It Wasn't Transitory (EP.227)

Episode Summary

Executive Summary: The episode centers on inflation, wage growth, labor shortages, and how these forces are reshaping consumers, workers, and investors. The hosts debate whether inflation is truly transitory, discuss Bitcoin’s ETF milestone, assess wealth-management demand for crypto, critique housing affordability narratives, and highlight how supply constraints and excess savings are fueling both price pressure and behavioral change.

Main Topics: Bitcoin ETF launch and crypto market resilience (Priority: 5/5): The hosts react to the approval and launch of a futures-based Bitcoin ETF (BITO), arguing that the move matters for mainstream access, advisor adoption, and institutional demand even if the structure is imperfect. Inflation, transitory debate, and wage growth (Priority: 5/5): They revisit inflation data, noting broad price increases but also emphasizing sticky wage gains, especially for lower-income workers, and debating whether inflation will settle back toward 2%-2.5%. Labor shortages, resignations, and worker bargaining power (Priority: 5/5): The discussion frames the Great Resignation and open jobs as signs of strong labor demand, improved worker leverage, and accelerating wage inflation, while acknowledging strain on employers and service quality. Housing affordability and supply constraints (Priority: 4/5): They argue over whether housing is 'affordable' in a meaningful sense, with a central tension between national data showing strong demand and local realities where buyers are priced out or outbid. Consumer spending, savings, and the strength of demand (Priority: 4/5): The hosts point to elevated retail sales and trillions in excess savings as evidence that consumer demand remains very strong, which helps explain both inflation and resilience in risk assets. Financial products, leverage, and investor access (Priority: 3/5): The show discusses leveraged/portable alpha-style portfolio construction, I-bonds, Social Security COLAs, and the expanding role of wealth management in accessing alternative and crypto exposures. Media, streaming, creator economy, and pop-culture takes (Priority: 2/5): They briefly cover Netflix, Squid Game, Apple ads, the creator economy’s power-law dynamics, and movie reviews, mostly as side commentary on how concentrated winner-take-most markets are.

Key Arguments: Bitcoin’s ETF approval is a major milestone because wealth managers and tax-advantaged accounts can drive meaningful adoption, even if the product is structurally inferior to spot exposure. Crypto is unusual because news seems to move prices even when it feels 'priced in'; the market repeatedly surprises skeptics by recovering from deep drawdowns. Inflation may not be permanently high, but wage growth is now strong enough that lower-income workers are partly offsetting higher prices, especially in essentials. The labor market is tight: elevated resignations and record job openings show businesses are confident and workers have more leverage to switch jobs. Housing is not simply 'unaffordable' in the abstract; the deeper issue is insufficient supply relative to demand, though local market context matters a lot. Excess savings and strong consumer spending mean the demand side of the economy is still robust, which is supportive for growth but complicates the inflation story. Leveraging a low-volatility bond sleeve to finance additional strategies could be sensible for sophisticated investors, but the real risk is behavioral misuse of the freed-up capital. Social Security and I-bonds are framed as practical inflation hedges or inflation-linked income sources for households looking for stability. The creator economy follows power-law economics: a few winners capture most of the revenue, so the apparent opportunity is much smaller than the hype suggests.

Data Points: Bitcoin price move: Roughly from under $30,000 in late July to about $62,000 at the time of discussion - Used to illustrate Bitcoin’s comeback and the significance of the ETF news. Bitcoin ETF fee: 95 basis points - The expected fee for the ProShares futures-based Bitcoin ETF (BITO). Bitcoin futures ETF correlation: 0.991 - Cited as the daily correlation between BITO and spot Bitcoin, per Eric Balchunas. Potential futures roll drag: ~5% per year - Estimate mentioned for slippage from rolling Bitcoin futures contracts in contango. Energy cost increase: 30% more - Nearly half of U.S. households that heat with natural gas could spend 30% more this year. Production/non-supervisory wage growth: >6% annualized - Fastest pace since the early 1980s, supporting the case that wages are rising strongly. Managers/supervisors wage growth: ~1.5% - Contrasted with faster gains for lower-paid workers. Liquid savings increase for bottom 80%: $370 billion - From Q4 2020 to Q1 2021, according to Matthew Klein, reflecting stronger balance sheets. Pandemic excess savings: $2.7 trillion - Bloomberg chart referenced showing accumulated additional savings since early 2020. Job resignations in August: 4.3 million - Seasonally adjusted quits, the highest since BLS tracking began in 2000. Quits April-August 2021: Nearly 20 million - Total resignations across the spring and summer period. Quits vs same period last year: 60% higher - Compares 2021 quits to the same months in 2020. Quits vs spring/summer 2019: 12% above - Shows labor churn above the prior hot pre-pandemic labor market. Unemployed persons: ~7.5 million - Current level mentioned versus the pandemic peak. Job openings: Nearly 11 million - Used to show labor demand far exceeding available unemployed workers. Natural gas household spending: 30% higher - EIA estimate for home heating costs this year. Social Security COLA: 5.9% - Annual cost-of-living increase tied to inflation. Average Social Security benefit increase: $92 per month - Approximate monthly increase from the COLA. Average monthly Social Security benefit: $1,657 - Approximate current average monthly benefit referenced. I-bond variable rate: 7.1% - New inflation-adjusted rate discussed as an attractive savings vehicle. I-bond purchase cap: $10,000 per Social Security number - Limit referenced for individuals and married couples combining allowances. Retail sales trend: Continued to rocket higher - Wall Street Journal chart cited to support strong consumer demand. Amazon hourly wage offer: $21/hour - From a hiring announcement, depending on shift and location. Amazon signing bonus: Up to $3,000 - Part of Amazon’s seasonal hiring push for 150,000 workers. Zillow average cost basis: $94.88 - One host disclosed his own Zillow share cost basis when discussing the stock. Zillow stock move: Down 10% - Referenced after Zillow paused new home purchases. Apple ad business estimate: $5 billion/year - Evercore estimate for Apple’s advertising business. Apple ad business longer-term estimate: $20 billion/year within three years - Projection tied to Apple’s App Store ads growth. Squid Game impact value: $891 million - Estimated value generated for Netflix from the hit show. Squid Game production cost: $21 million - Shown as a high-return content investment for Netflix. The Last Duel opening weekend: $4.8 million - Used to illustrate weak theatrical box office performance. The Last Duel production cost: >$100 million - Compared with its underwhelming opening. Twitch revenue concentration: 1% of streamers earn more than half of revenue - Axios report used to illustrate creator-economy concentration. Super Followers revenue: $6,000 in first two weeks - Referenced as a disappointing early result for Twitter’s monetization product.

Pivotal Quotes: "“The Bitcoin ETF was not priced in, Michael. Repeat, the Bitcoin ETF was not priced in.”" — Ben Carlson: Reaction to the ProShares Bitcoin ETF approval and immediate market move. "“There’s inflation, as long as you don’t buy it.”" — Michael Batnick: A joking opening line that frames the inflation discussion and consumer behavior. "“You can’t disrupt power laws.”" — Michael Batnick: Comment on the creator economy and how revenue concentrates among a small number of winners.

Implications: Expect more mainstream crypto adoption through advisors and tax-advantaged accounts, continued labor-market tightening, and persistent inflation pressure in categories tied to goods, wages, and housing. Investors should assume strong consumer demand and growing product innovation, but with winners concentrated and volatility still high.