Bearish the Whole Way Up (EP.172)

Episode Summary

Executive Summary: Ben and Michael argue that while presidents and election outcomes can affect market narratives, they do not provide a reliable basis for investing. They emphasize policy asymmetry, stimulus expectations, low rates, housing and demographic tailwinds, and the growing role of retail investing and financial product innovation. They also discuss private equity marks, healthcare costs, baby bonds, travel rebound potential, and listener Q&A on portfolio diversification and married finances.

Main Topics: Elections and market narratives (Priority: 5/5): They examine how election headlines move markets and why trying to trade presidential outcomes is usually a mistake. They stress that investors should avoid making portfolio decisions based on politics, even if fiscal/stimulus expectations can influence prices in the short run. Stimulus, policy asymmetry, and market learning (Priority: 5/5): The hosts discuss how the market seems conditioned by the CARES Act and may now expect future fiscal support, creating a bias toward positive headlines. They argue investors and markets adapt over time, making repeatable election-trading strategies unreliable. Rates, bonds, and alternative investments (Priority: 4/5): They respond to low-rate frustration by noting that bonds no longer provide attractive yields, but still offer different risks and some protection. They express optimism about alternative products and platforms filling gaps in the market, especially for retail investors. Housing, demographics, and mortgage credit (Priority: 4/5): The conversation highlights declining rents in major cities, tighter mortgage credit standards, and strong demographic support for housing demand among 20- to 39-year-olds. They suggest this is a favorable environment for ownership if buyers can secure down payments. Private equity marks and market structure (Priority: 3/5): They note surprising write-downs in private equity that erased years of gains on paper, using this as an example of how delayed valuation marks can obscure true risk and volatility in private assets. Wealth inequality and baby bonds (Priority: 3/5): They discuss a proposal for baby bonds as a way to reduce the racial wealth gap, treating it as a practical policy idea that could create long-term wealth-building opportunities for young people. Media, travel, and consumer behavior shifts (Priority: 3/5): They anticipate a post-pandemic travel boom, especially after a period of suppressed demand, while acknowledging business travel may remain permanently impaired. They also touch on podcast ad growth, declining traditional media habits, and changing consumer attention patterns.

Key Arguments: Presidents matter less to stock returns than investors think; every administration has overseen at least one double-digit drawdown, so election-based market predictions are not investable. You cannot build a coherent portfolio strategy around who wins the election because market outcomes depend on many interacting variables, especially policy, earnings, and sentiment. The market may currently be pricing in a Biden victory and more stimulus, but that is a short-term narrative, not a durable trading edge. Markets may behave differently after absorbing the lessons of 2020; after the CARES Act, investors may be less willing to bet against fiscal and monetary intervention. Low yields do not make bonds useless; they still play a diversification and downside-protection role, though investors should not reach for unsafe yield. There is strong demand for alternative products and platforms because traditional fixed income no longer meets return expectations. Housing demand is supported by demographics, but affordability is constrained by down payments and tighter mortgage underwriting. Retail behavior may be improving on the margins as millions of new investors opened accounts during a pandemic and bought stocks during a drawdown, even if much of the activity was speculative. Baby bonds are presented as a sensible way to start addressing intergenerational and racial wealth gaps by giving children investable assets at birth. Healthcare costs likely suppress wage growth because employers absorb rising benefit costs instead of passing all of that money to workers. The pandemic likely accelerated changes in travel, work, and media consumption, with leisure travel poised to rebound sharply while business travel remains under pressure.

Data Points: All presidential terms examined: Every president from Herbert Hoover to Trump oversaw at least one double-digit stock market correction - Used to argue election outcomes are not a reliable basis for market timing Smallest drawdown under a president: 17% - Jimmy Carter’s term had the smallest drawdown in the sample Blue wave narrative shift: From negative for equities to a reflation catalyst - UBS narrative change cited from Carl Quintanilla tweet NASDAQ 100 2%+ days in 2020: 25 times - Illustrates unusually frequent large up days NASDAQ 100 3%+ days in 2020: 12 times - Shows how volatile the market has been NASDAQ 100 4%+ days in 2020: 10 times - Excludes the current day when mentioned Manhattan studio rent change: Down almost 20% YoY - Example of city rent softness benefiting younger renters San Francisco rent change: Down about 20% or more - Cited alongside Manhattan as evidence of falling urban rents Private equity gains erased: Six years - Institutional Investor/eFront data on Q1 valuation resets Private equity timing: Three- to six-month lag - Explains why private market marks may later rebound as public markets do US podcast ad revenue forecast: $1 billion next year - Projected growth for podcast advertising Podcast ad growth forecast: 45% next year - Expected growth rate for the sector Traditional radio advertising: $18 billion - Compared with podcast ad market size China local COVID cases: None since August 15 - Bloomberg-reported data used to support a travel rebound example China holiday travel: 425 million people took trips in four days - Golden Week travel surge China travel spending: Went bananas / surged sharply - Described as a dramatic rebound in suppressed demand Average age of 35 wealth share, boomers: 21% of national wealth - David Brooks statistic comparing generational wealth Average age of 35 wealth share, millennials: 3.2% of national wealth - Used to illustrate the wealth gap between generations Employer healthcare spending: Rose from $9,700 to $12,500 to $15,700 per year - Illustrates rising employer health benefit costs Employer health benefits increase 2010-2015: 27% - Survey of health benefits summary Employer health benefits increase 2015-2020: 22% - Survey of health benefits summary Family worker contribution: About $5,000 to $7,000 per year - Employee out-of-pocket health care cost range Baby bond initial grant: $1,000 at birth - Draft legislation proposal Baby bond annual contribution: Up to $2,000 per year - Income-based contributions in proposal Millennials in account-opening behavior: Millions opened accounts during the pandemic - Discussed as evidence of changing retail investing behavior

Pivotal Quotes: "You cannot come up with a cohesive investment strategy based around politics. You just can't." — Ben Carlson: Core conclusion on why election outcomes should not drive portfolio decisions "It almost feels as simple as, post the CARES Act, the market just doesn't want to be on the wrong side of policy again." — John Turek (quoted by hosts): Used to explain policy asymmetry and market reaction to stimulus expectations "There is nothing. There's just different risks." — Ben Carlson: On the search for a bond replacement in a low-rate world

Implications: Listeners should avoid election-driven trading and instead focus on diversification, policy awareness, and risk management. The episode also suggests opportunities in housing-related solutions, alternative asset products, and post-pandemic consumer rebounds, while warning that private market marks, healthcare costs, and wealth inequality remain structural issues.