is enough for you in terms of how much of your life you're going to pursue on the money side of things. And then above and beyond that, oversave in the things that truly matter like building familial ties or building community ties. Right. You're nodding as I'm saying this. >> Yeah. Yeah. No, I think that's absolutely right. And that is that's part of the reason why so much of my writing has taken a social turn. I see the younger generation being forced to make choices that they can't correct. If you don't get married, you don't have kids, you don't build that next generation, >> right? I'm not going to have those grandchildren. Your parents aren't going to have those grandchildren. You're not going to get the experience of a three-year-old climbing into your lap and feeling incredibly safe. It's the best. >> Right. >> Well, and as you said, you know, we have a lot in common with horses. At the end of the day, we are members of the animal kingdom. We are a social species and an individual, a member of a social species who doesn't have the ability to be social. You're not fully fulfilled. You don't have a fully fulfilling life. And yeah, selfishly you and I want to have grandkids, but we're probably even more worried about our kids not being able to afford to have kids and growing up without that social benefit of creating a family and living in a family unit and in a community that is supportive of families. >> 100% agree. >> Okay. All right. Um could talk about this forever, Mike. We got to start wrapping things up. Um, there's one thing though I just want you to square for folks before we we get to the true wrap-up, which is you were just talking about, okay, if you're making a h 100red grand, you don't have to worry as much as you thought you did about retirement. You can actually get by on saving 7x versus 25x of your income. Now, Mike, you're also pretty well known as a guy who what, six months ago or so, put out an article that said, you know, the real kind of like working poor line um in America is much higher than than generally recognized. It's more like, you know, making 140 grand. Um, how do you square that too of like you're making 100 grand, you're going to be okay versus you're making 140 grand and you're hanging on by your fingernails? >> Two different stages of life. And that's actually the real tragedy of what's happened because the cost of having those children, the cost of forming that household that is capable of owning a home and having children has hit those thresholds. As as um another commentator observed on my stuff, there is a basket of goods and services that you have to purchase, particularly in the early stages of of having children. That includes potentially your wife having to stay home, that includes child care, that includes a larger house in a decent school district, etc. Those are all things that come with a bundle of costs associated with them that most young couples are unprepared and young individuals are unprepared to achieve. It again goes back to that paradox of thrift. We increasingly rely on our parents who have oversaved to provide us with the funds to allow us to do that. That stoaltifies us, right? It creates conditions under which young people feel they've never really grown up. >> And they're right. >> All right. Um well, all right. I'm going to wrap it up here on that, but that's very well said, Mike. Okay. So, uh you Mike, I grew up in New England, north of Boston. Um, you're the kind of guy that we used to call wicked smart back then. Um, but you're also clearly a very socially conscious guy and that that comes across very clearly in discussions like this one. Um, you're also pretty big guy. I mean, you're pretty tall. Um, so I got to meet you finally in person in February at Grant Williams and uh, Stephanie Pomboy's event. You're what? You're like 6'3. >> Yeah, about 63. >> Yeah. Yeah. I'm not sure people get that from you, but you're It's funny. I've been telling people like I'm 6'2. I'm not that small. I felt really short at that conference. You're not you're not the only tall guy in the macro world. Almost everybody is. >> No, there's a lot of taller people. I mean, I think um candidly it it tends to bifurcate. You get Josh Wolf at 5'4 and you get, you know, Mike Green at 6'3 or Brent Johnson, I think, is 6'5. >> Yeah, Brent's at least 6'5. Yeah. >> You know, serious serious former basketball player, etc. I think you know in general the discipline that is required in investing lends itself well to people who have played sports at a serious level. >> Um and you know it's it's why I encouraged my kids to do sports. They had success far beyond my imagining. >> Um but I I do think it's really fantastic for kids to participate in organized sports >> swimming, right? At least one of your kids was a big swimmer, right? >> I had a rower, a volleyball player, and a swimmer. Um, but the the the flip side of that, of course, is private equity has gotten its hooks into uh youth sports, and now they've turned into yet another extraordinary drain where people are effectively trying to buy admission to elite colleges for their kids. Um, you know, I' I'd much prefer we go back to dad's volunteering and uh, you know, maybe take it a little bit less seriously while capturing many of the benefits and ancillary benefits associated with it. >> Yeah. I'm I'm with you a thousand% in in in the midst of all that too is that that sort of hyperfocused sport world now too is I think the joy for the kids of playing sport has largely been bleached out of that because it just feels like work to them at a very young age. >> Yeah, I I think there's some truth to that. Again, my kids, you know, my oldest one definitely viewed it as work. Um, the younger two were enthusiastic participants and very appreciative of the opportunities that were provided to them and really made the best of it. But, >> but I'm guessing you weren't pressuring them to like, you've got to become an NCAA champion, right? >> I I did the exact opposite. I actually offered them every opportunity to quit while simultaneously telling them I didn't care how they did when they were 12. This is a direct line to my my youngest son in particular. I was a competitive swimmer who burned out u when I was late to hit puberty. I was nationally ranked when I was 10. You turn 11 and if you haven't hit puberty, you know, you're suddenly competing as a boy against men, >> right? >> Um, you know, that facilitates burnout. My youngest son followed almost exactly that path. Nationally ranked at 10. Um, by the time he was 12, he was he couldn't win a race to save his life. And, you know, I just kept emphasizing to them like, you know, it's important that you stick with it. I don't care how you do. I candidly didn't care how you did when you were 10 and you were nationally ranked and I told you that at the time. I care that you're still swimming at 17 and that you're doing this. And um when my son was 17, had been accepted at the US Naval Academy where he had a very successful NCAA swimming career. Um you know, I I said, you know, aren't you glad that I walked you this and I walked you through it? And he said, yeah, I really am. I just wish I'd believed you. Um, so the point >> part part of that is just the age-old issue is that the young never listen to the old. But >> they never listen to the old. But if you are a parent, I would just encourage you to recognize that if your children have success in ath in youth sports, keep it in perspective. The objective is for them to gain the discipline and learning, not to become an NFL football player or a professional swimmer or, you know, volleyball model or anything else. Um, they're the tools and the choices that help you succeed in your professional career, teach you the discipline that is sorely lacking for many individuals. Um, but don't put the pressure on them to be the best. >> All right. Well, great life wisdom there, Mike. Okay, Mike. So, you've been very generous in helping folks really understand um both Mike Green, the mind, as well as Mike Green, uh, the the man. Um, for folks that would like to follow you and your work in between now and your next appearance on this channel, where should they go? >> Well, um, I'm sure all of them are exhausted at this point, but if you do want, um, more Mike Greenisms, uh, which can largely be thought of as normisms, uh, you can follow me on Twitter at Profplum99. You can follow my Substack where the piece that I was describing will come out this weekend. That's Yes, I give a fig, thoughts on markets by Michael Green. Um, and the exciting uh news that I also have is is that we are rapidly moving towards a formal publishing schedule on the book. My my target is October 19th of this year. I will come out with a book titled The Greatest Story Ever Sold about many of the topics that I talk about. Um, and uh my my publisher is pushing back on that saying we we have to pre-ell even more. And and my push back is I don't care. I just wanted to get out there. >> So hopefully there'll be more on that front. >> All right. All right. Well, Mike, when I edit this, I'll put up the links to your ex uh and accountants at your Substack so folks know where to go. Folks, the links will be in the description below this video. And Mike, when your book is ready for pre-sale, um, come on the channel. We'll do another one of these. You can tell us a little bit more about what to expect from the book, and I suspect we will make your publisher very happy. >> Well, just on that front, it actually is available for pre-sale on Amazon. Um, but you will be able to go to my website if you want an autographed copy or any of that sort of stuff. That'll be coming up soon. So, I'll I'll keep people posted. But, um, if if if you are convinced that you're going to run out of memory uh for storing it, you can go check out The Greatest Story Ever Sold by Michael Green on Amazon. And, uh, ignore the publication date that's listed there, though. >> Okay. So, folks, if you're interested in buying this pre-sale book, um, I'll put the link in the description below the video, but also Mike, um, send me the link where to your website where folks can get the autograph version. And folks, if you go to thoughtfulmoney.com/green, it'll send you to that page so you can get an actual Mike Green uh signed copy when it's when it's out later this year. >> Why would we want that? I can't imagine. But thank you again. >> No, no, absolutely. Um all right, folks. Well, look, um, if you would, uh, like to, you know, look at the individual, uh, solutions that Mike and his team there at Simplify, uh, make available to investors, obviously go to the the simplify US, uh, URL. U, but as Mike said earlier too, you know, if you want to get counsel from a financial adviser as to how this how all these options would make the most sense for you given your own personal situation, your own retirement needs and goals, etc. Um, then if you don't already have a good financial adviser who's providing that type of advice to you, consider talking to one of the ones that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out, definitely have a conversation with them about, you know, the importance of income and maybe shifting from more exposure to just general equity appreciation to more long-term uh, dependable income. Uh, so anyway, to talk to one of those adviserss, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds to fill out the form. These consultations are totally free. There's no uh commitments or obligations involved. It's just a service they offer to be as helpful to as many investors as possible. Mike, this has been a fantastic discussion. Really appreciate it, my friend. Look forward to having you back on the channel again in a couple of months to kind of give us an audible on where things are as well as maybe talk more specifically about what's in your book. But in between now and then, I just wish you all the best. Continue crushing it over there at Simplify. >> Thank you very much. >> All right. And everybody else, thanks so much for watching.