Permanent Stimulus (EP.208)

Episode Summary

Executive Summary: The episode ranges from market psychology and meme-stock/crypto mania to the Fed’s crisis tools, housing, inflation, stimulus, and personal finance. The hosts argue that markets are increasingly shaped by liquidity, social media, and behavioral feedback loops, while also noting real-world effects from stimulus, housing shortages, and corporate capital-raising. They end with practical advice on spending for convenience and some media recommendations.

Main Topics: Market psychology, technical levels, and international equities (Priority: 5/5): The show opens with VEA (Vanguard FTSE Developed Markets ETF) finally breaking above its 2007 high, which prompts a discussion of technical resistance, long-term underperformance of non-U.S. equities versus the S&P 500, and the psychological significance of old highs and lows. Why crypto dominates market conversation (Priority: 5/5): The hosts respond to a listener asking why crypto gets disproportionate attention. They argue it is exciting, new, highly volatile, and rich in human psychology, while traditional markets are often boring and less narratively compelling. Fed intervention, permanent stimulus, and faster bear markets (Priority: 5/5): They discuss the Fed’s exit from corporate bond and ETF purchases and debate whether future crises will trigger faster policy responses, potentially creating shorter bear markets, more flash crashes, and a world where policy support is assumed. Meme stocks, social coordination, and retail-driven price discovery (Priority: 5/5): AMC and Bed Bath & Beyond are used as examples of how coordinated retail trading and social media can transform distressed equities into speculative phenomenon. The hosts stress this is more than a repeat of the dot-com era because of scale and coordination. DeFi, Ethereum, and crypto leverage (Priority: 4/5): The discussion moves to decentralized finance and Ethereum’s growing role. They note that DeFi appears more significant and more levered than expected, and they infer that Ethereum’s ecosystem may be gaining relative importance versus Bitcoin. Inflation, housing, shortages, and consumer balance sheets (Priority: 5/5): The hosts review inflation pressures in homebuilding inputs, tight entry-level housing inventory, chip shortages, and evidence that consumers still have excess cash from stimulus. They debate whether rising home values and cheaper real borrowing costs will encourage more spending and debt. Personal finance, convenience spending, and life optimization (Priority: 4/5): A listener asks how to spend more without lifestyle creep. The hosts suggest spending on convenience and automation—like paying someone to put away laundry or buying books without hesitation—as a way to improve quality of life.

Key Arguments: Crypto gets outsized attention because it is new, volatile, and psychologically fascinating, whereas most of the broader market’s gains are boring and under-discussed. The Fed’s willingness to buy corporate bonds and ETFs in 2020 was small in dollars but huge in signaling, and future crises will likely see even more intervention. Permanent or repeated stimulus may shorten bear markets in the near term, but over time it can create instability, flash crashes, and higher inflation. Retail coordination via social media is a different and more powerful force than prior message-board eras because it is broader, faster, and more self-reinforcing. AMC and similar meme stocks are not just speculative stories; they have real financing consequences because companies can issue large amounts of stock at inflated prices. DeFi represents meaningful leverage embedded in crypto markets, and the Ethereum ecosystem is increasingly tied to DeFi activity rather than just speculation. Housing and supply-chain shortages are likely to persist in some sectors because builders and producers will not immediately rush to add supply after recent shocks. Consumers still have significant excess savings and improved balance sheets, which could support spending and borrowing if credit conditions loosen further. Spending money on convenience can be more valuable than buying more assets once core financial goals are met.

Data Points: VEA price high: First new high since 2007 - Vanguard FTSE Developed Markets ETF recently broke above its summer 2007 peak. VEA total price return since 2007: Up 6% - Price-only return from the ETF’s inception/2007 high to the present discussed on YCharts. VEA total return including dividends since 2007: Up about 60% - Used to show how weak developed ex-U.S. performance has been relative to U.S. equities. S&P 500 return since 2007: Up 260% - Benchmark comparison for the same period. S&P 500 year-to-date: Up 13%+ - Hosts note this strong gain has attracted less attention than crypto and meme stocks. Small-cap value year-to-date: Up 26% - Cited as another strong but overlooked market segment. Emerging markets year-to-date: Up 13% - Presented as another quietly positive market area. NASDAQ year-to-date: Up 7% - Still positive despite pressure on growth stocks. Fed corporate bond/ETF portfolio: Less than $14 billion - Size of the Fed’s holdings being exited after the pandemic intervention. DeFi locked value as share of crypto market: About 6% of $1.6 trillion - Wall Street Journal statistic about total locked value relative to the crypto market’s size. DeFi locked value growth: About $100 billion from $1 billion a year earlier - Illustrates rapid expansion in DeFi collateral and leverage. Ether moved onto Ethereum network tied to DeFi: 40% vs 7% prior year - Shows DeFi’s growing importance in Ethereum activity. AMC share issuance in Q1 2021: 187 million shares at $3.19 average - Shows how the company used meme-stock demand to raise capital. AMC share issuance the following week: 8.5 million shares at $27 each - Further capital raising as the stock surged. AMC share issuance the next day: Almost 12 million shares at $50 each - Shows extreme market demand and corporate opportunism. Consumer spending at Bank of America: Over $1 trillion YTD, up 20% vs 2019 - Brian Moynihan quote on how spending has recovered above pre-pandemic levels. Unspent stimulus cash: 65% to 75% of recent stimulus rounds not spent - Indicates households still have cash buffers. Homebuilding lumber cost per average house: $30k in 2019, $32k in 2020, $104k in 2021 - Boise builder example highlighting severe input inflation. Starter-home inventory decline: Down more than 30% - Existing homes priced $100k-$250k fell sharply in April versus a year earlier. Older workers retiring early: At least 1.7 million - Pandemic-related early retirements cited from a research report. US millionaires: About 32 million - Used in a discussion about whether becoming a millionaire is easier or harder now. Credit card signup bonus example: 100,000 points worth about $2,000 - Chase Sapphire Preferred card illustration. Laundry convenience service: $60 per visit / about $250 per month - Example of spending on convenience to improve quality of life. Households with children food shortages: Fell 42% from January to April - Census Bureau study cited in NYT piece on stimulus impacts. Broader financial instability: Fell 43% - Same study showing stimulus reduced hardship. Frequent anxiety and depression: Down more than 20% - Survey result linked to stimulus checks. Remote-work flexibility survey: 39% overall; 49% millennials/Gen Z - Share of workers who would consider quitting if employers were not flexible.

Pivotal Quotes: "The cure becomes the disease." — Matthew Bolzer / cited by hosts: Used in the discussion of permanent stimulus and destabilizing feedback loops. "I think it's possible for the majority of our lifetime, you and I, that we don't have higher interest rates." — Ben Carlson: Argument that demographics, debt loads, and policy constraints may keep rates low for decades. "What intelligent thing can you say about how it's being priced?" — Michael Batnick: Commentary on Bed Bath & Beyond’s meme-stock valuation and the limits of fundamentals.

Implications: Markets may stay more policy-sensitive, more speculative, and more volatile, while households continue to benefit from labor leverage, stimulus effects, and convenience spending. Investors should expect quicker interventions, persistent housing constraints, and continued crypto/meme-stock influence on price action.