Bidding Wars (EP.191)

Episode Summary

Executive Summary: The episode covers several market-manias and structural shifts: skepticism toward food-delivery economics, the effect of meme-stock prices on real businesses, the explosive growth and likely persistence of SPACs, retail trading gamification via Robinhood, Bitcoin holder behavior, broadening equity strength beyond mega-cap tech, housing-market frenzy, and inflation’s likely transitory nature. The hosts argue that many trends are real but that business models, incentives, and valuations will evolve.

Main Topics: Food delivery economics and the coming reckoning (Priority: 5/5): The hosts discuss a guest post arguing that third-party delivery is structurally bad for restaurants, workers, and possibly long-term investors. They remain skeptical that the current DoorDash/Uber Eats model works at scale, especially for independent restaurants. How stock prices affect underlying businesses (Priority: 5/5): They explain that stock prices can matter through perception, lending, and explicit capital actions. AMC benefited directly by converting debt to equity, while GameStop’s inability to issue stock quickly highlights how paper gains can create real balance-sheet opportunities. SPACs as a durable financing structure (Priority: 5/5): They debate the SPAC boom, why it’s happening now, and whether it is a fad or a lasting alternative to IPOs. The hosts think SPACs are here to stay, though fee structures and sponsor economics will likely change. Retail trading, Robinhood, and market gamification (Priority: 4/5): They criticize how trading apps resemble gambling interfaces and worry younger investors may be forming bad habits. They note Robinhood’s rapid growth, its public messaging, and concerns about product design such as no beneficiary feature. Asset flows and speculative enthusiasm across markets (Priority: 4/5): They note huge money flows into IPO/SPAC ETFs, rising valuation multiples for new listings, strong demand for Reddit, Bumble, and other hot deals, plus the idea that abundant liquidity is snapping up any growth story. Bitcoin holding behavior and reduced turnover (Priority: 3/5): They review charts showing more Bitcoin addresses holding meaningful balances while velocity has fallen sharply, suggesting more holders are treating Bitcoin as a long-term, high-conviction asset rather than a trading vehicle. Housing market, inflation, and the broader macro backdrop (Priority: 4/5): They discuss record home-price growth, fierce bidding wars, low inventory, and the view that near-term inflation may be temporary unless wage growth becomes persistent. They also highlight how low rates and equity gains help existing owners more than first-time buyers.

Key Arguments: Third-party delivery’s current fee structure appears uneconomic for independent restaurants, implying the business model needs to change or consolidate around large chains. A rising stock price can materially affect a company by changing lender perception, enabling capital raises, or allowing debt-to-equity conversions. SPACs are not just a fad: they satisfy market demand for forward-looking narratives and can make public-market entry easier than traditional IPOs. The SPAC market will probably converge over time toward lower fees and less dilution, similar to how ETFs evolved relative to mutual funds. Robinhood and similar apps may be teaching inexperienced investors speculative habits rather than long-term investing discipline. Bitcoin appears increasingly held as a long-duration asset, with lower turnover and more buy-and-hold behavior. Small-cap and broader market participation suggest diversification is finally working again, not just mega-cap tech. Recent home price gains and low mortgage rates help owners but create serious affordability and down-payment hurdles for first-time buyers. Inflation may be transitory unless it feeds into wages; without wage acceleration, price spikes are more like temporary rationing than sustained inflation. Historical valuation metrics may be less useful in a world where intangibles, software, brand, and network effects dominate corporate value creation.

Data Points: Food delivery fee rate: ~30% - Hosts cite the article’s claim that third-party delivery platforms take around 30% from restaurants. SPACs raised in 2 weeks of February: $38 billion - Compared with traditional IPOs, SPAC fundraising is surging in early 2021. Traditional IPOs raised in same period: $20 billion - Used as the comparison point to show SPAC dominance. Defiance Next Gen SPAC ETF return: +31% - Performance since launch in fall 2020 through the discussion date. S&P 500 return: +18% - Used as a market benchmark against SPAC and IPO ETF performance. Renaissance IPO ETF return: +47% - Shown as outperforming both SPAC ETF and the S&P 500 over the period discussed. Renaissance IPO ETF AUM in Apr 2020: $34 million - Illustrates how quickly assets grew in the IPO ETF. Renaissance IPO ETF AUM at discussion time: $1 billion - Demonstrates strong inflows into IPO exposure. Meb Faber tail-risk ETF AUM before March 2020: $77 million - Assets prior to the VIX and market blow-up. Meb Faber tail-risk ETF AUM by August 2020: $300 million - Shows post-crisis demand for tail hedges. Robinhood customers reached by podcast discussion: ~13 million implied - Not explicitly stated; the transcript references the scale of Robinhood and its growing public profile, but no exact number is provided beyond context about rapid growth. Reddit daily average users: 52 million - Reported as up 44% from the same month a year earlier. Reddit user growth: +44% YoY - Used to show how GameStop-era attention benefited Reddit usage. One-third of Russell 2000 stocks: Up 20% YTD - Bespoke chart referenced to show strong small-cap breadth. Russell 2000 vs S&P 500: Outperforming over 1- and 3-year periods - Used to argue diversification is finally helping beyond mega-cap tech. Intangible assets (1975): $122 billion - From the cited research on the rise of intangibles. Tangible assets (1975): $594 billion - Historical comparison from the same paper. Intangible assets (2018): $21 trillion - Shows how corporate value has shifted toward intangibles. Tangible assets (2018): $4 trillion - Contrasts with the growth in intangible assets. Americans who bought GameStop or viral stocks in January: 28% - A survey result the hosts doubt is credible. 2020 homebuyers making offers sight unseen: 63% - Redfin statistic used to show how hot and remote the housing market became. Potential buyers citing outbidding as reason for not buying: 40% - National Association of Home Builders data on lost purchases. Buyers facing bidding wars: 52% - Redfin data showing widespread competition. Newly listed home asking price: $330,000 - Record high asking price for newly listed homes. Newly listed home asking price change: +10% YoY - Shows rapid home-price inflation. Median home sales price change: +15% YoY - Highlights strong appreciation in completed sales. Active listings change: -36% - Signals severe housing inventory shortages. Homes that went under contract within two weeks: 48% - Illustrates speed of demand in the housing market. GameStop debt discussed: $260 million - Amount the hosts mention could potentially be retired if the company raised capital. AMC debt converted to equity: $600 million - Example of a rising stock price creating direct balance-sheet benefit. U.S. inflation perspective cited by Powell: 3 decades of lower and more stable inflation - Used to support the view that reopening inflation may be brief.

Pivotal Quotes: "“The current model of DoorDash and Uber Eats is going to face a reckoning pretty soon.”" — Ben Carlson: Summarizing skepticism that the delivery platform economics work for restaurants. "“SPACs are here to stay.”" — Ben Carlson: His view that the vehicle is durable even if sponsor economics change. "“Without an attendant increase in wages, all of this inflation represents a transitory form of price rationing.”" — Quoted article / hosts: Used to argue that reopening price spikes are not necessarily persistent inflation.

Implications: Listeners should expect continued market enthusiasm, but also structural pushback: SPAC terms may tighten, delivery and retail-trading models may face scrutiny, and inflation/housing pressures may persist unevenly. Winners will be firms and investors who adapt to changing incentives and liquidity conditions.