Episode summary
Never Pay Off Your Mortgage | Animal Spirits 436
Animal Spirits
· · Hosts: Michael Batnick, Ben Carlson
Summary
The hosts argued that the stock market’s violent April drawdown and rebound reinforced a simple lesson: staying invested usually works, even if the path includes painful selloffs. They pointed to a breadth thrust signal after the April 24 washout, the sharp rally in the S&P 500 and especially tech, and the unusually small number of stocks outperforming the index as evidence that market leadership remains narrow and behavior-driven.
A big theme was whether today’s AI boom is a bubble. They pushed back on the idea that a bubble must end in an immediate 80% collapse, saying the bigger question is whether today’s capital spending becomes excessive and whether it takes years to earn back the investment. They also discussed layoffs, soft data, tariffs, and margin debt, arguing that investors and companies are still mostly behaving rationally even if narratives are swinging wildly.
On real estate and private markets, they said housing needs lower prices more than just lower mortgage rates, and they questioned how much demand exists for private credit in 401(k)s. They also flagged a more serious risk in private credit ratings, where insurers may be relying on privately rated securities that are not rated investment grade by the major agencies.
Key takeaways
- The hosts said the April breadth thrust and rebound after the April 24 washout support their view that staying the course still works.
- They argued that today’s AI spending boom looks more like a capex bubble than a pure stock-price bubble.
- They said lower mortgage rates alone may not revive housing if home prices do not fall further.
- They warned that private credit inside insurance portfolios could create hidden risk if securities are misclassified as investment grade.
- They expect companies to keep using AI as both a real efficiency tool and a convenient excuse for layoffs.
Notable quotes
“Staying the course worked again. It usually does 60% of the time”
“It's a good thing that liberation You can argue with yourself later”
“I think picking the stock pickers that outperform is way harder than picking the stocks that outperform”
How the episode opens
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Principal loss is possible. Welcome to Animal Spirits with Michael and Ben. Michael, one of my all-time favorite stock charts.
I think JP Morgan is the first one that did this. It shows the annual stock market returns along with the intraear draw down to get there. And it it typically shows even when there's gains, there is a draw down on the way there.
This year is a perfect encapsulation of that. This isn't even just the draw down. This is the year-to- date returns as of April 8th, 2025.
The S&P was down 15%, NASDAQ was down 19, Russell 2000 was down 20. This is year-to- date returns. Okay.
EO was down four, and the emerging markets were down eight. Holy Nikes. Now the S&P is up 18, NASDAQ up 23, Russell up 14, EA up 28, and emerging markets are up almost 35%.
So the Russell spread the Russell was down 21 and now it's up 14. Yeah. I mean, the NASDAQ's the biggest one down 19 now up 23.
Unbelievable. Really? Huh?
Wow. Staying the course worked again. It usually does 60% of the time.
Usually that that's a good caveat. Usually it works every time.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- behavior and bull markets
- s&p 500 outperformance
- ai capex boom
- housing prices
- private credit
Watch the episode
Watch “Never Pay Off Your Mortgage | Animal Spirits 436” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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