Inflation Truthers (EP.185)

Episode Summary

Executive Summary: The episode is a data-driven rebuttal to inflation truthers who claim CPI underreports true inflation. Michael and Ben argue that selective anecdotes, “asset price inflation” rhetoric, and even Bitcoin narratives ignore broader evidence: wages, GDP, commodities, housing affordability, and improved quality of goods/services. They also discuss valuation extremes, the resilience of markets in 2020, and several personal finance questions.

Main Topics: Debunking inflation truthers (Priority: 5/5): The hosts argue that claims of 10%–12% true inflation are inconsistent with observed economic outcomes, wage data, GDP, and commodity trends. They criticize certainty without evidence and the use of anecdotal grocery-store pricing to dismiss official inflation data. Quality-adjusted living standards and measurement challenges (Priority: 5/5): They note that inflation is hard to measure because goods and services improve over time—TVs, streaming, phones, and housing size/quality have all advanced substantially—so simple sticker-price comparisons can be misleading. Bitcoin as a flawed inflation hedge narrative (Priority: 4/5): They reject the idea that alleged inflation or dollar debasement proves Bitcoin is the solution, calling the logic overstated and often based on incorrect claims about money supply or dollar devaluation. Market valuation, growth, and fiscal support (Priority: 4/5): The discussion turns to whether high valuations necessarily imply low future returns. They consider arguments that fiscal capacity, low rates, and earnings growth can offset expensive starting multiples, especially if policy remains supportive. Value vs. growth and dispersion in equities (Priority: 4/5): They review charts showing deep value has underperformed and that the tech/growth regime has dominated for years. They also note valuation dispersion within the S&P 500 is wide, yet stock-picking success remains inconsistent. Personal finance and listener questions (Priority: 3/5): They answer questions about investing at age 26 with lots of cash, whether FICO is a reliable risk measure, and the Roth vs. traditional IRA debate, while emphasizing long horizons and flexibility. Media, culture, and entertainment recommendations (Priority: 2/5): The back half includes streaming industry observations, reactions to Wonder Woman 1984, and praise for The Comedy Store documentary and older films like No Way Out and The Way, Way Back.

Key Arguments: Official inflation measures may be imperfect, but claims of 10%–12% hidden inflation are inconsistent with wages, GDP, commodities, and lived reality. Anecdotal evidence from grocery bills or home prices is not enough to override broad statistical measures; availability bias distorts perception. If inflation truly were running at extreme levels for a decade, the economy would look like a depression and nominal wages/GDP would reflect it. Quality improvements matter: consumer surplus from streaming, smartphones, and larger/more functional homes means CPI can understate real gains in living standards. Bitcoin believers often rely on a false inflation/dollar-debasement story; the asset may still work as a speculative call option, but not for the reasons they claim. High valuations do not automatically imply poor returns if fiscal policy, low rates, and earnings growth remain supportive. Value stocks may benefit if rates rise and inflation reaccelerates, but the market regime has favored growth/tech for a long time. At age 26, investors should not over-optimize around macro timing because they will face many market cycles over a long career.

Data Points: Inflation truther claim: 10% to 12% per year - A tweet cited as “true cost of living” versus the 2% CPI reading CPI comparison: ~2% - Reported inflation level being challenged Nominal GDP growth in the 1970s: ~7% inflation era with high nominal growth - Used to compare inflation periods and real vs. nominal growth Wage growth: 150% in the 1970s vs. 50% in the 2010s - Used to show inflation should show up in wages if it were truly that high Housing affordability: Pretty steady for 50 years - Average real monthly mortgage payment on a new home, per Jake at Econompek Average new home size: 70% larger than in 1971 - Despite smaller households, suggesting improved housing quality/quantity Commodities index: Below 1991 levels and down 70% since 2007 - Bloomberg Commodity Index used as an input-cost check Private college sticker-price discount: 53% average discount - Average discount paid by students at private colleges in 2019–2020 Private college aid penetration: 89% receive needs-based or merit aid - Shows sticker prices overstate actual college cost Bitcoin ownership mentioned: 0.8 of a coin - Ben notes his personal Bitcoin position Tesla/Bitcoin rhetoric: People are "never selling" - Explained as part of the bullish narrative around Bitcoin Value stock underperformance: Underperformed S&P 500 by 6% to 25% in recent years - Table of stocks with EV/EBIT under 5 NASDAQ vs S&P 500: Outperformed in 10 of past 11 years by ~7% annually - Shows prolonged tech/growth dominance Top 10 S&P 500 P/E: 33x - Valuation of the largest names in the index Rest of S&P 500 P/E: 19.7x - Valuation of the remaining 490 stocks Top 10 S&P 500 earnings contribution: One vertical in 2020 - Indicates concentrated earnings power in mega-cap names US streaming subscriptions: 3.1 services per household - Up from 2.7 the prior year Netflix original episodes: ~700 per quarter - Compared with Amazon Prime’s ~150 in the latest quarter Amazon Prime original episodes: ~150 per quarter - Used to compare streaming output State and local tax revenues: Down about 1% in first three quarters of 2020 vs. 2019 - Surprisingly resilient during the pandemic Expected state/local revenue without pandemic: Would have increased about 3% - Census Bureau estimate referenced in the discussion Core equity market free cash flow: Up in Q1, Q2, and Q3 of 2020 - Ex-financials and recent energy sectors Total employee compensation: Down only 0.5% for first nine months of 2020 - Neil Irwin piece explaining stock market resilience Jobs lost: Down 6% - Compared with only a 0.5% drop in compensation due to low-wage job losses Janet Yellen speaking fees: More than $7 million - Her financial disclosure as incoming Treasury Secretary Stamp collection value: $15,000 to $50,000 - Also listed in Yellen’s disclosure Average private college discount: 53% - Reinforced in listener/college discussion Light bulb invention year: 1879 - Used to fact-check an era reference in Bridgerton discussion

Pivotal Quotes: "what planet are you living on?" — Michael Batnick: Reaction to claims that inflation is secretly running at hyperinflation-like levels "The answer to this asset price inflation, the hyperinflation, whatever, whatever, is to buy Bitcoin. Give me a break." — Michael Batnick: Rejecting Bitcoin as the solution to alleged hidden inflation "There’s no price too high? That doesn’t make sense. Come on. We know better." — Ben Carlson: Pushback on the idea that valuation never matters

Implications: Listeners should be skeptical of anecdotal inflation narratives and simplistic Bitcoin-as-hedge arguments. For investors, policy support, earnings growth, and rate conditions may matter more than headline valuation fears in the near term.