Economically Unattractive (EP.102)

Episode Summary

Executive Summary: The episode ranges across debates about passive investing, IPOs and private-market bubbles, consumer finance, housing and mortgage trends, and media/pop culture recommendations. The hosts argue that many “passive is dangerous” takes are overstated, discuss how WeWork/Uber/Lyft reflect private-market excess more than public-market dysfunction, and revisit how incentives shape weddings, real estate commissions, student-loan forgiveness, and modern social/media products.

Main Topics: Passive investing and market structure (Priority: 5/5): The hosts push back on claims that index funds create systemic market risk or distort price discovery, arguing that many criticisms confuse correlation with causation and ignore competing changes like hedge fund growth. IPOs, WeWork, and private-market valuations (Priority: 5/5): They discuss Uber, Lyft, Slack, and especially WeWork as signs that private valuations were inflated and that the correction is happening in private markets before public investors fully engage. Behavioral expectations and hot-take culture (Priority: 4/5): Ben Hunt’s view of mismatched investor expectations sparks a broader discussion about people “squatting” on bearish takes until the next crash validates them. Consumer finance and incentive-driven decisions (Priority: 4/5): The episode critiques advice like spending less on weddings, examines credit-card rewards, and discusses student-loan forgiveness and why government programs can be administratively ineffective. Real estate, mortgages, and housing economics (Priority: 4/5): They cover mortgage-rate history, real-estate commissions, and migration away from major coastal cities toward Sun Belt metros, emphasizing how incentives and costs shape behavior. Media, tech, and culture recommendations (Priority: 3/5): The hosts review books, podcasts, and movies, including Uber’s internal culture, the failed Jeremy Renner app, social media dynamics, and several entertainment recommendations. Labor market and ownership trends (Priority: 3/5): They note rising stock ownership among Americans and discuss a survey suggesting marriage rates may be affected by women’s expectations for economically attractive partners.

Key Arguments: Index fund ownership does not by itself prove that passive investing is breaking price discovery; many other market participants and vehicles have also expanded. Claims that passive flows make “all stocks move together” may reflect crisis-period correlations rather than a passive-investing effect. The more plausible mismatch is often in active management, where investors expect outperformance that most managers cannot deliver. WeWork and similar startups appear to have been overvalued in private markets; the correction is therefore not a public-market failure but a repricing of inflated private valuations. A private-company markdown may be healthier than forcing a huge public-market reset because it concentrates the pain among informed venture investors rather than retail holders. People often criticize others’ spending choices after they’re past that life stage; wedding-cost advice is easy to give but ignores personal value and life-cycle differences. Government student-loan programs can be well-intentioned but fail due to complexity and poor administration, not necessarily because the policy goal is wrong. Real-estate commissions remain high because entrenched incentives and labor structure limit the impact of technology and online platforms. Americans owning more stock than ever suggests broader participation in markets, which the hosts frame as potentially helpful in reducing inequality. Many new social-media or community products fail because the internet cannot be fully controlled; troll behavior and platform dynamics overwhelm intended design.

Data Points: Transcript reading on viral post: ~100,000 readers over three days - Michael’s post on passive investing reportedly went viral Indexing impact study start date: Since 1997 - Academic paper cited tracking indexing/ETF rise and stock correlation Hedge fund assets in 1997: ~$120 billion - Used to argue hedge funds also grew massively alongside indexing Hedge fund count today: ~10,000 funds - Compared with about 2,000 in 1997 ETF count today: ~5,000 ETFs - Used to show market structure has broadened beyond active mutual funds Mutual funds today: ~8,000 mutual funds - Part of the argument that the market ecosystem is much larger now Active/passive net inflow since GFC: Negative $350 billion - Eric Balchunas stat: passive inflows offset by active outflows into U.S. stocks WeWork venture funding: $12 billion - Morgan Housel stat cited to illustrate private-market investors at risk WeWork private valuation: $47 billion - Referenced as a prior private-market value before markdown WeWork revised worth: $20 billion less than prior valuation / around $12 billion implied by funding discussion - Used to illustrate valuation reset before IPO Uber private valuation: $68–70 billion - Earlier private-market estimates mentioned Uber IPO target valuation: $120 billion - Planned public-market ambition discussed Uber current value mentioned: $55 billion - Post-drop valuation referenced in discussion Wedding average cost: $40,000 - MarketWatch article on saving by having a smaller wedding Illustrative wedding savings: $39,000 - Amount the article suggests investing instead of spending Hypothetical return assumption: 10% for 40 years - Used to claim wedding savings could compound enough to cover retirement Public Service Loan Forgiveness approvals: 661 approved out of 54,000 applicants - CNBC story on student-loan forgiveness administration Real-estate commissions in U.S.: 5–6% average - Economist article on agent fees Buyer/seller agent split: 3% buyer + 3% seller - Typical U.S. commission structure cited Real-estate fee savings estimate: $70 billion per year - Consumer cost estimate from Economist coverage Real-estate fees as share of GDP: 0.25% of GDP - Same article’s estimate Americans owning stock now: More than 50% - Quartz story on stock ownership Americans owning stock 30 years ago: About 30% - Historical comparison in Quartz story Under-35 stock ownership in 1989: 22% - Quartz story on younger Americans Under-35 stock ownership in 2016: 41% - Quartz story showing more young investors Public-service debt forgiveness outcome: 10 years remaining debt forgiven - Program design discussed for nonprofit/public service workers Average required husband income vs reality: 58% higher than actual unmarried men’s income - Cornell survey on marriage expectations Synthetic husband employment likelihood: 30% more likely employed - Survey result on women’s stated partner preferences Movie runtime: 2 hours 49 minutes - It Chapter Two was described as overly long Move-in destinations: Phoenix, Dallas, Las Vegas >100,000 new people/year - Derek Thompson article on migration Mortgage rates in 1982: Almost 20% - Len Kiefer chart on historical mortgage rates Mortgage rates in the 1980s end: 17% by end of decade - Weekly average 30-year fixed rate mortgage by decade This decade average mortgage rate: About 4% - Current-decade comparison in mortgage chart discussion

Pivotal Quotes: "I think there might be a correlation causation mismatch there." — Ben Carlson: On the claim that index investing increases stock correlations "It’s kind of crazy that these companies are doing it for public investors on their own now." — Michael Batnick: On WeWork and private companies marking down valuation before IPO "The bubble is popping in rich people’s pockets." — Ben Carlson: On private-market losses being absorbed before public-market investors are hit

Implications: Listeners are encouraged to be skeptical of simplistic narratives about passive investing and market bubbles. The episode suggests valuation excess is more visible in private markets, while everyday financial choices are best judged by personal circumstances, not one-size-fits-all advice.