One Really Long Year

Listen to this episode

S1: Hello and welcome to the one really long year episode of Sleep Money. Your guide to the business and finance news of not so much the week this week, but the longest year we have ever experienced in any of our lifetimes. I’m talking about the year that began. Well, we’re going to talk about when it began, but somewhere around April 2020 and is still going on. We’re going to talk about it with me, Felix Salmon of Axios. We’re also going to talk about it with Emily Peck a fundraise.

Advertisement

S2: Hello. Hello.

S1: We’re going to talk about it with Stacy-Marie Ishmael of Bloomberg.

S3: Hello, hello.

S1: But really, the whole reason why we are doing this show and how the reason why we can talk about this whole year is we are going to talk about it with Joe Weisentahl, who’s also at Bloomberg. Welcome, Joe.

S4: Thank you. Thrilled to be here again.

S1: You have been covering markets on your amazing podcast. Odd Lots for the entirety of this very long year. What I was hoping to do is just talk to you about markets because we don’t talk about markets nearly enough. We’re going to talk about.

S4: I know this was a money podcast. What else? Is there something

Advertisement
Advertisement

S1: else? What else is there that we somehow find other things around it? But so we are going to talk about stocks. Of course we have to, but we’re going to talk about labor markets. We’re going to have lumber markets. We’re going to talk about a little bit about crypto markets. We we have a bunch of that going on and we also have a slate plus where we where Joe will actually explain what was going on in the in the height of the lumber market craziness and how it actually had nothing to do with lumber. It’s a great episode. It’s all coming up on slate money. So, Joe, it is a media tradition to one get covered at the end of the year, but to to take advantage of the slow weeks between Christmas and New Year and around there to look back upon the year and do it. Oh wow, what a year that’s been. And I hate that media tradition more than words can say. But this has actually been a year for the ages, at least in the markets world. And weirdly on slate money. We don’t talk about markets that much, but you are a markets person. And so I want to ask you about the markets and what the hell happened this year. What’s the what’s the very, very big picture?

Advertisement
Advertisement
Advertisement
Advertisement

S4: I would say to two really big things. One is if you just look at like the stock market, which people you know, the S&P 500, which is probably the most close proxy for the stock market, it’s done phenomenally well. So we’re up like twenty five percent extraordinary gains, probably in part because, you know, the simplest explanation is the economy by a sort of objective measures is booming. Corporate earnings are booming. Growth is booming. When there is a boom. Stocks usually go up. The other thing that I think is really interesting is and this is I do not think this has gotten really as much attention as people appreciate it. But I think there’s important a lot of people will say like, Oh, this was like the year of like meme stocks and all kinds of like craziness of crypto and all this stuff. The weird thing is, most of that stuff peaked in February and has been going sideways to down, depending on what you’re talking about since then. So it’s like GameStop the quintessential meme. The first one that people really talked about peaked in February. AMC peaked a little bit later, has been going down since then. Bitcoin is up about eight percent since January 8th. Now, it had an insane first eight days of the year, so it’s still up a lot like 100 percent or something for 2021. What is basically flat since, like the middle of January? Other coins, other things like that. So there has been this stealth like in the stuff that I think captures people’s attention about this year. It has not been as dominant for most of the year as many people might have assumed.

Advertisement
Advertisement

S1: So I had if you’d asked me in like January, you know what was going to happen to the meme stocks, I would I would have said they’re either going to go up or they’re going to go down. And I would have been wrong.

Advertisement
Advertisement
Advertisement

S4: Right, right.

S1: But this is weird because like the whole point about meme stocks is they get to these late nosebleed valuations and either you get these crazy price bios upwards or else they collapse. I genuinely don’t understand the mechanism by which they go sideways.

S4: No, I can’t. I think everyone else is confused. It’s like it’s very easy to see why things go up totally. Because it’s like, Well, I want to buy something because it’s going to be more a week later, and that draws people in. It’s very easy to see why things go down. It’s like I got a cash out, but I agree with you like the weird thing is exactly right that like GameStop is not a thousand or zero. It’s like it, you know, 200 or something. And it’s like people are treating it like a real company. So I think you’re right, like the prediction all of us would have made is wrong. Thirty three percent chance of going up. Thirty three percent then or something like that, right?

Advertisement

S2: I recently visited a GameStop in case anyone’s interested in my. How come? Yeah.

S3: Very unusual for you.

S1: And I always forget the GameStop is an actual company and not just a meme stock.

S2: Yeah, we actually went into the store. There were maybe three to four other customers there. GameStop mostly sells charges and not games. There were very. If you’re looking at full

S3: such fees and second hand games,

S2: yeah, it was. It was. The floor space was 50 percent tchotchkes like those things with the big heads dot bobbleheads, but like the next generation of bobblehead Funko Pops. Thank you. Joe is so smart and my kids wanted to buy all the tchotchkes. They didn’t care about the games at all. There’s some club you can join a GameStop where if you pay $5 a month, you have a shot at getting a PlayStation three, the one Stacey already has. So that’s my report from GameStop in the suburbs. Please continue. So seems

Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

S1: like it’s a PlayStation

S3: five, whatever PlayStation five. Yeah, that’s why we have to have a whole video games episode.

S2: They still haven’t learned my lesson.

S3: But but Hertz is also a real company.

S1: Well, this is a real. It’s a real company that the people who bought it out of bankruptcy paid real money for, and there was a bidding war. And you can see why Hertz is worth money now, like you couldn’t really see at the time, or it’s very hard to see, except

S4: they were totally right. Like that is the crazy thing is that when the recovery actually happened and they sold off the parts and there was like, there’s like it ended up being that those people and that was like the first first one because that was April or May of 2020 that ended up being basically right. It turned out that the value of the fleet because of the surge in the price of used cars since then was so high that the liquidation value of arts kind of just it’s very surprising and I don’t really get it. And yet somehow, like the market was kind of right back.

Advertisement

S1: But the narrative of 2021 has been or at least was in the first quarter this narrative of, you know, the WallStreetBets crowd versus the professionals. And the professionals were definitely saying, look, Hertz is going to file for bankruptcy when in in bankruptcy equity gets wiped out. And there were a few people like on the sidelines saying, Well, I remember general growth properties and one or two other things from back in the day where like, you can file for bankruptcy, but that’s actually enough value in that the residual equity has value in buying. The shares can be this way for super sophisticated people like Bill Ackman to make money. What I am confused about is the reason why people were buying Hertz shares pre bankruptcy. Was it because they had a super sophisticated case that there was residual equity value post Chapter 11? Or was it just because the stock was going to the Moon and it was going up and they were, you know, jumping onto the rocket ship and it was the meme stock?

Advertisement
Advertisement
Advertisement
Advertisement

S4: I just want to make sure we get the timeline right, and I don’t mean to correct the host. But most of that was actually spring 2020. That was like by 2021, the company had already declared bankruptcy.

S1: OK, so this is so now we are doing a two year look back rather than the one year,

S4: which is fine because 2020 and 2021 has all been one big year. Yeah, I think I

S1: really do think this is this is the longest year ever began in like what? Like April 2020, when the stock market started going up and it’s just been one long up into the right since then.

S4: And I think that’s really like what makes the question no less valid. And I do think that like this is the end of a two year period, essentially or this is the end of one really long year. But I don’t know the answer to that question. And it’s very confusing because again, like it seemed like it was just like a WallStreetBets internet thing, but they were right on some level, like, I don’t get it. I would have tried to wonder about this. Were there like, maybe it wasn’t as retail heavy as I assumed, and maybe that was sort of like a story we told. It’s a possibility to me that if somebody is like, Oh, look at these idiots, buying up hurts because that’s a much easier to story than to do the work that maybe like to people smart. I don’t know, but I haven’t heard of the like I haven’t heard of, like some big hedge fund winner either, as far as I know who like Wendy Long.

Advertisement
Advertisement
Advertisement
Advertisement

S1: The crazy thing was that hurts itself, didn’t believe in hurt, hurts itself with it. This, when it tried to issue a billion dollars of equity, basically came out to the judge and said, Yeah, this is going to zero, but there were people willing to buy it, so we should probably take advantage of it. And the judge was like, That is just not fair to those people. You can’t you can’t get people off like that. It turns out those people would have made lots of money if they’d been able to buy that billion dollars of equity.

S4: Yes, really strange. Yeah, I don’t get it. It’s very strange to me.

Advertisement

S2: Why did it turn out hurts? Hurts did well in the end. Was it because used car prices got so high and they had a fleet of used cars essentially and

S4: the used car prices? And it was like a huge car rental boom in general. So like the infrastructure to operate, I think a used car company, which is way more valuable in 2021 than people expected in 2020. So, you know, it has the cars it had the locations at the airports, the contracts and everything. And we were like all the used car business is finished. And it turned out that because prices got so high and everything else turned out to be a business that a bunch of people wanted, I think like Avis, I haven’t checked on the stock lately, but I think it’s done pretty well.

S1: And then there was the big travel boom, right? So even if you’re like being cautious in the age of COVID and staying in an Airbnb rather than in an hotel, everyone wants to get out of their house and they still need to rent a car.

Advertisement
Advertisement
Advertisement
Advertisement

S4: This is insane. OK, March 18th, 2020 I’m looking at the chart on my terminal right now, March 18th, 2020 Avis, but hit a low of just under eight dollars and November 2nd, 2021 $357. So kind of like we talked about Hertz, the story of Avis is right. I mean, that’s, you know, that’s a it’s a 40 bagger from in about 18 months.

S1: There is that’s better than Dogecoin. It’s it’s

S4: it’s unbelievable. And that actually is one of the weird things about the market, too, which is that you have all of these. So in the very beginning, you probably recall, like we were sort of divided the world into COVID winners and losers, right? Amazon, Netflix, Zoom, Peloton, Zoom VIDEO Exactly. COVID winners, right? Then you’re like COVID losers. Oh, hurts. Obviously, Avis Airlines, cruise lines, Planet Fitness, physical gyms, etc cinemas. Live Nation. The concert company was another, you know, classic COVID loser she’s going to go to. Many of these stocks have just done insanely well, including department store stocks. So these sort of and I think it’s just confusing. It’s not just that they’re up, it’s just that they’re significantly more up than they were pre-COVID, which I don’t think is like, intuitive to anyone, right?

S1: Because that was the trade right. The trade was like, there’s been this big sell off in March 2020. The COVID loses. Sold off more than anyone else. We’re going to take the bounce back trade. And then they did bounce back very aggressively, and people who bought them in March 2020 had made a lot of money by late May 2020. But then, as you say, the continued rise of the COVID losers over the past 18 months or so from their pre-pandemic levels to crazy post-pandemic levels. Why would the cinema be worth more now than it was pre-pandemic,

Advertisement
Advertisement
Advertisement

S4: like, even if you set aside AMC, which I think is like, super weird, like we all or something, you know?

S1: But but your your your Texan Alamo Drafthouse is opening up, declared bankruptcy and is now opening up new locations around the country.

S4: Yeah, well, look, so live nation. I think it’s one of the best one like that. Just concerts, right? Like, it’s a pretty straightforward business that stock. So if you look, I’m looking at a five year chart that stock pre and its pre-pandemic peak was a $75 stock. It dropped like everything else, it had $30 and then now it’s at 104. So this is a company that is significantly worth more than it was pre-pandemic. It’s never been a meme stock because I think it’s kind of like too big an established to truly get the meme treatment. But I think the market is pricing. This is a significantly more valuable enterprise than it was.

S1: And what you were saying back at the beginning of the show about like the main reason for the S&P 500 going up is just because companies are making more money and there are more profits and the economy is booming. But presumably Live Nation isn’t making nearly as nearly as much money now as it was pre-pandemic.

S4: I wouldn’t have thought so. I mean, I don’t know, like, you know, I have,

S1: although of course, you know, everyone is everywhere like stocks trade on future earnings, not perfect endings, but still,

S2: is it just like there’s so much money now? The economy is so hot, there’s so much money to go around. Everyone is doing well like it is raining and everyone’s getting wet and it and some of it just doesn’t make sense. Wow. Well, yeah, except for BuzzFeed. But anyway, for the most part, like the Fed did its job, everyone has tons of money, money, money, money. It’s everywhere. It’s like almost not even complicated. In a way

Advertisement
Advertisement
Advertisement

S1: it kind of does, but also it kind of doesn’t like if you look at the proportion of the gain in the S&P, that’s basically just the five giant tech giants, like everyone else is up. But they’re not nearly as much. And, you know, I wasn’t entirely joking about BuzzFeed. There are a bunch of stocks that are down as well. It’s not like it’s not like correlations. The super high rate

S3: one of those stocks is Robinhood, right? Which was kind of what the supposedly the big winner of the meme stock friendly. I was just looking at a chart today. That’s what we do when we work at the place that we work out and down there don’t like more than 40 percent as of as of closing price yesterday from their IPO price, right? Like that is that is significant. And I don’t think that, you know, if you talk to somebody about like what has changed with Robinhood’s fundamentals, they’re going to say, Well, it was it was a 40 percent decline type change.

S1: Well, actually, I was looking at another chart states, you’re talking about I’m going to I’m going to put my charge against your, you not looking at the stock chart. I’m looking at the future of Robinhood monthly active users fidelity. And when when Robinhood went public, I actually had more monthly active users than fidelity and I didn’t have more customers, but its customers with logging in every month and using the site in the way that Fidelity’s just like buy and hold people, and they weren’t. Since the meme stock frenzy at the beginning of this year, Robinhood’s may use it down substantially. While Fidelity’s have been going up so that, you know, they’re it’s like fundamentals going on there. And I would say,

Advertisement
Advertisement
Advertisement

S4: like again, it sort of defies what I think people remember. 2021 by which is that, you know, like, I don’t know, I’m. My guess is that the it’s the the life span of an aggressive Robinhood options trader is not very long. That is my understanding of is that that is a very quick way to go broke. Whereas investing in fidelity via fidelity in some sort of buy and hold boring thing, the lifespan tends to be very long and that has a very good track record of doing very well. So it’s one of these things where it’s like, you know, 2021 the year of the Robinhood trader. But you know, the one that won only one of those businesses has a sort of like customer that is going to like statistically tell you, make a lot of money over the long term.

S2: I can’t. Not to make it about me again, but I cannot quit fidelity for the life of me, like I had a four one k with them, six employers ago. And then for some reason, I always have a fidelity account like it never ends. Every other employer uses them and they suck me in, but I have no need for Robinhood.

S1: Congratulations on being sucked in by Fidelity. Fidelity have crypto yet. I feel like Robinhood is basically it has this loss leader that’s like stock trading, and then it makes all of its money on options and crypto. To Joe’s point, the options stuff is this like crazy sugar high that kills people. Crypto, I’m not sure about,

S4: you know, it’s interesting. Actually, Fidelity was early into crypto. They have Fidelity digital assets, but they never really got it from the retail side. It was very institutional focused, and so they actually won and they invested a lot of crypto companies. They’ve done VC investments in crypto but never made it part of from my understanding the their retail offering, which is an interesting choice. Maybe a smart treasure?

Advertisement
Advertisement
Advertisement

S3: Yeah. And just not kidding when he says they got an early. I think that I think Fidelity Digital Assets launched in late 2018, so they’ve been in the game for a

S4: while, at least compared to, yeah, most legacy institutions.

S3: One of the things I want to get your perspective on because I feel like you’re one of the only people in the world who can answer this question is like there were many more interesting markets than equities this year. And you know, you’ve talked about a lot of them on odd lots and I think written about several. And you know, if I were to ask you to like, choose your favorite child, which one would it be?

S1: Is it going to be shipping containers or pallet?

S4: That’s a really that’s a really it’s a really good question. I will say, you know, I’ll say two things. One is that’s absolutely right. And I think twenty. Look, I’ve been sort of like markets journalist for like over a decade and people ask me like, Well, what is the market? So what does that mean? And I would say, like, it’s a line going up and down on a chart. So anything that goes up and down on a chart, basically. With a price is the y axis I consider to be fair, game. And so but you know, this year was the first year of my career where I was like significantly more interested in like real things. I guess maybe commodities is part of it. Then I was in actually like the sort of like financial markets, which I kind of got bored by middle of the year because it just seemed like stocks were going up. And it’s like, Well, OK, that that story is not that interesting. But, you know, like the real stuff, whether it’s like labour, the price of labour, the price of various commodities, lumber etc was fascinating this year. And one of the probably I would say lumber is these sort of commodity that I didn’t know anything about going into 2021. And now I know at least a little bit about it. But it was sort of fascinating because when you started diving into like these real world commodities, there are just so many moving parts in terms of the formation of the price itself and why prices move the way they do. And one of the things that early on in lumber prices went absolutely to the Moon at the beginning of 2021. One of the reasons why there was a de facto a short squeeze in the lumber market because we had this boom in housing and the lumber yards which get lumber from the lumber mills, had these forward contracts to deliver lumber to the homebuilders, and they were short. They were running the lumber, they were running out of lumber that they could get due to transportation due to labor, et cetera. So we had this de facto short squeeze in the lumber market. And so, you know, we think of a short squeeze just like a bunch of people shorted GameStop or a bunch of people shorting AMC. And then what happens is the price goes up on them. These things replicate also in the real economy. We just don’t use these terms typically. So if you owe someone something real a physical delivery of lumber, we don’t typically think, are you put on a short, but you defacto have. And I think 2021 has been in education about all of these things that we think of as like financialized terms actually have very sort of like real significant meanings when we think about like who owes what to deliver what our next date.

Advertisement
Advertisement
Advertisement

S1: Right. If you if you put together a Kickstarter to build a well, it’s always a cast iron pan. Don’t ask me why. Because I remember this the way everyone has, like a new sexy cos I’m so you put together this Kickstarter I have. I have developed a somehow superior cast iron pan and then you get 100000 people like paying you in advance for cast pan. You are now short 100000 cast iron pans and however much they paid you is like all well and good. But if supply chains and costs and stuff go up, then you can wind up getting super super squeezed. Yeah, and you

S4: might have to pay two hundred thousand dollars to buy cast iron pans to deliver a hundred thousand dollars worth of cast iron pants. And that’s a classic short squeeze,

S3: as somebody who backs a lot of Kickstarter is this year, mostly for video games. I can tell you that it was the first time that I and probably a lot of customers, I got sort of a real time updates that weren’t so much about the product as about like the shipping. You know, they were like, Well, just got my latest invoice for the container. I’m trying to get these books on and Cheyna and my prices are going up 50 or 60 percent. You know, I feel like a lot of 2021 was just making things that were previously invisible or obscure to be much more visible and much more prominent than they otherwise would have been.

S1: Yeah, I feel on your show, Joe, you had someone on one saying basically, like, if we’re talking about shipping, something is wrong that we should never be talking about shipping.

Advertisement
Advertisement
Advertisement

S4: That’s been like the theme of 2021. It’s like the fact that we’re talking about is a problem.

S3: This is a market failure.

S4: It’s like all over the place. It’s like we have to like talk about the process for getting containers off the yard at the Port of Los Angeles. Probably not a good sign that the containers are getting off the yard and integrity matter at the Port of Los Angeles,

S2: making the invisible visible. I do think has some benefit because there are kind of all different weird labor issues, especially in all these supply chains that no one ever talks about or thinks about or appreciates. And then 2021 brought it all kind of out into the open like people are thinking about, like the lives of truckers who aren’t paid when they’re sitting in line and stuff like that. And I feel that that’s probably a good thing. I mean.

S1: And I think on some level, we wound up talking a lot this year about hourly wages and people, you know, earning $15 an hour instead of $10 now. And the more you realize that this, the service you’re receiving is built on 10 $10 an hour labor or was built on $10 an hour labor. And now that person is making a slightly more living wage of $15 an hour. And that’s why the price went up. That kind of knowledge and that kind of making the invisible visible is a good thing. And I do think that the like one of the weird things we’ve we’ve seen this year, we just saw Gopuff raise one point five. Billion dollar round, which is one of those 15 minute delivery services, but all of that is based on like, I guess you would call it, the invisible bifurcation of labor, right? Cloud kitchens, 15 minute delivery convenience services. It does seem to be an interesting tension there between light. On the one hand, everything is becoming more visible, but on the other hand, you have people raising it multibillion dollar valuations on the basis that everyone wants it to go back to being invisible again.

Advertisement
Advertisement
Advertisement

S4: I couldn’t agree this more, and I think, generally speaking, I think Emily’s point is spot on, which is that what we’ve done is this has shone a light on a lot of things that I think people find very like troublesome and problematic. And I think the lifestyle or the the expectations that we have like that that were embedded into modern life about like who would do what at what pay. And you know, these expectations, like we don’t think about them or like, you know, from a consumer standpoint, you realize like, you know, I like to eat meat, but I’m like deeply troubled by the reading about the condition at the meatpacking plant. And you have these meatpacking plants and you read about the labor struggles, like, of course, they’re having labor struggles, my god. Like who would want to subject themselves except the most desperate people in the world who they go freezing conditions, extremely hot conditions, high levels of disease, high levels of injury in the best of times, pretty mediocre patients. You’re like, OK. This is, of course, you know, these things weren’t surfaced before because by and large, the meat companies, they weren’t talking about the difficulty they were having hiring. But we discover that was sort of like normal modern life that we just sort of expect in a certain way. You know, and certainly people have been doing reporting on this, but it really long since long before the pandemic, but it really has brought it to the fore. The number of industries that run at their current price point because obviously a lot of people are desperate for work.

S1: Well, I mean, one of the charts that goes down into the right is the degree to which the United States has been able to import unskilled labor from Mexico and Central America. Right. If you went into those meatpacking plants, it was a lot of low-wage, unskilled immigrant labor and refugees, I believe. Yes. And refugees? Yes. And and that is something that has definitely played into the labor, all parts of the labor market from the skilled unskilled everywhere. Yeah, immigration is down. The percentage of Americans who were born abroad has been going down for the past couple of years. You know, since since this sort of mid Trump years, it does seem to be very important for the future health of the economy that that number turns around. We get back to a slightly healthier immigration situation, but you but like on the other hand, maybe the decline in immigration and specifically unskilled immigration is is good for working conditions for places like meatpacking plants.

Advertisement
Advertisement
Advertisement

S4: I would just say that the current conditions have clearly forced a lot of owners of various businesses, including some of the worst. The ones where the most difficult conditions to take them more seriously and to take what it takes to make the job itself more appealing. And I suspect that there is an element of the decline in immigration and the decline in acceptance of refugees. We are, of course, seeing it across a range of industries, some of which do not have not had that pool of labor. But I mean, it’s clearly it’s clearly part of it. And then also to the extent that like we have all these industries, I mean, regardless of who it is, it’s clear that we see and these like expectations of what normal is. And that’s part of what I guess is what I think people are rethinking. It’s that why did we consider February 2020 conditions or December 2019 conditions like that’s what we called normal, but it doesn’t mean like we’re going to go back to that was just a set of conditions that existed at that time. And when the pandemic is completely over, we might have a different set of conditions, but it may turn out that certain things, a certain price point, certain business models just don’t work in this different set of conditions.

S3: Well, I want to say one and a half things. One is that if you’ve ever looked at a video of a person and what we called unskilled labor doing their job, you will never use the word unskilled ever again. But that’s a good V.. The other thing is, you just published, you know, a newsletter and you have a podcast about our work, right? Which is this absolutely thriving subreddits of folks who are like, what if not capitalism? And you know, some I Felix so much of 2021 hasn’t only been observers of labor saying, we’re not going to. This is no longer acceptable to us. It’s also just been labor saying this is not acceptable to us. Can you talk just a little bit more about what A. work is all about and how it plays into this country?

Advertisement
Advertisement
Advertisement

S4: Decision, you know, the interesting thing is, so before you know, we have this sort of like bright line between what we call labor and capital. But I think probably like anyone, any one of us on this call right now probably knows people who are like, pretty like well-to-do or pretty comfortable or something who are also having this thought like, I don’t really like want to continue with my, you know, how I was working or the same pace or the same thing as I was pre-pandemic. So I think that there is the sort of like very widespread and I don’t know how long it’ll last, maybe until I go back to normal, but up and down income scales, this sort of like, do I want to go back to pre-crisis modes of working and making money? And maybe it’s just a temporary like, OK, maybe things will normalize next year and everyone will. So I think like what’s interesting, though, is, you know, there is the Site A. Work and I think what it is is some people are very like there is an obvious like sort of anarchist anti-capitalist element to it where people talk about like, this is not right, that so many people essential like livelihoods. Their ability to provide themselves their ability to have something resembling like a good, sustainable life is sort of like completely at the whim of their boss and the boss can fire them. The boss can have them work 14 hour shifts, etc. And there is something like deeply inequitable that people feel intuitively about this in many cases. But I also think it’s like even in a more simple level, I think it’s just decide, say, any sort of mode of coordination where people realize like maybe something a little less ambitious, not necessarily the overthrow of capitalism or the overthrow of low wage labor. But it’s like, is this working? Is this thing that we just accepted is right? Correct. Whether it’s something like the hour of how many hour shifts we have or like people realizing, wait, I could get a raise just by quitting my job at Wendy’s and going across the street to McDonald’s and the person of McDonald’s thinking I can get a raise by quitting my job at McDonald’s and going across the street to fill the open position at Wendy’s. People waking up to stuff like this and sort of sharing that information. Even people who are working or maybe who don’t have a strong ideological shift. Just a lot of like awareness. And I think, you know, interest in the idea of I don’t know if fighting back is the right word or maybe even someone like you

Advertisement
Advertisement
Advertisement

S1: who who, you know, wakes up one morning and goes, I can still have a really good job and make good money and provide for my family without having to go on television every day.

S4: I yeah, exactly right. You don’t have to go until that was you.

S1: I mean, like, you literally did you kind of quit 50 percent of your job?

S4: Yeah. You know what? I do more of this and writing everything. So you know. But yeah, people like it. I don’t deny that. Like after yeah, after you sort of have this period where you’re like, I don’t necessarily want to be doing the exact same thing as I, you know, I like my job. I like working for Bloomberg. I love covering markets. I want to do it for a very long time. I want to do it for I want to do it for a very long time. But I think like the idea that like, OK, after this period, people are like, What do I want to do? How do I want to live my life? Pretty understandable.

S1: One of the things I saw was a merger announcement in in mid-December, where a couple of like mildly failing fintechs merged. I think money lion Even: something like that. Anyway, the the acquired company was like, We are going to continue to be laser focused on our mission of helping hard working Americans maximize their money or something along those lines. But the words are the words hardworking Americans were in there and the idea that, like Americans, are presumptively hard working and that’s a sign of moral goodness. It didn’t seem like a bit off to me. I’m like, Haven’t we moved on from this idea that you only deserve to have a good financial life if you’re hardworking?

Advertisement
Advertisement
Advertisement

S2: I think the pandemic accelerated what had been kind of like a generational shift away from cult of overwork, cult of ambition, pay your dues kind of stuff at work like I have a friend who works at this kind of like fancy firm that does cool music stuff. I don’t know how else to say it. And they used to be able to hire people and pay them a little bit less. I hope I don’t get in trouble for this anyway, but the promise of like this is a really cool job. Media’s like, this is a really cool job. You’ll get to do really cool stuff, so we don’t pay you quite as much. But if you work, you know, 16 hours a day for like the next 10 years, it’ll pay off. And and kids these days are like, Oh hell, no. No one wants to do that. People want to have their work and their life. And this idea of like, you pay your dues, you work crazy hours and it’s all going to be worth it, I don’t think. I don’t think anyone believes that anymore, especially not after what people have been through in the past 18 months, two years.

S4: Agree with that. It just feels like and again, maybe people will go back, but the other thing is these sort of like a page like A.. Work and stuff like we don’t know what the effect of digital is going to be on these kind of thoughts. But the point is like this is like fairly new. I mean, I guess the internet’s been around for a while now. But in terms of like, how sort of more do more ad hoc organizing, I guess I would say, or sharing of information is going to change. People’s perspective is is an interesting question. And one of the things that I think about like going back to the macro for a second and I think about what’s going to change post what’s truly going to change. Because if you think about like, you know, the Fed and inflation in wages, et cetera, there’s a lot of reasons to think that when the pandemic is over it, it was all transitory. It’ll all be like, you know, the normalization process will begin, right? And that’s sort of the bet that the Fed is making that sort of a bet. The markets are making that everything we’re seeing these sort of supply chain disruptions, labor disruptions, it’s all kind of transitory will go back. And you sure you think like, OK, well, like, that’s probably what’s going to happen. But what could have been different? Maybe it’s just a change of mindset. Maybe something changes about how people want to interact with the economy that makes the post-pandemic environment different than it was pre-pandemic.

Advertisement
Advertisement
Advertisement

S2: I don’t think there is anything. There’s no such thing as going back to normal like history marches on and what what is normal is just always changing. I mean, maybe I should ask Joe, you guys, what is an example of a of a transitory thing that like went away after a while like like the pandemic is a big disruption. Like, we’re not going to talk about going back to what it was like before, like no one talks about. We went back to what it was like before World War Two or before Watergate. I remember, like when Trump was first elected, there was a lot of like once we get him out, we’ll go back to normal. Like, No, actually, like Trump proved there was normal wasn’t what you thought it was anyway. And we’re not going, No,

S1: but I do think that, like the general functioning of the White House, is more or less back to normal now that Trump isn’t

S2: in there, sure. But the political culture is not.

S1: One of the things that I’m really fascinated by and I can’t work out whether this is a temporary change or permanent change is price sensitivity. There seems to be a few different data points here, but like you know, obviously number one is that companies are being able to raise prices and people are paying the higher prices in a way that everyone kind of assumed wasn’t possible pre-pandemic. Number two is all of these like dhows and crypto people and stuff just kind of giving money away or pulling large amounts of money for the lulls or, you know, for that matter, just throwing it away. You know, trading options on Robinhood, there’s like money seems to have lost a certain amount of meaning, and people don’t seem to feel as much pain by having less of it than they did pre-pandemic. And I don’t know if I’m looking at a very narrow slice and I’m completely oblivious to the real world. Or am I? I like it is. Has something changed in terms of willingness to spend slash lose money?

Advertisement
Advertisement
Advertisement

S3: I was reading some. I can’t. I will. I’ll put this in the show notes. But I was reading some research the other day about the fact that you are much more willing to lose money, but you one gambling than you are to lose money that you earned as income. And you know, if we buy one gambling, you can kind of extrapolate to basically money you didn’t have to work for, right? So that you could think of that a stimulus checks, you could think of that as your yield farming on your crypto accounts. You could think of it as dividends on stocks that you didn’t previously earn or just Even: the appreciation in stocks that you had bought at a lower level. And I do think and I’m going to be very interested in Felix better position than me to comment on this. I do think there is an interesting amount of money sloshing around the financial system right now that has not just earned income and that has a psychological effect on people’s risk tolerance.

S4: I totally buy it. I think it’s a great point, and I hadn’t really thought of it in that way. The idea of like the more people this year and last year, obviously two of the stimulus checks, the one off payments, the expanded UI that for a least significant chunk of the population, briefly separated the idea of labor and income, which is fairly novel. And then all the gains that people have made, either trading is probably had a real effect. And, you know, neither. I don’t think the trading gains are going to last forever, and obviously, I don’t think the fiscal expansion is going to last forever. But thinking about like, did this change? You know, my sister in law, like, has a small e-commerce operation. And I remember, like in April of 2020, when the stimulus checks were the checks that everyone got, the checks that everyone got below a certain income, not the UI expansion. I think they had like their best day in history a couple of days after those checks hit. It didn’t last forever, but after that, and I think that’s really right. Like this idea of like, here are some found money. Let’s do something different. Maybe I’ll be price insensitive about it because whatever. I think it’s a pretty interesting observation that I hadn’t really thought about.

Advertisement
Advertisement
Advertisement

S1: And on the fiscal level, we definitely saw that right. We saw five trillion dollars of fiscal stimulus, you know, pouring into the economy from the federal government. And this is a degree of fiscal stimulus that was unthinkable even after the financial crisis in 2008. Like somehow there was something in the air, something in the water. I don’t know what it was that allowed the government to just say, fuck it, let’s just spend more money. We are not price sensitive right now, and it hasn’t entirely gone away like the Republicans are now in opposition and they’re going to oppose everything. But there’s still like a real hope that there’s going to be another two trillion dollars of bill back bathroom or whatever. Like there’s there’s a whole new feeling that the job of the government isn’t to sort of penny benches to actually spend money and make a difference.

S4: Yeah, I mean, look, we showed that we can spend money and stop a recession in three weeks, and that’s like the recession itself. Well, this is about three weeks long. It was like from the beginning of March to the end of March and that technically the economy started growing quite rapidly again. And what we did was we spent a lot of money like crazy, and that knowledge will be with us forever. Now, politicians might not might be reluctant next time or maybe this year, but it caused this inflation that whatever we don’t know how politics are going to be. But it’s always going to be a fact that you can spend a lot of money and defeat a recession. And it seems very likely to me that that will have implications the next time around. These expectations, like why do we wait years for the labor market to recover? Why do we accept that? Because something external happened. You know, when when COVID hit one of the ways something that greased the skids for fiscal expansion was this idea that, oh, people didn’t deserve it, it’s not their fault. And. That’s, of course, true, that if you were and you know, the early service workers, restaurant workers, of course it wasn’t their fault, it wasn’t their fault in 2008 or 2009, either. Most people who lost their jobs were not in some way involved in this sort of like

Advertisement
Advertisement
Advertisement

S3: asset backed securities,

S4: asset backed securities. So they did deserve it then, either. But I mean, it was like a strange, like sort of like moralistic agreement that it’s no one’s fault. There’s a pandemic. So yeah, we can replace their incomes. Hardly anyone ever thought that like, there’s a recession. But I do think, like from now on, we can say that again, there’s a downturn because X or Y happened. Most people are not going to be their fault that they lose a job. And I think that this sort of like perhaps tolerance to like do income replacement UI for a significant period of time will be definitely on the table. There’s no guarantee it’s going to happen. It is definitely going to be up for discussion the next time we have a recession.

S3: Mm hmm.

S2: I hope so. It’s crazy to think they ended that thing the recession in three weeks versus what happens in 08, which is just like dragged on forever and ever and ever and ever and ever.

S1: Although like part of the reason is the financial crises are particularly bad to recover from. And this is in the literature, the recession, the financial crises you get, you always get slower recoveries for reasons that, you know, complex. But I’m fascinated by this idea that

S4: neoclassical literature that doesn’t want us to have the OK doesn’t want us to have

S1: strong us. I don’t think we’re moving away from our IMT thing thinking, but the. But I am fascinated by this idea. If again, if we’re looking at the long year which began in April 2020, this sort of hero who injected trillions of dollars ended the recession in three weeks and showed the world what was possible with aggressive enough fiscal policy would be Steve maneuvering.

Advertisement
Advertisement
Advertisement

S4: Right?

S1: Is he is he? Is he the unsung hero of the last 18 months? Yes, because no one’s singing his praises, I can tell you.

S2: Why can’t we say Jerome Powell? Why do we have to say Steve over Mnuchin

S4: put the money in people’s pockets? Management was the one who, like, passed the law or, you know, yeah, I’ll say it now. It was like he was in the right place at the right time. And as sort of combined, there’s sort of like Trumpian, you know, it was like a that I would say that stimulus combined a few things is like one is just sort of like Trumpian, like GDP growth, growth at all cause like, you know, very like spend in things, but also with like a pragmatism. And I don’t know if, like Trump himself, could have gotten it with someone like if you had like a more pure sort of more MAGA Treasury secretary. And I don’t think the Mnuchin really was. I think he was like kind of like a guy who just like, made a bet on Trump, like savvy, like he also had the pragmatism to like, pull it off. And, you know, I think the Democrats obviously were pretty inclined to go for it because it was fiscal expansion because it mainly targeted sort of lower end workers, etc. And there was a nice confluence of things because the Republicans were in power. So they, you know, had it been a Democrat in the White House, probably reasonable bet that the Republicans would not have been so inclined to vote for it in Congress. But yeah, I think my Mnuchin played a pretty big role in making that happen.

Advertisement
Advertisement
Advertisement

S1: But even if there had been a moderate, you know, even if there had been anyone other than Trump in the White House, because I go back to Hank Paulson trying to get fiscal stimulus through under George Bush. And the problem was he couldn’t persuade the House Republicans to do what George, what George Bush wanted them to do in this case. Stephen Mnuchin all he needed to do to persuade the House Republicans to go along was say, Trump wants this, and no House Republican wanted to go against Trump. And Trump’s ability to drag, like all House Republicans along on any fiscal path he wanted to do is really quite astonishing, given the rhetoric that you normally hear from, you know, that side of the aisle.

S2: Wait, so are we saying that the Trump administration saved the country from a really devastating recession and did it in a matter?

S1: I believe they were the people who who poured in the money, right?

S2: I guess that’s true.

S4: You know what I will say? And obviously we’ve seen, even with Trump out of the office, Trump out of office, an incredible like Paul that he has over the Republican Party. And I will say to some extent that one of the tragedies of Trumpism is that he had some good, I think, interesting economic instincts, particularly on infrastructure like infrastructure week began as a joke because Trump was really interested in infrastructure, and that was why that became a joke. But other than like that brief period in March, it never felt like that White House had any real motivation to do anything on their own stated ambitions. So, no, they never passed into infrastructure. You know, they had a full. Congress could total control of D.C.. It would have been very hard, I think, in 2017 for Democrats to oppose like a trillion dollar infrastructure bill, if Trump had said, as he did say, multiple times. You know, he said on the campaign trail was like, why are we spending a trillion dollars in Iraq instead of spending a trillion dollars in rebuilding America’s cities? That sounds pretty good to me. Like that could have been an interesting thing. That would have been a message that’s pretty hard for Democrats in 2017 to oppose. Like, let’s build a bunch of stuff and never did it. They never, like put forward the effort to use Trump’s power of persuasion over Republicans. So other than that sort of brief period in March 2020, it were more or less like a Mitch McConnell agenda, the rest of the, you know, the three point nine years of the administration.

Advertisement
Advertisement
Advertisement

S1: But the the counter example is Europe, right? Because you’re, you know, faced basically the same COVID wave that we did and they had a set of governments or federation or whatever you want to call it, which is significantly to the left of Trump. And their fiscal response was very small compared to ours, and their economic response has been commensurately small compared to ours.

S4: Yeah, I thought that would change. That was one of the things that I got wrong. I thought, like this would be the moment that, like Germany did like this big pivot on EU wide fiscal rules. But I thought it would be so necessary. I think it was my that there would be no alternative for Europe but to sort of really pivot on fiscal. And it didn’t. I mean. And so that was one of the things I definitely got wrong.

S2: This was a year a lot of people got a

S4: lot of things wrong. I don’t know.

S2: Can we all agree on that, including us? I feel like we had an I don’t know. I’ve been. I was saying, like this new COVID wave, it’s fine. Whatever. And now it’s clear like, Oh God, it’s all happening. Or I don’t know if the severity of cases will be as bad, but you know, when things are changing so fast and there’s a lot of volatility, there’s a lot of people getting a lot of things wrong all the time.

S1: Yeah. You remember the K-shaped recovery. Everyone felt so smart talking about K-shaped recovery. No one talks about that. Oh, no,

S3: there’s not necessarily consequences. I’m getting things wrong is the problem.

Advertisement
Advertisement
Advertisement

S4: Fortunately, in our line of work, thank God, immediate cease to exist. Yeah. Okay. I’ll take it and I’m not going to. I’m not complaining about that.

S1: But it does speak to how hard it is. I mean, everyone understands that forecasting is impossible in this in the future is impossible, but even seeing the present is really hard. Yeah, it’s getting late. Even: understanding what is happening right now in front of your nose is so hard.

S4: No, it’s the past I’ve always hated. That expression is like hindsight is 20 20. No, it’s no, no, no. It’s not even that. And I think, you know, in all seriousness, if as journalists, if we could do a pretty good job of describing the past, we’ve done a pretty good job. I really believe that that, you know, it’s like we joke about we have a hard time anticipating the future. Everyone does, you know? But if we, as people in the media, can do a fairly good job accurately recounting things that have happened prior to us writing them, I say that’s a we should. We should aim for that because it’s not as obvious that people are, you know, that’s not as easy as a thing is people imagine hindsight is not 2020, so let’s just go.

S1: Exactly. This is this is why you know it. It’s silly to try and draw this thing. When you talk to someone like Adam to see an economist as a historian, is he a journalist? It’s all basically the same thing. It’s all like looking at the past and trying to work out what just happened

S4: is very hard. And that’s what makes Adam good at it is, yes, he does. You know, obviously, he has a new book about COVID, but he also wrote that book crashed that I think came out in 2018 about the financial crisis, and it took a while for that book to come out basically a decade. But why? It’s good because it just does a good job of describing the past, and I did. He sort of like focuses on things that people may have not thought about or appreciated the degree to which they mattered. That time at work is basically like a thousand words about central bank swap lines. But he recognized like that was like a very important aspect in sort of like healing the system from this big shortage of dollars, and those had a pretty big role. He is very good at describing the past, and it’s an underrated skill.

Advertisement
Advertisement
Advertisement

S1: Joe, is there. Is there something like central bank swap lines which, like we suddenly realized in 2021, is much more important than we thought it was? Well, what’s the 21 wells, the 2021 equivalent, the central bank swap lines that we were like, Oh yeah, of course, central banks plans.

S4: Well, you know,

S1: yes, the Port of L.A.,

S4: right? Yeah. I mean, it’s a it’s a good question. You know, the interesting. So one of the things that’s sort of forgotten and there’s going to be like, you know, books written about this for decades after this, but obviously. If one thing that happened at the beginning was, you know, I think it was March 2020 was the crisis in the Treasury market, which really lasted about a week. But here you have the most safe haven asset, the biggest market in the world, and liquidity dried up and the Fed had to set up a facility to sort of turn them into liquid assets. And now it’s going to make them important. That was a meaningful advance in infrastructure. Now that was the sort of sort of financial market infrastructure that was sort of built on the fly in 2020. That’s a little bit too on the nose, maybe for the in parallel you’re looking for because that something is very similar to the swap lines of like setting up the solution to a liquidity crisis. But just as the swap lines were important, then that was like a step forward in stabilizing the infrastructure, the financial infrastructure that will be with us for a while this time around.

S1: Plumbing matters, guys. That’s what we can look forward to in 2022 is a brave new world of no more labor.

Advertisement
Advertisement
Advertisement

S4: Oh yeah.

S3: Oh man.

S1: This has been amazing. Joe Weisentahl, thank you so much for coming on the show, it’s been great having you.

S4: It’s been a pleasure. Thanks for having me.

S1: And thanks for listening. Thanks to Shannon Roth for producing and we will be back next week with another sleep money. Stacy-Marie Ishmael for Slate, Plus, give me a number.

S3: OK. It is 1494.

S1: OK.

S3: OK. And the only person who is possibly qualified to know the answer to this is Joe in May 2021. Kind of like one of the peaks of the great lumber lumber crisis. That was the price of a thousand board feet of framing lumber vs. $427 in the same period a year ago. And so folks might remember, you know, if we’re if we’re kind of thinking back to the bunkers, you’re like one of the first things people started complaining about is like, I can’t afford to get, I can’t afford to roof my house or, you know, build a deck or do any of these things because like the cost of all of these things was increased in some cases five fold and in other cases, way more. And I remember this was I first saw this cited in a study that came out of some academics in Texas because I was in Texas at the time and I just thought, Wow, this is and yet another reason why I’m a renter.

S1: So. So explain explain to me because this is the the bit, which I’m kind of more fascinated by than the run up will read a lot about the lumber price when the lumber prices going up, the lumber price then went down very, very quickly. They like it did what meme stocks are supposed to do right, which is go up and go down. It didn’t do what. Meme stocks actually did, which is go up and then go sideways. So Joe, as the lumber expert here, like explain, explain the price dynamics in lumber and specifically the downbeat because I feel it. That’s the bit that people haven’t talked so much about.

Advertisement
Advertisement
Advertisement

S4: Yeah, I mean, one of the interesting there are a lot of a lot of moving parts in lumber. But you know, you don’t know about lumber earlier in the show. One of the points I made is like, OK, you think of like, there’s demand for lumber. Homebuilders. And then there’s trees. But obviously there’s like a million steps in between and there is the the lumber mill, the sawmill and then there lumber yards. And then there’s the transportation and then there’s the transportation getting them to the homebuilding sites where they put up the homes. And one of the interesting things that happened and we had our guest, we’ve had two episodes on lumber, on old logs and our guest stints. And Dean, who goes by lumber trading on Twitter, pointed out, is that one of the issues that came up was the homebuilders could not take delivery of as much lumber as they could at one point because they were running short of the tiny five dollar metal fasteners that allowed the skeleton of a home to be put together. And so if you’re running short of the ability to have a piece that allows you to take delivery of lumber, even if you have a lot of homes you have to build, even if you have a lot of homebuilding demand, you cannot take delivery of it. And then that backs up all the way in the supply chain and then demand gets crushed and then you have the crash. And so this is again. So this really

S1: is the kind of for want of for want of a nail. The ball was lost type of thing, right?

S4: That’s exactly right. That’s exactly right. Exactly right. You can’t all. And this is one of the things we’re learning. It’s like, you can’t sell a house. You can have one missing piece and you can’t sell a house if you can’t get a faucet. You could have everything in the house, all done and you cannot charge without a faucet like no one’s going to move into that or so, whatever. So this is a thing you can’t take the lumber. If you and if you can’t take delivery of the tiny metal pieces that allow you to put two pieces of lumber together and then the price collapses. This is what we told about supply chain issues. And I think this is important because there’s two things that people mostly talk about. One is they talk about COVID disrupting production, which is a thing. But it’s not, as you know, for the most part, that hasn’t been perhaps as big as feared. And then they talk about robust demand causing too much stuff to go through more than the system can handle. That’s also a thing. But the third thing that happens is the coordination of the system at certain levels of complexity breaks down, and it’s not a demand story is not a supply story. Is it a coordination story? And if you can’t get the five dollar metal thing that suddenly you have a shortage of homes being built? And this is, I think, an example of what we’re talking about when we talk about supply chain issues.

Advertisement
Advertisement
Advertisement

S1: But this is this is the classic answer to Emily question in the main show, right, where she was like, Give me an example of something that was disrupted, then just completely inverted and went back to normal. And the answer is the lumber market, probably.

S4: But actually, lumber is over $1000 now, so it’s surging back again. It has not normalized so far. It’s so Even: that it crashed and and then came back.

S3: Yeah, you had these like floods in Vancouver that affected a bunch of delivery. So it’s complex. Climate change messes everything up.