Fed Apologists (EP.209)

Episode Summary

Executive Summary: The episode centers on how the post-pandemic economy is more interesting than the stock market: inflation, lumber and crop prices, housing shortages, built-to-rent suburbs, labor churn, and the rise of DeFi and crypto use cases. The hosts also debate Bitcoin’s traceability in ransomware, credit card rewards economics, and the changing nature of movie stardom and TV. They end with listener questions on mortgages, reading habits, and media recommendations.

Main Topics: Inflation, yields, and the Fed’s credibility (Priority: 5/5): They discuss the 5% CPI print, falling Treasury yields, and whether markets trust the Fed to thread the needle. Their view is that inflation may cool as base effects and specific commodity prices roll over. Housing, builders, and the rise of built-to-rent (Priority: 5/5): A long segment covers housing supply constraints, lumber prices, zoning/permitting delays, institutional single-family rental ownership, and the possibility that more people will rent suburban homes instead of own them. Labor market churn and post-pandemic job behavior (Priority: 4/5): They note that unemployment remains elevated while quit rates are at highs, suggesting workers feel confident enough to move jobs even if the headline labor market looks weak. Crypto, DeFi, and the limits of blockchain hype (Priority: 4/5): The hosts explore programmable money, crypto’s role in ransomware, ACH’s outdated infrastructure, and the idea that DeFi will likely replace only bad or outdated parts of finance rather than the whole system. Consumer finance and credit card rewards (Priority: 3/5): They examine how rewards programs are funded by swipe fees and possibly by cash/debit users, while also questioning why credit card interest rates stay stubbornly high compared with other borrowing costs. Market structure, flows, and macro forecasting (Priority: 3/5): There’s discussion of record commodity ETF flows, the role of flows in markets, and the hosts’ recurring macro calls on housing shortages and demographic demand. Culture, movies, and TV’s impact on movie stardom (Priority: 2/5): The show closes with a digression on how TV and franchise/IP-driven films changed the idea of a movie star, plus recommendations for Hacks, Greenland, and Before Sunset.

Key Arguments: The economy is more interesting than the stock market right now because inflation, housing, and labor dynamics are producing bigger real-world effects than equity-market moves. High inflation readings may prove temporary because some of the hottest inputs—lumber, crops, used cars, and transportation—appear to be easing. The bond market’s decline in yields suggests investors believe the Fed can keep inflation contained without forcing a dramatic tightening cycle. Housing affordability is being squeezed not just by demand but by supply constraints, zoning, permitting delays, and material costs, making shortages structural. Built-to-rent suburbs and single-family rentals could become a larger part of the housing landscape as younger households prefer flexibility over ownership. Bitcoin’s public ledger makes it traceable, so it is not a reliable hiding place for criminals; the “crypto is only for crime” critique is overstated. DeFi’s best case is not replacing all finance, but fixing narrow, outdated, and inefficient parts of the current system. Credit card rewards are not free; they are subsidized through merchant fees and, indirectly, by other consumers who pay with cash or debit. Credit card interest remains unusually sticky and high, which the hosts view as odd given how borrowing rates in many other markets have fallen over time. The modern entertainment business is increasingly driven by IP and franchises rather than individual movie stars, with big actors often migrating to prestige TV instead of theatrical leads.

Data Points: CPI inflation: 5% - The latest 12-month inflation reading discussed on the show. S&P 500 peak-to-trough correction in 2021: 4.2% - They noted the market had not had a meaningful correction, contributing to low investor anxiety. 10-year Treasury yield: below 1.5% - Yields fell after the inflation report, despite hotter CPI. 10-year Treasury yield peak: about 1.7% - Approximate recent high mentioned before yields fell back. Lumber futures weekly drop: 18% - Described as the worst week since 1986. Lumber futures drawdown: 40% - The broader move lower in lumber prices from the peak. Crop price move: plunging - Corn, soybeans, and wheat declined on better weather prospects. Home price on corner lot: $1 million - A local example of a heavily appreciated property needing major work. Pre-pandemic estimated price of same home: about $750,000 - Their rough estimate of what the house might have fetched before the housing frenzy. Unemployment rate referenced: around 6% - Used to illustrate that labor-market behavior feels stronger than the headline rate suggests. Quit rate: 2.7% - April share of workers leaving jobs, the highest since at least 2000. Year-over-year increase in quit rate: 1.6 percentage points - Increase from a year earlier. BlackRock home purchases: 200,000 homes over seven years - Used to argue professional homebuyers are still a small share of total transactions. Total home transactions over same period: 40 million homes - Context for why institutional buying is still a small share. Single-family rental ownership by institutions: 2% to 3% - Estimated current institutional ownership share in single-family rentals. Planned single-family rental investment: $5 billion - Invesco-backed plan to buy roughly 20,000 homes. ACH business-to-business share: 92% - Share of ACH value transferred that is B2B. ACH annual growth rate: 6.9% - Growth rate cited for B2B ACH volumes. ACH annual transaction volume: $55 trillion - Used to highlight the scale of an old payments system. ACH fraud rate: nearly 5% - Claim that the network is riddled with fraud. DeFi/programmable money time limit example: 90 days - Proposed restriction on how long stimulus funds could be used. Bitcoin ransom paid by JBS: $11 million - Referenced as part of the ransomware discussion. Colonial Pipeline ransom: $4.4 million - Crypto payment made to hackers; later some funds were recovered. Bitcoins traced by FBI: 75 BTC - The FBI watched transfers on the public ledger after the Colonial Pipeline payment. Recovered ransom amount: $2.3 million - Amount reportedly recovered by authorities from the traced Bitcoins. Air conditioning repair cost: a few hundred bucks - Household anecdote about being a homeowner and unexpected maintenance. Millennial regret survey: 64% - Mentioned as a survey claiming millennials regret their home purchases. Credit card merchant fee revenue: $24 billion - American Express transaction-fee revenue in 2018, cited in the credit-card economics discussion. High-income consumer price benefit: $13 less per month - Estimated retail price effect for high-income consumers using credit cards. Low-income consumer price effect: $0.60 more per month - Estimated retail price effect for low-income consumers using cash/debit. Credit card debt duration: more than half over 1 year; more than a third over 2 years; more than 1 in 10 over 5 years - Used to show how expensive revolving balances can become. Title insurance refund: $115 - A small refund the host received after closing-related paperwork review.

Pivotal Quotes: "The economy is way more interesting than the market." — Michael Batnick: He explains why most of the episode focuses on inflation, housing, and labor rather than stocks. "What if the Fed does it again and threads the needle?" — Ben Carlson: A discussion about whether inflation can settle without forcing aggressive tightening. "You can't hide behind crypto." — Elvis Chan: FBI special-agent quote cited during the Colonial Pipeline ransomware discussion.

Implications: Listeners should expect continued debate over inflation, housing affordability, and the future of renting versus owning. The episode suggests crypto and DeFi will matter most as infrastructure fixes, not system replacements, while labor and consumer-finance trends may be more revealing than stock returns.