The 1990s Really Were Better (EP.382)

Episode Summary

Executive Summary: The episode mixed market commentary with broader reflections on consumer behavior, wealth, and social change. The hosts argued that U.S. equities and household balance sheets remain unusually strong, that negativity bias distorts perceptions of the economy, and that rising wealth has changed spending patterns and expectations. They also discussed ETF innovation, options income products, self-driving cars, car-seat logistics, housing/flood risk, and the tension between inheritance and helping younger generations now.

Main Topics: U.S. market strength and valuation context (Priority: 5/5): The hosts highlighted the persistence of strong equity returns, broad market participation, and how earnings growth has helped offset high valuation multiples since 2021. Household wealth and the wealth effect (Priority: 5/5): They emphasized the enormous post-crisis and post-pandemic rise in household net worth, arguing that most households have more balance-sheet resilience than headlines suggest and that spending has been boosted by asset gains. Negativity bias, politics, and perception vs. reality (Priority: 5/5): A major theme was that despite strong macro data, people focus on what is going wrong. The hosts argued that modern media and politics amplify pessimism and make good economic periods harder to celebrate. Changing consumer expectations and the cost of modern life (Priority: 4/5): They compared childhood norms in the 1990s with today’s higher expectations for travel, restaurants, sports, clothes, and housing, arguing that luxuries have become necessities. Financial products and ETF innovation (Priority: 4/5): They discussed the boom in options-income and derivative-based ETFs, questioning whether investors fully understand how these products generate payouts and the risks of capped upside. Technology, automation, and innovation (Priority: 4/5): The episode touched on Waymo’s robo-taxi growth, SpaceX’s rocket landing, AI, and Ozempic as examples of rapid innovation that is already changing daily life and may be underappreciated. Personal finance, family logistics, and practical life costs (Priority: 3/5): The conversation covered car seats, family travel, hotel room constraints, fee creep on bills and parking, flood-risk awareness, and the question of whether wealthy parents should help adult children earlier rather than later.

Key Arguments: The stock market is performing very well and the rally is broader than many assume, with many stocks reaching new highs, so high returns are not just being driven by a handful of names. Valuation concerns should be assessed with earnings growth in mind; stocks can look expensive on static multiples but become cheaper when earnings rise faster than prices. Household net worth has surged dramatically since the financial crisis and again since 2020, giving many households a large buffer against downturns. The U.S. economy is stronger than public discourse suggests, but negativity bias and political framing keep people from appreciating it. Most investors did not actually hedge meaningfully against yield-curve inversion or recession signals; diversification is more practical than making bold macro bets. High-income households have increased spending more than lower-income groups, consistent with a strong wealth effect from housing and equities. Modern expectations around travel, food, school, clothing, and vehicles make life feel more expensive even when many basic goods are affordable relative to wages. Options-income ETFs are popular because investors want income, but the payouts come from selling upside and can mislead investors who think they are getting a free lunch. Innovation in self-driving vehicles and automation is already real and commercially meaningful, even if geographic and weather limitations remain. Wealth transfer and family support are becoming generationally contentious, and younger people may need to directly ask parents for help rather than assume it will come later.

Data Points: S&P 500 one-year return: 36.4% - Return over the past year through 9/30, cited as a top-decile rolling 12-month return since 1926. S&P 500 year-to-date return: 24% - Current-year gain discussed as evidence the market remains on a heater despite an 8% correction. S&P 500 valuation change since May 2021: 19% cheaper - PE ratio fell from 33x to 26.7x while the index rallied 38%. S&P 500 PE ratio in May 2021: 33x - Used as a comparison point for valuation compression. S&P 500 PE ratio currently: 26.7x - Used to show stocks became cheaper despite rising prices. Household net worth since Q1 2009: +$100 trillion - Federal Reserve data showing massive wealth creation after the Great Financial Crisis. Household net worth since Q1 2020: +$50 trillion - Post-pandemic wealth surge cited as unusually large. Household net worth at 2007 peak: $55 trillion - Starting point referenced before the Great Financial Crisis drawdown. Great Financial Crisis wealth loss: -$10 to -$11 trillion - Approximate decline in household net worth during the crisis. High-income spending growth since start of 2018: More than 2x low-income groups - Bloomberg/Fed data on spending divergence by income cohort. Median 401(k) balance: $250,000 - Mentioned in discussion about whether retirement-account values change spending behavior. Bottom 50% wealth increase: Nearly doubled - Used to show wealth gains have reached lower-income households too, though from a small base. Bottom 50% share of wealth: About 2% - Even after gains, this group still holds a small share of total wealth. U.S. household debt-to-disposable income: Fallen almost every year since 2008 - Compared with Canada and Australia, where leverage has continued to rise. Credit card debt as share of disposable income: Still well below 2000s levels - Used to push back on the idea that consumer balance sheets are stretched like in prior cycles. Waymo paid robo-taxi rides per week: 100,000+ - Commercial autonomous ride volume in San Francisco, Phoenix, Austin, and Los Angeles. Waymo paid robo-taxi rides per week in May: 50,000 - Referenced as the prior benchmark, implying trips have doubled. Google/market participation metric: 214 stocks - Number of S&P 500 constituents hitting new all-time highs in 2024. Poverty rate: About one-third lower than the 1990s - Used to argue that many macro indicators are better than nostalgic perceptions suggest. Airbnb stock performance since IPO: Down 7% - Compared with the company’s public-market debut in late 2020. U.S. Personal Capital/USP stock performance since Airbnb IPO: Up almost 70% - Used as contrast to show a good company/product does not guarantee a good stock. Terrifier 3 opening weekend box office: $14 million - Cited as evidence that grotesque horror films have a meaningful audience. Weekly grocery affordability: About equal to pre-pandemic levels - MarketWatch data showing grocery costs relative to wages have normalized. Water bill convenience fee: $2 - Example of fee creep on a $46 water bill paid by credit card. Parking cost at MetLife Stadium: $46 - The host believed parking was $35 until fees were added. Climate-risk relocation survey: 300 executives surveyed - Survey where many executives said climate risk is affecting business location decisions. Businesses considering relocation due to climate risk: Nearly half - Executives reporting active consideration of relocating. Businesses already relocated partly due to climate change: Nearly a quarter - Survey result on actual relocation behavior. Businesses planning to move in next five years: 6% - Survey response on future relocation intent.

Pivotal Quotes: "The stock market is on a heater." — Michael Batnick: Opening the discussion on strong equity performance and broad market gains. "Maybe diversification is a better bet for you than hedging." — Ben Carlson: Arguing that investors should avoid overly confident macro bets such as timing recessions from yield-curve signals. "We will always focus on the negatives." — Ben Carlson: On why strong economic data rarely translates into broad public optimism.

Implications: Listeners should expect continued market and economic strength to coexist with public pessimism. The episode suggests investors may be better served by diversification, awareness of wealth-driven spending shifts, and skepticism toward simplistic macro narratives and trendy income products.