A Shortage of Workers (EP.199)

Episode Summary

Executive Summary: The episode centers on whether housing, stocks, and collectibles are in bubbles, arguing that many alarming headlines misuse data or ignore context. Ben and Michael defend index funds, question flow/margin-debt scare stories, highlight the structural rise in financial assets, and conclude housing is hot but not a classic bubble. They also discuss labor shortages, inflation, wealth-building at the bottom, and crypto/platform trends like Robinhood and Coinbase.

Main Topics: Housing market: hot, but not a bubble (Priority: 5/5): The hosts revisit Ben’s housing-bubble post and argue that current prices look stretched but are not supported by typical bubble markers like speculation, loose lending, or widespread flipping. They note demand from first-time buyers, demographics, and COVID-era shifts. Index funds vs. anti-passive criticism (Priority: 5/5): They push back hard on a provocative Atlantic article that framed index funds as economically harmful, arguing the critique is a straw man and that passive investing is one of the best investor innovations ever. Misleading market narratives from fund flows and margin debt (Priority: 4/5): They examine headlines about record equity inflows and rising margin debt, arguing that these figures often reflect netting, market history, or rising asset prices rather than dangerous speculation. Inflation, fiscal policy, and MMT (Priority: 4/5): Stephanie Kelton’s NYT argument is discussed as an inflation-focused version of MMT: the constraint on spending is real resources and inflation, not deficits. They see current inflation pressure as real and likely to persist. Structural changes in markets and wealth ownership (Priority: 4/5): The conversation highlights why old ratios like financial assets-to-GDP or market cap-to-GDP are less comparable across eras, given 401(k)s, IRAs, pensions, globalization, and changed ownership patterns. Labor shortages, wage pressure, and post-pandemic shifts (Priority: 3/5): They discuss restaurant and delivery labor shortages, arguing that higher wages and changing worker preferences are likely outcomes, not evidence that people will stop working because of unemployment benefits. New retail investing, crypto, and collectibles (Priority: 3/5): They cover Robinhood’s crypto surge, Coinbase/Robinhood dynamics, collectible-card markets, and big ETF launches, showing how financial innovation and retail participation are reshaping asset markets.

Key Arguments: Headlines about 'record inflows' into stocks can be misleading because negative flows from earlier years distort the comparison and because mutual-fund/ETF data excludes direct stock ownership and buybacks. Index funds do not 'break' markets; they mainly mirror market-cap weights, while active investors still set prices through research, trading, and voting. The claim that passive investing causes capital misallocation is a straw man because active management still dominates price discovery and corporate governance. Housing is extremely strong, but the absence of speculative behavior, loose lending, and widespread flipping argues against calling it a bubble. Rising housing prices may be driven by first-time buyers, demographics, low rates, COVID-related demand, and limited supply rather than pure speculation. The market-cap-to-GDP or financial-assets-to-GDP ratio is hard to interpret over time because the financial system, tax shelters, globalization, and corporate ownership have changed radically. Inflation, not deficits, is the binding constraint on fiscal policy, and current policy debates should focus on real resources and capacity. Rising margin debt is not inherently bearish because it usually rises with asset prices and is more descriptive than predictive. Labor shortages reflect a mix of unemployment benefits, wage resets, and changing worker expectations rather than a permanent exit from work. Retail investing and crypto participation are accelerating quickly, with Robinhood and collectible platforms serving as important distribution channels.

Data Points: Global equity fund inflows since November: $569 billion - Used to argue that recent fund-flow headlines are misleading when compared with longer historical windows. Prior equity fund inflows benchmark: $452 billion - Amount cited for the earlier 2009-2020 bull market comparison. U.S. financial assets to GDP: 6.1x now - JPMorgan chart used to show the ratio has risen dramatically over time. U.S. financial assets to GDP historical level: 2.5x in 1951 - Same chart highlighting long-run change in market structure. Equity funds and ETFs net inflows since March 2009: Barely any fresh investments - J.P. Morgan/Jeroen Timmer chart used to question the bubble narrative. S&P 500 return since March 2009 bottom: 660% - Contrasted with weak fund inflows to show flows do not map neatly to returns. Bond funds and ETFs inflows since March 2009: More than $3 trillion - Shows investor preference for bonds despite the equity bull market. BlackRock sustainable ETF launch inflows: More than $1.5 billion - Two actively managed sustainable equity ETFs launched with massive first-day/launch demand. Largest individual ETF debut within that launch: $1.25 billion - U.S. carbon transition readiness ETF. Homebuyer example down payment: $300,000 - Listener email from Seattle about trying to buy in a hot housing market. Homebuyer pre-approval: $1.5 million - Seattle listener says they could qualify for this amount but want to stay closer to $1.2 million. Bid escalation in Seattle example: $200,000 to $300,000 over ask - Illustrates how competitive the housing market is. Co-worker’s failed offers: Five offers - Seattle anecdote showing repeated bidding losses. Bottom 50% wealth: Almost $3 trillion - Fed data cited as the highest ever for the bottom half by wealth. Bottom 50% wealth low point: $250 billion in 2011-2012 - Shows the magnitude of the post-crisis recovery. Bottom 50% share of wealth: About 2% - Despite gains, the bottom half still owns a very small share of total wealth. Restaurant staffing gap: 20% below / 1.1 million jobs lower - National Restaurant Association data cited to show labor shortages. Retail workers planning job switch: 26% - Survey showing a quarter of workers expect to look for a new employer after the pandemic. New retail investors who began in 2020: 15% - Schwab survey cited to show how many new entrants joined the market. Robinhood crypto traders Q1 2021: 9.5 million customers - Up sharply from the prior quarter, showing explosive crypto adoption on the platform. Robinhood crypto traders Q4 2020: 1.7 million customers - Baseline for the quarter-over-quarter surge. Margin debt: $814 billion - Cited as a sign of rising leverage, though the hosts dismiss it as a weak signal. Margin debt year-over-year increase: 49% - Fastest annual increase since 2007. Wealth from collectibles, gold/precious metals, cash in UHNW survey: Collectibles 5%, gold/precious metals 3%, cash 11% - Illustrates how wealthy investors allocate into nontraditional assets. US dollar banknotes in circulation: $2.1 trillion - Referenced in a thread speculating that excess cash may be held by organized crime or hoarded outside retail channels. Extra cash in circulation estimate: $220 billion excess / about $650 per American - Used to highlight the surprising scale of cash hoarding.

Pivotal Quotes: "index funds are perhaps the greatest creation for investors of the past 40 years" — Ben Carlson: Defending passive investing against a critical Atlantic article. "This is a complete straw man. It's nonsense." — Ben Carlson: Reacting to the claim that passive investing starves promising companies of capital. "we're seeing a massive improvement, but it's still pretty low by historical standards" — Michael Batnick: Discussing the rise in bottom-half wealth while noting inequality remains severe.

Implications: Listeners should be skeptical of sensational market narratives that ignore context or structural change. The episode suggests housing is overheated but not a classic bubble, passive investing remains beneficial, inflation risk is real, and market behavior must be judged through modern ownership patterns and incentives.