PODCAST EPISODE 288 – What do Michael Burry and THE GUY who called the 1929 crash have in common?


00:12 – Introduction of the episode. 

4:51 – America is bailing out on homeowners insurance. 

12:43 – An example of how insurance unlocks wealth. 

16:31 – How to predict a market crash? 

22:30 – The problem with predicting the market. 

[Tweet “All you do is tell everybody, the stock market’s going to crash. And it needs to be loud enough that enough people see it. And then afterward, you have to go around screaming, I called the crash. #YourBusinessYourWealth”]

[Tweet “As of IRS being seen as evil, I like to think of it, it’s like, it’s a dance, the cat and the mouse. Neither one of them is evil. They’re just doing what they do. #YourBusinessYourWealth”]

[Tweet “There is no self-insurance. There’s only taking risks. #YourBusinessYourWealth”]






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Full Episode Transcription



Hello, everyone and welcome to the sound financial group podcast. We are so happy that you could be here today, I am joined by my co host, Corey Shepard, who if you guys do not realize is the man who wears polos on the show. They don’t let me wear polos. You know why Cory?


I just know that there’s like some kind of,


I’m supposed to kind of like, I’m supposed to keep my guns concealed in this state. So I can’t. Chicago lets you have them out. I also


like the Ben Affleck, Daredevil movie where, you know, he had little tags on each of his clothes, he could tell what it was. Like, it’s just like Kristen put Monday, Tuesday, Wednesday, like we just like basketball.


Alright, so our first article today, Cory is we are going to look right here at high earners getting a reprieve from the tax rule change that happened right at the beginning of the year, when we reviewed the secure act 2.0. Back in January.


I’m so excited about this. And for not the reason that most people might think I mean, most people might not even think anyone should be excited.


Well, and right before, I want you to share that first quarry, but right before you do, I just thought, bring people back. If you wanted to see this episode, secure Act 2.0 And your retirement plan. That’s where we went through all the major changes in the secure act 2.0. And were clear clearly I let my beard get a little long, early in the year must have been my Christmas beard. So if anybody wants to either have winter picture, yeah, yeah, winter beard review plus secure act 2.0. And this next topic is going to update some of the information from secure act 2.0. Floors, yours, Cory.


So one of the changes the secure Act made was, they’re going to require high earners above age 50, to put any of their ketchup dollars into a Roth. Now, they’re delaying that for a couple of years now to give folks a chance to evade administrators to figure out how this all works. Everyone, just figure everything out. Because it takes forever to actually change things in the real world like this.


One, like, not even every plan has Roth 401 K yet, right. So they, they’re they layered on another thing, but much like if Congress came out tomorrow, and said, everybody has to fly to work using your arms, and it because it’s going to help with climate change or something. Wow, they could pass that regulation. But it doesn’t mean people can fly to work using your arms, it just means they passed the law. So this is usually how it goes, pass a law at the beginning of the year, then eight months goes by and they go, Hey, we got no shot at implementing this by next year. Give us another 24 months,


and any new law from the government that the contingencies and the things the domino effect of what impacts is so hard to tell? I never really thought about it like this. But in two years, Paul, does this mean that 100% of 401k is in our country, we’ll have a Roth option.


In theory, you would think you would think that they would have to, because they’re going to have to offer catch up countries. So maybe, let me restate the rule real quick for everybody make sure they got it before jumping into the change. So the rule was that you could just make your catchup contributions any way you want when you’re over the age of 50. Secure act 2.0 said that in 2020, for your ketchup contribution, your 401k. That’s the extra that you can do beyond the 22. Five when you’re over the age of 50. That must be Roth. Now, Cory right there. Will you share with everyone a little bit about why that helps the IRS significantly, that from 50 to 65. You could only put your extra money into a Roth.


And I’ll start by asking a question, we’ll come back and answer it. But if the IRS is mandating you do a certain thing. Is it a better chance that your best financial interest lies in doing that thing or the opposite of that thing?


We’ll come back to you. Just from my research. I did check it out. And it turns out the Internal Revenue Service is not like a consumer advocacy organization.


And they’re not evil, either. It’s the FBI, we’re raising money for our country, we need some sort of


tax or so Speak for yourself about the IRS not being able, for for our listeners that believe they’re evil, I will hold on hold that for them.


I like to think of it, it’s like, it’s a dance, you know, the cat and the mouse. Neither one of them are, are evil. They’re just doing what they do. They’re in their their nature. So anyway, he will aside, the IRS wants to get our money, we will and we want to avoid giving it to them as much as possible inside the letters of the law. So if the IRS is saying, now we’re going to make over age 50, put their ketchup into a Roth, that probably means it would save over age 50 year old more money by not doing that. And we often see that for folks, if they’re at the peak of their earning years, they’re probably the highest tax bracket they ever will be again, that’d be the best time to defer some income. Yeah, I mean, we just had an episode about 401k is and why young folks ought to think really hard about whether or not they want to defer the taxes at the lowest tax bracket ever in their life. So this is the IRS creating a stand on the other end of the economic spectrum and going in the opposite direction, it kind of proves the point. This is like our matrix inception, kind of moment where it just all it’s like the Bermuda Triangle where everything intersects.


What it is, because it would be think about it, let’s say you plan on retiring on 150,000 a year, and you’re gonna be happy with that your house will be paid all that good stuff. But currently, we’re making a quarter million like that last 10 years might be the best time to have loaded pre tax dollars into retirement accounts, right, much better than when we were 20. And it is 10% tax bracket. So the IRS is going to be cutting that off. We’ve got two more years left. If you guys want more updates, go back toward the beginning of the year to the secure act 2.0 episode and admire the size of the beard. You ready for the next one, and you got anything left on this ready? All right now this one picture


for this graph for this article is Florida. I haven’t shown it yet. We’re keeping it secret to the audience, though.


I know. That’s why I’m just foreshadowing. So speaking of the South before we talk about this next article, so the article to give it away, guys is this one, Americans are bailing out on homeowners insurance. And then there’s this picture of the Florida coast. And you can see in the foreground, these smooth pieces of sand, were probably houses at some point. They


used to be now dreams used to live.


So I had a cousin, Cory, and I hope he’s not watching the show. But he built his own house from scratch. And you know, paid off all the loans after he was done for cash. Now, no mortgage. And you know what he said, I’m going to teach these insurance companies lesson and canceled his homeowners insurance. And he was so happy out of the system. I don’t need to have homeowners that house burned to the ground two years to the garage. And he had to build it over again. So which leads us to this topic, which is going to also allow us to teach a principle, which is there is no self insurance. There’s only taking risk. What the article talks about is people are skipping homeowners insurance, in part because it’s gotten so pricey. Now, a couple of things I’ll point out in fairness to the article here, rising premiums the national average for a $250,000 dwelling increase this year to $1,400 up 20% from the year before. So that is going up no question. And so what people are doing is once they have their homeowners or their mortgage paid off, they have the ability to insure their house or not. And many of them chose to not. So here is an example of one. Larry Farenthold hasn’t had homeowners insurance in more than 25 years. He has saved more than 50,000 on his roughly 1100 square foot Los Angeles home. Now, I’m going to assume that the article one that reporter probably just asked how much have you saved? We’re going to assume for the sake of conversation, there’s no time we’ll give him he didn’t put time value money is formula It also looks like though he didn’t set it aside to a separate account and put the money there instead of his insurance premiums every year. But he’s happy he has $50,000. He says he could have afforded a policy but thinks the risk of wildfire or flood is very low in his neighborhood. He has always had at least one dog to scare away unwanted visitors.


I don’t have I don’t have all my insurance. So I got a dog.


I would my first question would be if that was his answer is like, Well, does your Does your dog have a lot of money to read build your home? Right? Because it’s not like you can see, by the way, this is the first trick people plan themselves when they say I’m going to be self insured, is they narrow it down to some limited amount of potential outcomes that could happen as if that is all the risk in the universe number one. And then number two, they don’t price the risk properly. Here’s the example. 1100 square foot house in Los Angeles. Rebuild cost easily 250 bucks a foot easily. By the way, that’s rebuild cost. That doesn’t count and what nobody says anything about in this article. Nothing about the fact that you actually have to truck off all the garbage on your property after you have a home loss. You don’t get to like you know, call


Republic Services at one point put in


the garbage one little bit out there with a chop saw just trying to make the pieces smaller.


On the whole lot. Yeah. Now, fair and halt. I do like he it. I do like what he’s thinking about here. He’s at least being accurate when he says it probably be financial devastating if I lost my house, but I have enough money in savings to move into a condo and then event. So he he’s at least being accurate in that he’s not self insuring, is taking the risk. Yeah. And he’s like, if my house burns down, I won’t have as nice a house anymore, I’ll go to a condo that I wouldn’t make the same decision as he did. But that’s impressively accurate in his thinking about, like, where those steps would go. Maybe I don’t know if he’s assessing the risk. But here’s the thing,


but how much and by the way, everybody listening, this applies equally to inexpensive term life insurance, disability insurance, all these things, they are not enough money to make a huge difference in your capacity to retire. He’s in his 70s, he saved 50 grand doing this. We all know that’s not enough money. To make it. He already said he had enough to pay it. But what he did is he now has this very, very large contingent deferred liability and he doesn’t know when he might have to pay it. There’s another example down here in this article, where Chris creative fixes. Coastal Florida figured that the total cost of replacing the vacation home and all of its contents will be 1.5 million. his longtime insurer didn’t renew his policy, the only remaining insurer in the area was offering a policy of flood insurance for 17,000 a year, up from about 7000 a year he had previously paid, says Newman, a financial advisor UBS data, okay, here’s the thing, that $1.5 million, once you’ve got it sitting there for the sake of the risk, you’ve just walked it into single purpose. They mentioned Well, I can probably get 6% on it, but you can’t be taking much risk. Or you’ve got some volatility in there at 6%. And if he had paid the $17,000, let’s just look at it on his 1.5 million. If he paid his $17,000 premium every year, he would be free to invest that money like the rest of his assets. And now let’s say he could just get 8% long run in an academically allocated globally diversified portfolio. On 1.5 million, that’s 30,000 more a year, the difference between the 6% he thinks he can get now and this so I think it’s probably a pretty good move to send $17,000 to the insurance company, so that I can have my portfolio appropriately deployed, making me $30,000 a year. That’s totally left out of all these creative solutions. Not to mention, and this is one of my favorite examples. friend of a friend of the show friend of mine from years ago, Garrett Gunderson if you guys had a chance to read his books, brilliant guy. I think he’s on Comedy Tour. Now. Cory had a chance to Chicago not long ago. But he said something really great is the insurance unlocks wealth. And he gave the example of what if you went and bought a Bentley and you’d paid $300,000 for it. And the only thing is you have to drive that thing. For like two weeks with no insurance, how comfortable do you feel driving that? What is the cognitive load about the other cars on the road, you think there’s some chance that you might not enjoy looking at the person next vehicle admiring yours quite as much, if you’re worried that they could swerve into it, and you might have a $20,000 car bill that’s not going to get paid by anybody.


Any parking lot is a minefield, like you’re circling around for half an hour to find the perfect five seats. I park


at home in my garage and walk to the store. And, and, and I could walk to the store and be very self righteous, I didn’t owe any insurance companies anything. But I also didn’t have my full life, they created insurance and homeowners insurance, especially for a reason. And it’s intended to lay risk off, not retain risk, you are not insuring look at the definition of insured is laying the risk off on somebody else you are not insuring at all. If you just take the risk that we probably need to bring that back as a full episode. But we’re next going to tell you guys how to get rich and famous. That’s right, rich and famous. We bring it all to you here on the sound financial group podcast. We’re gonna make you guys all influencers. And there’s a very, very simple formula. All you do is tell everybody, the stock market’s going to crash. And then when you do it, it needs to be loud enough that enough people see it. And then afterward, you have to go around screaming, I called the crash. Look at my stuff from before the crash.


Actually, Paul, I don’t know, I think each time you do it, it has just has to be louder than the last time so you start a little quiet and then get louder each time. So that when you’re finally right, that one’s louder than any of the other ones that you’ve done that were wrong.


And that is one of the best things we can learn from Michael Burry. That is the guy The Big Short was based on. And


he looks a lot more like Mark Cuban in this picture than Christian Bale. Like


he does. Yeah, yeah, he. To me, it looks like frankly, he didn’t get a great night’s sleep the night before. I don’t know why he looks like he’s just a little sleepy. I will be if I was on a red carpet, I’d look more peppy than that fella. If you guys want to prove it, if you guys want to prove it, I just want to encourage any of our listeners invite me to a red carpet event I’ll do Oscars Met Gala, any of that, like I’ll pay my own flight, you get the tickets. And let’s just see if I look peppier on the red carpet only way one way to test it. So Lucas, sooner or later market crash is coming. It could be terrific desert would be prediction that would struggle to go viral and 2023 By the way, today, these last two articles, I forgot Sarah from the Wall Street Journal. Though weeks before Black Tuesday in a preview of the calamity. In a preview of that calamity stocks briefly plunged in what would be called the Babson break. So back then, as long as you had somebody who would write your thing in the newspaper, you could get it then. But every market crash has a Babs in the article talks about and this would be your returns in the s&p 500 after Michael burries warnings since the 2008 crash. How would you have done there is a bubble in passive investing. So if you had just passively invest in the s&p 500 After that your six month returns would have been 6.39. Significant bearish market bet your returns would have been 96 and a half percent greatest spec by the way, dimension six months. Oh, these are annualized those. So to be fair, that was probably 3% That first one doubled to six greatest speculative bubble. It was 22.18% after that could be worse than 2008. It was 17% up and this


is what he got right famously in The Big Short. And oh yeah. And then sell and


sell. Yeah. So and it was up 26% annualized after that.


And that was January 31 2023. Mm hmm. That’s amazing. So I love that this article, you know, the Babson predicted Black Tuesday. What was her name Garza rally predicted Black Monday, and they both became famous from that and then went downhill as far as the performance So they’re market predictions. Guards are really


something they’re about they’re hanging on going back to what paragraph is that in where it’s talks about


here? Oh, yeah, that you you got it


predicted the collapse days before Black Monday, she became the best paid strategists on Wall Street for a while and went on to run some poorly performing mutual funds in 1982. Pictures predicting a roaring bull market after spent 16 years in the doldrums, but also crashes that never materialized. Both are still making money in the punditry business, despite decades of mostly lousy predictions. Now, if you guys are not familiar with this, this is an old like hedge fund joke. You know, like the hedge fund jokes go. So this guy is guy graduated college, and he’s like, Man, I’m gonna make it big. I’m going to work for one of the biggest hedge funds, I just need my predictions to work out and he couldn’t make all his predictions worked out. So what he did is he got letters from like, or heads of 2000 different hedge funds. And he sent half of them a letter saying this is the reason the s&p 500 is going to go up next quarter. And the other half, he gave reasons why it’s gonna go down next quarter, send them all out, then he was only right on half of them. So he took that half, and he wrote a new letter. Here’s why the s&p 500 is gonna go down in the next quarter, here’s why it’s gonna go up, send them all out to under 50 of a more correct, brings it back third quarter 250 Go out only 125 are correct, then is fourth quarter. It’s wherever I am on the 500 to 5125 is down to 60 gets it down to the final 20. In the fifth or sixth quarter goes interviews with him gets a super high paying job. And all he did was only kept the people in his funnel he was right about now, in the old days of the newspaper, you could go back now I’ll hand it to Michael Burry, it appears he leaves all his tweets up. But it is so easy. And it’s an old school thing. I was sitting next to a kid my freshman or sophomore finance class. And he’s like, oh, yeah, there’s a, there’s a big trick. He said, What? He’s watched a newspaper, you’ll see these pundits. And they’ll say, here’s what the market is going to do in six months. And then they’ll say three months later, here’s what the markets going to do in three months, which is not the same. But the only point back to their quote, that was the one that was accurate. Now, by the way, that doesn’t mean they’re being just the circumstances could have changed between the two. But it doesn’t change the fact they only point to their winning the wrong thing. Yeah. And if if what you’re doing is putting your quote unquote, trades that you’re recommending on Instagram or Twitter or something else, well, then you can go back later. And you can sanitize your past predictions. So even somebody looks like they’re dead on and they say here’s all the places we were dead on. They’re giving you a limited view set. I think we talked last year about a client send us in something about Well, here’s all the biggest picks from this stock selector, which rhymes rhymes with the hot lead mule. And so they they had the hotly mule stock picker thing for the upcoming quarter. And these are the ones they said he’s going to do great. And all I did is I went back and checked their top 10 recommendations at the beginning of the year. One of those recommendations had lost a full 72% halfway through the year. Now, that doesn’t mean that those are awful pics, or good pics. But if you’ve been listening to podcasts long, you know, it’s just not institutional, it’s not maintainable. And there’s no academic basis for individual human being be able to successfully predict outcomes and pick stocks. So if you want to get rich and famous, just keep saying it’s gonna go down. And one of the things I want to leave off on that Corey, I feel like I’m running along I want you guys to know if you’re listening to audio only Cory is still here, he just know knows when I need to let a thought just run out. Go for it. But every time you see somebody who’s like stock market’s going to crash, your broker isn’t gonna tell your financial advisor going down and then they hit the megaphone and they’re like, it’s all going down. Everybody get out of the market. We need to get out of the building. It’s all burning down. Okay.


Politics really wanted to use that sound effect for I have been waiting for months, two weeks. So here’s the thing.


We listen to those as consumers as if they don’t have a vested interest as if they don’t have a gain in use Selling stock. What this article shows us is they definitely have a game. Heck, you make one stock market call loud enough and right enough back in the 1980s. And you’ll have a three or four decade career as a pundit off your one successful call. And all the rest mostly being mediocre. Yeah, there is a vested interest in these doomsayers. So do not think that they are just sitting back. And they’re the ones that are people treat it that way. Well, this person says is really going down, what do they have to gain? Well, they might be selling gold, or they might be selling something else. But if that’s not immediately obvious, this is that they get the opportunity to cloud Chase have some big accomplishment they can ride the rest of their career on. So there is no free lunch. Of course. Anything else you want to leave the crew, it’s really fun going through the news. We haven’t done this in a while.


I mean, ya know, just we’ve talked Well, we’ve talked about this, in the past is reading the news with a critical eye because it’s, it would be very rare to find an article. I mean, everyone’s got some sort of bias, some sort of writing anything in the media. Anything in the media has a vested interest. You know, this is why Paul, I will just say that we’ve talked about reading the media with a critical eye, you know, anybody who’s writing has has some sort of perfection coming from some sort of bias like even us talking right now or talking with a bias the media mass market media that’s competing for our eyeballs always has this bias of getting you to pay attention and getting a motion to be rising so that you’ll pay more attention and buy the thing and the ad that next to the article that you’re watching so it’s always really important to take any of this media with critical eye to say all right, well, where what are they gaining? What are they gaining from that perspective? And does it line up with my aims and my gains?


It does great point. And speaking of people getting wound up upset etc. I want to encourage everybody to go back two weeks from this episode today and watch our most downloaded episode ever. Or listen if you’re listening to the podcast that is voted down vote most downloaded we’ve ever had no no doubt voted. Oh, download I’m taking it as a badge of honor that I got down voted on accurate information about Dave Ramsey I’d encourage everybody to go look at it. It is also our most up voted episode but if you guys were given an up to two offsuit set some of those down Toots and get in the comments and get mad at somebody just get everybody agitated seems to work really well on media that goes well just get in there and call somebody’s name I just can’t wait I’m just hoping it’ll I’m hoping for literally nucular war inside the comments section of one of these videos because then it’ll just get a lot of attention. Cory scared of that core he’s logging in right now like what did he say in that episode that got the most


out of the podcast you understand call sense of humor? Because I don’t always so. It is a cool episode though.


Do so go check that out guys. And as always, it does really make a difference I’m trying to do better at talking to you guys about shares your opinion in the comments. But man, anything that came out for you today, you cannot know what a difference it makes to just simply put a comment on the video and put it up to on the video to subscribe to the channel to put a review if you’re listening to the podcast. And of course one of the best things you can do to help promote our podcast is make sure that you’re designing and building a good life. We’ll see you all next week.



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