Prices Only Go Up (EP.214)

Episode Summary

Executive Summary: The episode ranges from family anecdotes to a broad tour of inflation, labor shortages, housing, private markets, and investing behavior. The hosts argue that many inflation spikes are concentrated in pandemic-disrupted categories, rebalancing is about discipline and risk control more than return maximization, and current housing, wage, and venture trends reflect a very different market than the last cycle.

Main Topics: Portfolio rebalancing and investment discipline (Priority: 5/5): They discuss a YCharts study comparing rebalance thresholds and schedules, concluding that no single strategy clearly dominates and that sticking to a consistent process matters more than optimizing every year. Family life, perspective, and personal anecdotes (Priority: 3/5): The conversation opens with parenting stories, travel logistics, kids’ sleep disruptions, a vomiting incident at a pool, and a stranger reminding one host that having children makes him 'rich' in a non-financial sense. Inflation, transitory vs persistent price changes (Priority: 5/5): The hosts debate whether inflation is a broad economic threat or concentrated in a few categories like used cars and airfare, arguing that some price spikes are temporary while others may settle at a structurally higher level. Labor shortages, wages, and reopening effects (Priority: 5/5): They connect record job openings, fast-food wage increases, and businesses raising prices faster than wages to the tightening labor market and the end of pandemic-era support programs. Housing, lumber, and real estate psychology (Priority: 4/5): They discuss the decline in lumber prices, builders’ margin behavior, cash home purchases, and how FOMO and low rates have fueled housing demand and price appreciation. Private markets, startup funding, and exuberance (Priority: 4/5): The episode highlights record venture funding, the rise in unicorns, and the abundance of capital flowing into fintech and other startups, with the hosts noting how much longer weak ideas can survive when money is plentiful. Investing culture, trolls, and contrarian forecasters (Priority: 4/5): They critique Dave Ramsey’s anti-ETF stance and Harry Dent’s long history of apocalyptic market calls, using both as examples of financial commentary shaped by branding, audience loyalty, and attention.

Key Arguments: Rebalancing is less about squeezing out every last basis point and more about maintaining the risk profile originally chosen for the portfolio. Inflation is heavily concentrated in a few reopening or supply-constrained categories, so the headline number can overstate how much inflation most households actually feel. Even if inflation does not fully fall back to 2%, a more plausible path is a moderate level around 3%, not runaway hyperinflation. Businesses are faster to raise prices than to raise wages, which suggests margin pressure and labor scarcity are still shifting bargaining power toward workers. Housing is being driven as much by emotion, scarcity, and FOMO as by rates alone; rates can impede the market, but psychology moves buyers and sellers. The current cycle differs from the pre-2008 housing bubble because many home purchases are cash-based rather than highly levered. Private-market capital is so abundant that startups can survive longer and experiment more, even if many ideas eventually fail. Turning Social Security into an opt-in system would be bad policy because it would remove forced savings for people who need it most. You get better investing outcomes by finding a strategy you can stick with than by constantly monitoring markets or trying to time every move.

Data Points: Inflation rate: 5.4% - U.S. inflation over the trailing 12 months, described as the highest since 2008. Treasury yield: about 1.2% - The 10-year Treasury rate mentioned alongside inflation divergence. Inflation concern survey: 46% very concerned, 41% somewhat concerned, 14% not at all concerned - Axios poll cited to show widespread concern about rising prices. Used car prices: +45% year over year - One of the largest inflation spikes discussed as pandemic-related. Car rentals: +88% year over year - A dramatic reopening-category price increase. Gas prices: +45% year over year - Included in the discussion of the inflation basket. Laundry machines: +29% year over year - Example of category-specific inflation. Airfare: +25% year over year - Another reopening-affected component of inflation. Hotels: about +16% to +17% year over year - Another travel-related inflation category. Consumer prices since start of pandemic: +4.7% - Overall CPI increase since February 2020. Prices excluding cars since start of pandemic: +3.5% - Used to argue that much of the inflation surge is concentrated in autos. TV prices since January 2000: -97% - Example of long-run deflation due to technological improvement. Lumber prices: negative on the year / back near 2018 highs - Used to illustrate a reversal from earlier pandemic spikes. McDonald's starting pay: from $11 to $17 an hour on average - Example of labor-market pressure pushing wages higher. Job openings: 9 million - Described as the most ever, reflecting labor demand. Small businesses raising prices: 45% - NFIB-style data cited to show pricing power. Small businesses raising worker compensation: around 30% - Shows wages lagging price increases. Productivity growth: 3.1% annualized - Goldman Sachs estimate for output per hour since the crisis began. Prior-cycle productivity growth: 1.4% - Comparison period for stronger pandemic-era productivity. Eviction moratorium end date: July 31 - One of several pandemic-era relief measures nearing expiration. Child tax credit: up to $3,600 per child under 6; $3,000 per child age 6 and older - Discussed as a major household cash-flow support. Venture funding in Q2 2019: $69 billion - Baseline for comparing current startup funding. Venture funding in Q2 2021: $156 billion - Record capital inflows into private startups. New unicorns in Q2: 136 - Reported as up 491% year over year. Cash purchases in U.S. home sales: 30% - Highest since 2015, showing strength in housing demand. More than half of home sales in Nassau and Suffolk: cash purchases - Local example used to illustrate how common cash transactions have become. Apple and Goldman buy-now-pay-later term: 20 monthly installments - Discussed as part of Apple Pay Later. Social Security share of budget: 17% - Referenced in listener question about opting out.

Pivotal Quotes: "You, sir, are a very rich man." — old woman encountered on a bike bridge: A stranger comments on the host’s family scene, prompting a reflection on non-financial wealth. "perfect is the enemy of good" — host: Used while discussing portfolio rebalancing and why consistency beats over-optimization. "I think the weird spot for a lot of people... would be some people are saying it's going to go right back to 2%, and other people are saying, no, it's going to stay at 5%. What if it just rose a little and it's like 3%?" — host: Summarizes the episode’s view that inflation may settle above pre-pandemic norms without becoming runaway.

Implications: Listeners should focus less on perfect forecasts and more on process: stick to an asset-allocation plan, expect some inflation categories to normalize while others stay sticky, and recognize that labor, housing, and private capital markets are still being reshaped by the pandemic.