Is the Stock Market Wrong? (EP.147)

Episode Summary

Executive Summary: The episode centers on the market’s sharp rebound on early vaccine optimism, the tension between economic devastation and rising asset prices, and what that reveals about policy, inequality, and investing discipline. The hosts debate whether stocks are pricing in a full reopening, discuss Buffett, Ackman, and Tepper, examine layoffs and bankruptcies in retail and delivery, and argue that diversification and dollar-cost averaging matter more than trying to time a volatile market.

Main Topics: Vaccine optimism and the market’s violent rebound (Priority: 5/5): Stocks rallied sharply on Moderna’s early vaccine signals, prompting discussion about whether markets are pricing in a future reopening too aggressively and whether any vaccine news could become a sell-the-news event. Are markets discounting the next 12 months or a full recovery? (Priority: 5/5): The hosts wrestle with the seeming disconnect between economic pain, depressed activity, and rich equity valuations, debating whether investors are looking through the next year toward a vaccine-led normalization. Policy response, the Fed, and economic fragility (Priority: 5/5): Jerome Powell’s 60 Minutes interview is used to frame the crisis as more like a natural disaster than a depression, while emphasizing the Fed still has ample tools and that long-term unemployment and business insolvencies are the real risks. Inequality, unemployment, and the perception that markets are rigged (Priority: 4/5): The episode explores how the crisis hits lower-income workers hardest while stocks soar, deepening public resentment and making the market feel disconnected from everyday economic reality. Retail, private equity, and business model collapse (Priority: 4/5): J.C. Penney, J.Crew, and broader mall retail are discussed as examples of dying business models, debt burdens, and private-equity extraction, with questions about what happens to excess retail space. Speculative business models and zero-rate-era risk appetite (Priority: 4/5): DoorDash, Uber Eats, and SoftBank/WeWork are used to illustrate how cheap money and growth-at-any-cost thinking can support lossmaking companies and inflated private valuations. Investing discipline: diversification, DCA, and avoiding all-in decisions (Priority: 5/5): The hosts emphasize that trying to time the bottom or go all-cash is dangerous, and that broad diversification and steady contributions likely beat emotional, all-or-nothing moves.

Key Arguments: Markets may be anticipating not just a reopening, but an eventual vaccine and a return to normal far ahead of actual economic data. A sharp rally after good vaccine news may still become a sell-the-news event if reopening is slower than investors expect. The Fed’s actions have stabilized the financial system, but the larger risk is labor-force damage, small-business failures, and permanent scarring. The stock market can feel rigged because the wealthiest households own most stocks and benefit most from rising prices. Many retail bankruptcies reflect both private equity leverage and the structural decline of mall-based retail. DoorDash-style unit economics are broken even at scale; cheap capital can subsidize losses for a long time, but not necessarily fix the model. Dollar-cost averaging and broad diversification are safer than trying to guess the exact bottom or ride concentrated bets. Public frustration with inequality is rising because economic pain is widespread while asset owners recover quickly.

Data Points: Moderna market cap: About $30 billion - Discussion of the company’s valuation surge after early vaccine news Moderna market cap at start of year: $6.5 billion - Used to show how dramatically the stock re-rated in 2020 Moderna year-to-date stock performance: Up 350% - Cited as evidence of vaccine optimism and speculative price action Small/mid-cap index move: Up 6%-7% - Described as part of the broad market rally on vaccine news Stocks move on the day: Up 3%-4% - Broad market reaction to vaccine-related headlines Berkshire’s Goldman Sachs reduction: 84% sold - Buffett reportedly cut a large Goldman stake built since 2008 Uber layoffs: 3,000 more jobs cut - Part of a second round of layoffs in the same month Uber earlier layoffs: 3,700 jobs - Referenced as the prior round of workforce reductions Uber workforce reduction: About one-quarter of workforce - Approximate scale of layoffs after two rounds of cuts Uber stock performance: Up 18%-19% year to date - Highlighted as jarring amid layoffs and economic pain J.Crew dividends/fees paid to owners: More than $760 million since 2011 - Used to criticize private-equity extraction from retail J.C. Penney share price: $0.23 - Shown as an example of retail collapse and near-worthlessness J.C. Penney prior share price: $80 in summer 2007 - Illustrates the magnitude of the collapse J.C. Penney CEO bonus: $4.5 million - Criticized as bankruptcy-era executive compensation J.C. Penney executive bonuses: $1 million each - Paid to CFO and chief human resources officer DoorDash/restaurant arbitrage example: $24 pizza sold for $16 - Used to illustrate subsidized pricing and negative margins Grubhub Q1 loss: $33 million - Cited from blog post on food-delivery economics Grubhub Q1 revenue: $360 million - Context for loss-making delivery economics DoorDash 2019 loss: $450 million - Referenced to show scale of losses before further growth DoorDash 2019 revenue: $900 million - Compared against losses to underscore poor unit economics Uber Eats Q4 2019 loss: $461 million - Used to show that even large platforms were not profitable Uber Eats Q4 2019 revenue: $734 million - Loss-to-revenue comparison for delivery business Retail sales in clothing/accessories: Below early-1990s levels - FRED chart used to show the severity of the shutdown in apparel retail Credit card stocks performance: Discover down 51%, Capital One down 38% - Used to illustrate weak consumer spending and credit stress Chipotle valuation move: Down to $12 billion then back to $26 billion - Example of sharp market swings in a reopening candidate Dow outperformance/consumer perception: Not quantified, but described as surging - Used repeatedly in the inequality discussion Redfin home buyer demand index: Above pre-coronavirus levels - Evidence that housing demand rebounded quickly Redfin inventory: Down 24% - Explains why housing demand remains competitive New York City home-flight chart: Top 1% emptied out by roughly 30%+ - Illustrates income-based mobility during the pandemic Survey sample size: 1,200 Americans - Used to discuss retirement withdrawals and limitations of survey data Retirement withdrawals survey: 30% yes, 19% no but planned to - Nearly half may tap retirement savings due to coronavirus Active U.S. equity fund underperformance: -1.4% vs benchmark - Athwath Damodaran analysis through end of Q1 Large-cap growth fund underperformance: About -4% - Shows how concentrated growth positions hurt active managers Mid-cap growth fund underperformance: Almost -4% - Another example of active underperformance Small-cap growth fund underperformance: Over -3% - Small growth managers also lagged materially Private equity appraisal vs market trading: Stale appraisals vs live pricing - Used to explain lower volatility in private markets Fed relief payment: Extra $600 per week - Mentioned as helping some laid-off workers pay down debt Household savings trend: Bottom 90% had negative savings in the 1990s and 2000s - Deutsche Bank chart used to argue many households lack buffers

Pivotal Quotes: "The market is too sanguine here" — Ben Carlson: Reaction to the market’s optimism amid ongoing economic damage "We're not out of ammunition by a long shot." — Jerome Powell: Powell on 60 Minutes describing the Fed’s remaining policy capacity "A blog is not writing, it's graffiti with punctuation." — Unknown / quoted in transcript: From the Contagion discussion, a line about a conspiracy blogger

Implications: The episode suggests investors should expect extreme volatility, uneven recovery, and more tension between Main Street pain and Wall Street gains. It also reinforces that diversification, patience, and policy support matter more than heroic market timing.