Trickle Up Economics (EP.163)

Episode Summary

Executive Summary: This episode centers on the post-COVID economic outlook: a possible spending boom from excess household savings versus the drag of high public debt, inequality, and a bifurcated recovery. The hosts also debate market distortions in tech, housing, tail-risk hedging, Tesla’s extreme valuation, and how the pandemic is reshaping work, school, and family life.

Main Topics: Excess savings and a potential post-COVID spending boom (Priority: 5/5): The hosts argue that CARES Act stimulus and forced savings created nearly $1 trillion in excess household savings, which could fuel strong consumer demand once restrictions ease, especially in leisure, travel, and entertainment. Government debt, inflation, and the Japan comparison (Priority: 5/5): They compare today’s debt-to-GDP surge with post-WWII levels and debate whether the U.S. will ultimately inflate away debt or follow a Japan-like path of persistently high debt with low interest rates. Inequality, stock ownership, and shrinking mobility (Priority: 5/5): The conversation highlights how most stock ownership is concentrated among the wealthy and how income mobility has weakened, contributing to social anger and a barbelled economy. Market structure: tech dominance and weak breadth (Priority: 4/5): They discuss the unusual persistence of NASDAQ and FAANG leadership across the bull market, bear market, and recovery, plus the widening gap between mega-cap stocks and the rest of the market. Alternative hedges and skepticism toward institutional risk strategies (Priority: 4/5): The hosts criticize tail-risk hedging pitches and increasingly exotic alternatives like wine, stamps, and collectibles as responses to ultra-low bond yields. Housing strength and real-estate animal spirits (Priority: 4/5): Existing home sales, prices, and speed of transactions are all surging, reinforcing the idea that real estate is experiencing strong speculative and behavioral momentum. Pandemic impacts on schools, small business, and families (Priority: 4/5): They emphasize the strain on parents, children, women in the workforce, and small businesses, warning of long-term scarring from remote schooling and permanent closures.

Key Arguments: Excess household savings from stimulus and forced inactivity are likely to be spent rather than saved, creating a meaningful demand impulse once the economy fully reopens. The spending surge may be strongest in categories hit hardest by the pandemic, such as travel and leisure, though some habits may permanently shift. The U.S. debt burden is at unprecedented peacetime-like highs, and unlike after WWII, lower growth and aging demographics make rapid deleveraging unlikely. A Japan-style outcome—high debt, low rates, and slow erosion of the debt ratio—may be more realistic than a post-WWII boom-and-repair cycle. Stock ownership is extremely concentrated, so market rallies feel disconnected from the economy because most households have little or no direct participation. Upward mobility has weakened over time, with the middle class squeezed and wealthier households capturing the biggest gains. The stock market’s resilience reflects the dominance of a handful of mega-cap firms while the broad market and small businesses face much weaker conditions. Traditional 60/40 portfolio logic is being challenged by low yields, but the proposed alternatives—tail-risk hedging and exotic collectibles—appear shaky or overly promotional. Real estate is showing strong behavioral momentum, with rapid sales, rising prices, and tight inventory dynamics. The pandemic is likely to have uneven and lasting effects on families, with working parents—especially women—bearing substantial burdens from remote schooling and childcare. Tesla’s rise reflects extreme sentiment, short-covering pressure, and potential supply-demand imbalance, but the stock remains difficult to rationalize fundamentally.

Data Points: Excess household savings: $931 billion - Bloomberg/Tim Dye estimate cited as the extra savings buffer built up during the pandemic Monthly spending power from excess savings: $78 billion per month - If excess savings are spread over 12 months Share of wages/salaries represented by that spending power: 10% - Estimated monthly spending power as a share of wages and salary Increase in total checkable deposits: $1.3 trillion - Surge in liquid household deposits during the pandemic Government debt to GDP: 125% - Post-World War II peak used as a historical comparison; the U.S. has now surpassed it Japan debt to GDP increase: 100% to 300% - Example used to show debt can rise dramatically while interest expense falls if rates stay low Top 10% stock ownership: 80% of U.S. stocks - As of first quarter 2020 Top 1% stock ownership: More than 50% - Concentration of U.S. stock ownership among the wealthiest households Bottom 50% stock ownership: Less than 1% - Shows how little equity exposure exists at the lower end of the wealth distribution U.S. companies with 20+ employees: 600,000 - Estimated total number of sizable U.S. companies Publicly listed companies: 3,600 - Number of those companies in the U.S. stock market Publicly listed share of companies: Less than 1% - Explains disconnect between stock market performance and Main Street businesses Median family income growth, 1967-1981: 27% - Used to illustrate stronger historical upward mobility Median family income growth, 2002-2016: 8% - Shows slower recent income gains Middle class share of households: 50% in 1981 to 36% in 2016 - Defined as household income between $55,000 and $108,000 in 2018 dollars Upper middle class share: 6% in 1967 to 33% in 2016 - Shows migration upward out of the traditional middle class Poor/near-poor share: 16% in 1967 to 13% now - Relatively stable lower-income share over time Rich share: Rounding error to 2% - Households earning more than $380,000 annually Businesses permanently closed on Yelp: 73,000 - Permanent closures since March across bars, restaurants, gyms, salons, and shops Parents with no in-person help for children: 4 in 5 - Morning Consult survey about remote schooling and childcare Parents who expect children to return full-time: 1 in 7 - Survey result about fall schooling plans Parents taking on a second unpaid job: More than half - Refers to remote schooling plus work obligations Tesla year-to-date performance: Up 390% - As of the prior Friday in the episode Tesla market cap: More than $370 billion - Would place Tesla as the ninth-largest S&P 500 company Tesla short sellers’ June mark-to-market losses: $6 billion - Losses incurred in June alone Tesla short sellers’ year-to-date losses: About $21 billion - Losses as recently reported in the month of recording Median S&P 500 stock short interest: Lowest since 2004 - Goldman Sachs chart showing extremely depressed short interest Existing home sales monthly change: +24% - Largest monthly gain on record back to 1968 Existing home sales pace: Highest since December 2006 - Shows unusually strong housing demand First-time buyers share of sales: 34% - July existing-home sales data Median existing-home price: About $304,000 - Record high, up 8.5% year over year Homes sold in under a month: 68% - July sales data indicating intense demand and low inventory Insurance billing example: $12,552.60 billed / $150 paid - Illustrates opaque and inflated U.S. healthcare pricing

Pivotal Quotes: "the forgotten $1 trillion supporting the economy" — Michael Batnick: Describing the household excess savings created by stimulus and forced inactivity "energy, attitude, and personality cannot be remoted through even the best fiber optic lines" — James Altucher (quoted by the hosts): Used in the discussion about why New York and in-person hubs still matter "It offers scam protection against tail risk and at the same time achieves an under allocation to riskier assets with higher returns" — Institutional Investor article quoted by Ben Carlson: The hosts critique this framing of 60/40 portfolios and tail-risk hedging

Implications: Listeners should expect uneven recovery: consumer spending may surge, but debt, inequality, school disruption, and small-business losses could create lasting scars. For investors, low yields may push more unconventional hedging and concentration risk in mega-cap stocks.