Is the Stock Market Getting Ahead of Itself? (EP.293)

Episode Summary

Executive Summary: Michael and Ben riff on the market’s sharp year-to-date rebound and how falling inflation, rates, and beaten-down growth stocks can all support conflicting narratives. They then dig into layoffs, labor-market resilience, retail sales, housing, crypto contagion, and streaming/media consolidation, concluding that many “crisis” headlines reflect sector-specific overhiring rather than a broad economic collapse.

Main Topics: Market rebound and narrative whiplash (Priority: 5/5): They debate whether the early-2023 stock rally is justified after 2022’s drawdown. Their core point is that violent selloffs can produce violent rallies, but the meaning of the bounce is unclear because investors can frame falling inflation as either soft-landing evidence or recession warning. Layoffs in tech, finance, and real estate (Priority: 5/5): They discuss large layoffs at Google, Microsoft, Spotify, Wayfair, Goldman Sachs, and others. Their view is that many companies overhired during the boom, so cuts are more about correcting staffing excesses than signaling a collapsing economy. Housing, mortgage rates, and affordability (Priority: 4/5): They examine why homebuilders are cutting mortgage rates instead of home prices, how lower mortgage rates are reviving applications, and why housing could be stabilizing sooner than bears expected. They also note that mortgage-department layoffs may have created future service bottlenecks. Consumer balance sheets and credit stress (Priority: 4/5): They review data on retail sales, savings, auto loans, and credit cards. The speakers argue that consumer demand is normalizing from extreme pandemic levels, but some pockets—especially subprime autos and high-rate credit—are showing strain. Crypto and GBTC/Genesis fallout (Priority: 4/5): They explain the tangled relationship among Genesis, DCG, GBTC, Gemini Earn, and Grayscale. The discussion centers on how bankruptcy, GBTC discounts, and asset sales may affect creditors and whether Bitcoin’s resilience above prior lows signals a stronger marginal buyer base. Streaming media and Netflix’s resurgence (Priority: 3/5): They highlight Netflix’s stronger-than-expected subscriber growth and profits relative to rivals, arguing that streaming losses at Disney, Warner Bros. Discovery, Paramount, and Comcast make consolidation increasingly likely. Recommendations and culture (Priority: 2/5): The episode ends with TV recommendations (1923, Wednesday, The Chair, The Last of Us) and a brief Oscars/Avatar discussion, serving as a lighter wrap-up after the market-heavy first half.

Key Arguments: The rally in beaten-down stocks is not automatically irrational; names that fell 70%-90% can bounce hard without changing the longer-term story. Inflation falling will be interpreted in two opposite ways: evidence of a soft landing or proof that recession is arriving. 2022 corporate and hedge-fund blowups were limited because many companies entered the year flush with cash and many hedge funds were positioned to benefit from the growth-stock selloff. Tech layoffs are largely the result of massive overhiring in 2019-2022, so they are a weak read-through on the broader labor market. Mortgage and consumer credit stress is showing up in specific pockets—subprime auto delinquencies, higher card rates—but not yet in a full-system crisis. Homebuilders are choosing to buy down mortgage rates instead of cutting sticker prices because direct price cuts would trigger cancellations from existing buyers. Netflix’s scale and profitability make it stand out from other streaming services, which appear structurally challenged and may eventually need consolidation. Bitcoin’s ability to hold above the FTX panic lows suggests the market still has meaningful buyers willing to absorb bad crypto news.

Data Points: S&P 500 year-to-date performance: up about 5% - Discussed as of late January 2023 during the market rebound conversation Nasdaq year-to-date performance: up 8% - Used to illustrate the speed of the rebound after 2022’s decline Facebook/Meta rebound from bottom: up 58% from its low, still down 62% from ATH - Example of how a beaten-down stock can surge while remaining far below prior peaks Netflix rebound from low: up 13% after earnings; roughly doubled from its low - Used to compare strong fundamental beat vs. Meta’s rebound STOXX 600 start to year: best start since data began in 1987; up 8% in first three weeks - Referenced to show global equity snapback Vanguard 2022 inflows: $83 billion net inflows - Cited alongside slowing organic growth at the fund giant Vanguard organic growth rate: 1.1% in 2022 - Slowest since 1999, but attributed to a larger asset base rather than weakness China flights: higher than any point in 2022 - Used as evidence the reopening may be real Unemployment rate at first Fed hike: 3.8% - March 2022, when the Fed began its rapid hiking cycle Unemployment rate by 4.5% fed funds rate: 3.5% - Used to argue monetary policy effects may lag or behave differently than expected Retail sales in 2022: up 7.2% nominally - Excluding 2020 and 2021 distortions, cited by Liz Ann Sonders as the strongest annual gain since 2004 Subprime auto severe delinquency rate: 7.11% in December - Highest in data series going back to 2006 All-loan severe delinquency rate: 1.84% - Cited from Cox Auto weekly summary Average monthly new-car payment: $777 - All-time record in December Bottom-half household deposits: more than tripled from 2019 to 2022 - Used to question the old emergency-savings statistic New business applications: more than 5 million created in 2022; up 44% from 2019 - Evidence of entrepreneurship boom during and after the pandemic Twitter workforce reduction: about 80% of employees lost; around 550 engineers left - Discussed as a case study in overhiring and service continuity Google layoffs: 6.4% of workforce, about 12,000 jobs - Presented as a professional, not catastrophic, reduction Microsoft impairment/severance charge: $1.2 billion - Related to planned layoffs Apple retail workforce: 65,000 employees; 40% of total workforce - Explains why Apple is less likely to do a big white-collar layoff Spotify layoffs: 6% of workforce - Cited among the ongoing tech cuts Wayfair layoffs: 10% of staff, about 1,750 people - Used as another example of overhiring correction S&P 500 market cap as % of taxes: down from 30% to 21% - Cited as a large and rapid decline in tax burden share Netflix annual revenue run rate: $31.6 billion - Compared to the combined streaming scale of competitors Combined annual direct operating losses for streaming competitors: well in excess of $10 billion - Netflix’s earnings commentary about rival streaming businesses Netflix annual operating profit: $5-$6 billion - Used to contrast profitability with rivals’ losses Average savings account rate: 0.33% - Used to criticize the gap between borrowing rates and deposit rates Commercial credit card interest rate: around 19% - Mentioned as having risen rapidly US cancer mortality rate: fell by one-third in the past 30 years - Cited as a major underreported positive trend Streaming share gain: over 1,000 basis points - Streaming’s share of viewing increased sharply in the past year Netflix subscriber gain: 7 million - Versus expectations of about 4 million, contributing to the earnings beat Bitcoin price during discussion: about $23,000 - Used to note resilience after the FTX collapse Bitcoin low after FTX news: about $15,500 - Referenced as the crisis low that held GBTC performance vs Bitcoin: GBTC up 47% YTD vs Bitcoin up 27% at the time; GBTC down 34% over five years while Bitcoin doubled - Illustrates the discount/structure issue around the trust Genesis creditor claims: $3.5 billion owed to top 50 creditors - Part of the DCG/Genesis bankruptcy discussion Gemini Earn customers owed: $900 million - Raised in the discussion of crypto platform losses CoinDesk valuation rumors: initial conversations ranged from $15 million to $25 million - Contrasted with earlier hopes of a $200 million sale Average mortgage rate in applications jump: around 6% down to 7% then applications spiked - Used to show housing activity rebounded as rates eased Outstanding mortgages below current market rates: 96% below PMMS - Illustrates how locked-in low mortgage rates limit supply and create housing lock-in

Pivotal Quotes: "The narrative vortex" — Michael Batnick: Title of his prior piece and a framing device for the episode’s discussion of fast-moving market narratives "Things that go down so much can go up so much." — Ben Carlson: Summarizing why huge rebounds in stocks like Meta, Tesla, and Wayfair are not necessarily surprising "This is why tech layoffs tell us absolutely nothing about the economy right now." — Ben Carlson: Argument that company-specific overhiring, not macro weakness, explains many of the headlines

Implications: Listeners should distinguish between sector-specific corrections and broad economic signals. The episode suggests markets, housing, and labor are normalizing unevenly, while streaming and crypto may face structural shakeouts and consolidation.