Pod Insights Big Technology Podcast Inflation and The Great Resignation — With SoFi Head of Investment Strategy Liz Young and Margins’ Ranjan Roy About this episode Inflation is skyrocketing and everyone’s quitting their jobs. What does it mean? Liz Young, the head of Investment Strategy at SoFi, and Ranjan Roy, the co-author of Margins, help us figure it out in this week’s Big Technology Podcast. Come for an exploration of the source of the price hikes (Turkeys are 14% more expensive this year!) and a wild theory connecting interest rates with quitting. Stay for where to find savings (Hot Dogs!).
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Transcript 10,010 words · 4 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:17 Alex Kantrowitz? Hello and welcome to the Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Well, you've probably heard a lot about inflation lately, and I know it sounds kind of wonky. It's something that, you know, belongs in the financial publications. But I do believe that it is a way that you can see almost everything going on in tech and the world beyond today. And if you focus on it, you can end up learning a lot about our economy, where it's going. And it's probably also something that's relevant for you. It's about to be Thanksgiving. The price of a turkey is 14% higher this year than it has been before. And let's use the next few minutes to figure out why. We have two amazing guests joining us today.
2:00 Alex Kantrowitz? Ranjan Roy, friend of the podcast. This is your third time back. Bring you on when the economy has gone nuts. But as you pointed out right before we hopped on, it's always been nuts. So at least since we've been friends. So anyway, nice to have you back, Ranjan. Good to be back here. Okay. And we also have another great guest, Liz Young. She's the head of investment strategy at SoFi. Liz, welcome to the show.
2:27 Speaker 01 Thank you. Happy to be here.
2:29 Alex Kantrowitz? It's great to have you here and been hoping to have you on for a while. So I think we found the right topic. So let's just dive right into it. My understanding and from a rudimentary way, this is the way that I explain this to myself, is the government has pumped trillions of dollars into the economy and therefore money kind of lost its attachment to reality and now everything is more expensive. Now, I know that's definitely missing a ton of the nuance and potentially wrong. So what is going on with inflation right now? We just saw the consumer price index go up by what, like 6.2%, which means everyone's salary is now worth only about like, you know, 90 something percent of what it was before this
3:13 Alex Kantrowitz? happened. So what explains this?
3:16 Speaker 01 Yeah, I mean, I think when we look back even to the global financial crisis, I mean, we've had pretty easy monetary policy since then. And you would have expected, if you looked at economic textbooks or anything that that somebody would learn in school about economics, you would have expected inflation to have picked up much sooner than than it has. But the reality is that it didn't, right? It was it was kind of dead in the water for a long time. So the argument about whether it's monetary policy and all of the liquidity that's been put into the system, driving inflation, I don't think that that's really it right now. I think that's part of what might keep it elevated for a while.
3:58 Speaker 01 But what's actually happening is when you look at the goods economy, so basically the the stuff side of things, instead of the services side of things, the inflation is there. It's we're not seeing as much inflation in services right now. We're seeing all of the inflation in goods. So it actually is supply chain related. And I know we continue to talk about that. But very much of it is supply chain related and related to demand that the consumer has finally come back online in a big way and is eager to spend. They've got all of this kind of pent up savings and they're finally deploying it.
4:33 Alex Kantrowitz? It's amazing that that's still going on. Like, I'd imagine that that burst of spending would happen right as the pandemic or vaccinations came online and people started to live their lives again. But the spending is way up, which is, which is very interesting. Ron, John, you see this firsthand. You know, you're working, I don't want to give it all away, but you're working in the direct to consumer space. You believe that the supply chain issue is, is real. Tell me what it's like from your view on the ground.
4:59 Speaker 02 Yeah, I mean, focusing on, there's the demand side of the equation, which clearly, you know, the influx of money that's come in through the last year and a half is definitely going to kind of inject more demand for spending. But on the supply chain side, too, we're seeing, you know, any number of factors, COVID-related port shutdowns, factory issues in China and Vietnam. So clearly, the supply of goods that can actually reach America, the American consumer is going to be lower. So I think hitting it from both sides, it, I mean, I think we are definitely getting hit from both sides. But then the big question is, you know, how can
5:39 Speaker 02 we try to manage this? Is there a policy-related answer? Is it a monetary policy? Is it, you know, related to the Biden administration? Is there anything they can do?
5:49 Alex Kantrowitz? And, you know, the, the supply chain thing is, is definitely worth touching on because, from my understanding, so I actually was speaking to somebody I know who's working in shipping. And he told me that it used to cost $2,000 to bring one container from China to the United States. Now it's somewhere close to 14,000 to bring that same container over. And that's because the whole shipping line, shipping system shut down as the pandemic set in. But then demand went way up and the shipping lines decided that, you know, they could, you know, potentially be a little slower bringing things on back online. So the price for their services go up and they also just didn't have the capacity to bring
6:33 Alex Kantrowitz? everything on. So then all the shipping goods end up, the, the shipping goods that are coming in from overseas end up being way more expensive than they were beforehand. So that would lead me to believe that, you know, this, the shipping system will eventually get back to where it was and prices will come down again. And so maybe this is all just kind of a moment in time where the prices, as Liz mentioned, are going up because of what's happening in shipping that will eventually fix itself and we will return to normal. What do you guys think about that hypothesis?
7:11 Speaker 02 If we're focusing on the supply side of this equation, the word transitory is clearly used on the monetary policy side regularly, but even for every business owner, for everyone involved in any kind of manufacturing or anywhere on the supply chain, that is the biggest question right now. Do we go back to quote unquote "normal" with "normal" being the state of affairs over the last 15 to 20 years? And I do think that we might not. This idea that, you know, we have unfettered globalization and ships can move back and forth very easily and a container will always be $2,000 instead of $14,000. I do think that business owners will have to start thinking about, is this the way things are
7:53 Speaker 02 going to look in two, five, or 10 years? And that starts affecting their own manufacturing decisions, their own supply chain decisions, and especially in the near term, their own pricing decisions. And, and I mean, these are the conversations I'm having very regularly that if you start nearshoring more, does that increase kind of the intrinsic price?
8:12 Alex Kantrowitz? What's nearshoring? Like not going all the way overseas?
8:16 Speaker 02 Yeah, whether you bring manufacturing back onshore to the United States, if, whether from like a tariff standpoint, from a general global trade standpoint, if these things are not going to quote unquote "fix themselves" and go back to the way they were five years ago, you have to start making other decisions. Anyone, anywhere selling anything, they have to start thinking differently. And it can potentially change the, I mean, the way you price goods can change in whatever your outlook is.
8:47 Speaker 01 That's an, it's an interesting hypothesis, right? To think about, will companies have to shift production? Will they have to change the length of time it takes to get a widget from Asia to the United States, right? And the ways that you get things over here? I tend to to almost disagree with it, though. I think I think it's a lot more difficult for companies to move production. I think it's it's costly for them to change their entire production process and bring everything more onshore, especially because right now there's still such a big question mark about, you know, what if it does resolve itself?
9:27 Speaker 01 Right? Because there's there's so much cost savings for producing goods in different parts of the world that it might not be cheaper to bring it back here and just save on the transportation costs. Right? Because you've got a lot of fixed costs that then turn into what are called sunk costs. Right? So let's say they have to spend a lot of money just to move the production closer to home. They're not going to get that money back. And then they've got it here. And what if what if all this supply chain stuff resolves itself? And they look at it in two years and say, well, that wasn't worth it. Right?
10:00 Alex Kantrowitz? Yeah, and and I'm going to throw out a idea here that it's not going to resolve itself. That Liz, maybe as you're saying, companies won't want to move anything back because their operations are so dependent on having manufacturing abroad. And everyone has gotten used, and by everyone, I mean the shipping lines and the companies. Companies are more profitable, actually, because they're able to charge higher higher rates and people are paying them. Everyone's gotten used to the idea that their higher prices are working for them and they're not going to be in a rush to go back. Like, a shipping line isn't going to be like, well, I'm getting 14K for, you know, moving a container from China to the United States. Let me go back to two. That was better. No, they're going to keep the big the big numbers.
10:44 Alex Kantrowitz? And so if inflation is actually here to stay, what happens? You know, are there policies, are there moves that we can take? Or that the government can take that will bring this in line? What are the risks of that?
11:01 Speaker 01 Well, I do think inflation sticks around. I don't think it sticks around at 6%, but I do think it stays higher than it was pre-pandemic. You know, we were running at somewhere between, let's call it 1.8 and 2.2% before the pandemic.
11:19 Speaker 01 I think in order for it to be sticky, there are different parts of it, and I talked about this at the beginning of the show. There are parts of the services sector that need to
11:33 Speaker 01 see more inflation, and not necessarily that I want them to see inflation, but that's the part that's sticky, right? It's the services side of it.
11:39 Alex Kantrowitz? Sounds like restaurants.
11:41 Speaker 01 Wages.
11:42 Alex Kantrowitz? Yeah.
11:42 Speaker 01 Yeah, restaurants. Well, and interestingly, housing actually falls into that. I'm not sure how, but it does somehow. But.
11:51 Alex Kantrowitz? I just read that housing prices are up 24.8% since last year.
11:56 Speaker 01 And that's a, that probably is a podcast for an entirely different time, but it's really difficult to measure housing. Yeah, it's difficult to measure housing in inflation because it doesn't actually directly go into it. It's there's, there's a measure called owner's equivalent rent that sort of shows it, but you can see it in things like materials costs and, you know, building and all of that. But anyway, it's the services side that would cause it to be more sticky. So you can, you could see that happening in 2022, but also there's wage inflation. So you talked about consumers being willing to pay these prices. They're not going to be willing to pay them forever if they're making the same amount of money.
12:36 Speaker 01 So there has to be wage inflation that goes along with it so that they can absorb the higher costs. And we are seeing wage inflation right now. That's also something that would stay, that would keep inflation elevated. And then I guess the natural next question is how, what level do you see it staying elevated at? I don't think it's going to be 6%, like I said, but I wouldn't be surprised to see it hover around 2.5%, 3% for a while, maybe even above 3% for a while, you know, through 2022. Supply chains, I think, fix some of the issue, but to your point, we're also sort of, it's like a fantasy that we're thinking, okay, we're going to go to sleep, you know, March 31st and wake up on April 1st and everything's going to be fine.
13:21 Speaker 01 And I also don't think that's the case. It's going to take a while.
13:24 Alex Kantrowitz? Yeah, I guess like, you know, even if their wages are going up a little bit, you know, Turkey, like I said at the top, now costs 14% more. And you'd imagine that people who make most of their money working jobs versus investing are going to end up, you know, getting hit with the worst of this. So just to go back again to like who this hurts and how the government might want to address it.
13:51 Alex Kantrowitz? Well, let me just ask that question. Who does this hurt? And how would the government address it? And what are the ramifications of that? Ron, John?
13:59 Speaker 02 Yeah, I mean, in terms of who it hurts, that demand side of the equation and around inflation expectations, I'm going to be honest, I don't know what that looks like or feels like or what it means because I've never lived under that. And that's been one of the kind of weirdest things of trying to process all of this. Because again, there's this idea that, yes, okay, prices keep rising on the consumer side. Right now, if there is enough of a pool of money that people will continue to make those spending decisions and not cut back, maybe prices rise, but we don't see a slowdown in growth. And we hit some kind of unsteady equilibrium where everything still seems relatively okay. And there's not some kind of like massive public backlash around it.
14:41 Speaker 02 But the idea that if prices keep rising, do I stop spending today? And how do I make those decisions at a kind of micro personal level? It's just something I've never had to think about in my life as an adult consumer. You know, you read stories about the 70s, but How that starts to play out in terms of any kind of like inflationary expectations, I just can't even begin to perceive what that looks like. And and I think it presents a huge challenge for the government. I mean, one, on the monetary policy side, two, with the Build Back Better and Infrastructure Bill, which I do think can be argued is disinflationary over the long term. I do think is already factored into whatever kind of inflation expectations the market is setting.
15:26 Speaker 02 So from a spending perspective, isn't necessarily the worst thing or going to, you know, set off some inflationary spiral. But I think these are going to be very, very pressing issues that need to be addressed.
15:39 Speaker 01 Yeah, I mean, we're in this weird time, too, where it's like, whose problem is it, right? Is it the government's problem? Is it the Fed's problem? Is it corporations' problem? Uh, I think we're going to find out in 2022, who who decides it's their problem to solve. Um, I don't know how it bakes through into consumer sentiment going forward, but I do think that some of the readings, and and when I say consumer sentiment, there's, there's two different surveys that go out. There's one from the Conference Board, and then there's one from the University of Michigan. And both of those readings, they're they're basically surveys where they literally call consumers and ask them how they're feeling, right?
16:24 Speaker 01 This, it's all about their feelings. And it's how are you feeling right now? How are you feeling about the future? And both of those indexes have fallen in the last, let's call it, four months or so, and they haven't really recovered yet. And it's this strange tug and pull, because you look at things like retail sales that came in really strong last month. You you hear about, uh, we heard a lot of corporate earnings this week from retail. And everything that we've heard is that the consumer is spending and and they seem happy. They're they're happily spending, right? But then you look at these consumer sentiment surveys, and they've fallen, and it doesn't add up. So I saw a note the other day that said an unhappy consumer continues to spend and
17:08 Speaker 01 and that's sort of what's going on. But I think what's hitting those sentiment surveys is a fear about inflation. And eventually, that becomes an action about inflation, right? We talk about it like you vote with your feet, or you use, you give your opinion with your feet if you're a consumer and prices are too high. I mean, at what point do you start pulling back on that spending? I think, I think you mentioned at the top that turkeys are how much more expensive this year?
17:36 Alex Kantrowitz? Fourteen percent.
17:38 Speaker 01 Fourteen percent. I think it's more than that, frankly. I just bought one. I got it at Trader Joe's. Anybody that wants to get a turkey, go, go to, go to Trader Joe's because it was reasonably priced.
17:47 Alex Kantrowitz? But still more than fourteen. Jeez.
17:50 Speaker 01 I, well, no, it's funny. I, before that, I looked at, I was at Whole Foods.
17:54 Alex Kantrowitz? Okay.
17:55 Speaker 01 And I was trying to find, there was no turkey. I couldn't find any turkeys. So then I went online and thought, okay, maybe I just have it delivered. They were over a hundred dollars if I wanted to have it delivered.
18:05 Alex Kantrowitz? Yeah.
18:06 Speaker 01 And I mean, that's a lot for a turkey. And then I thought, forget it. I'm not having turkey. I'll have ham for Thanksgiving, right? So, but even just that thought process, I'm not the only person having those thoughts. So there's a substitution effect that starts to go on. And I'm, I'm getting off on a tangent here a little bit, but the last inflation reading, if you, if you dig down into the details, which I'm sure most people don't or aren't interested in it, which is totally fine. But we need people like me who are interested and dig down into it. Frankfurters were actually down 3.3% last month. So if you're looking for something to substitute in for the expensive turkey, evidently Frankfurters are, are affordable.
18:48 Speaker 02 Sell hot dogs, buy turkeys. Never trade.
18:52 Alex Kantrowitz? Nation's hot dogs.
18:53 Speaker 02 We found it.
18:54 Alex Kantrowitz? Yeah. And I think that, well, let me read the tweet from Ed Snowden, because I think that he like really nailed what's going on, which is that this is gonna, you know, even if it's not immediately going to hit somebody in terms of what they can buy, it is going to make a difference in terms of like. You know, they're the amount of money they have and what they can do with it. So he says inflation hit 6.2%, wiping out the raises of those lucky enough to even have a good job. Parents are worried about the price of milk for their kids when the shelves aren't empty. And the establishment is like this, and this is the New York Times. He's quoting a tweet.
19:36 Alex Kantrowitz? Americans are by many measures in a better financial position than they have been in many years. They also believe the economy is in terrible shape. Why? So it's like, there's, there's an immediate political ramification here. I think we're starting to see this reflect itself in terms of the polling around Biden and what happened, what people are predicting with the midterms, which is that like people are feeling poor. And yet, you know, the establishment is seeming to say there's, there's no issue. So, so, and I guess people with equities are doing okay. Right? If you, if you own stock, you know, the stock market is going up above what the inflation measures tell you. So you're, you're, you know, in relatively better shape. So I guess, I guess like, you know, what's going to happen there?
20:21 Alex Kantrowitz? There's got to be some ramifications, I think, as you both have pointed to, you know, if people are, are, you know, their wages aren't going up and, and they're, they're feeling like they have less money.
20:30 Speaker 02 Yeah. From the political side, obviously the biggest decision that's going to come up is does Powell get reappointed, Jerome Powell, the chair of the Fed, get reappointed? And, and Alex, we've been, I've been on this podcast a number of times talking about my radicalized beliefs that zero interest rates drive a lot of the weirdness in the economy.
20:49 Alex Kantrowitz? And you want to just give like a 60 second summary of that? Cause we have some new listeners on and I'm sure they'd like to hear, even though it's tough to.
20:56 Speaker 02 Yeah. Basically the idea that it's ultra low interest rates, the entire purpose of that kind of policy is to push more money into the economy and push people to take more risk to try to get the same yield. Again, if you're getting 0% in your checking account or like 0.1% in a savings account, then you go out and buy a yield farming DeFi product to give you 8% because that's a lot better. It makes people take more risk. It makes the economy a little weirder. And I think. The Fed's impact on the economy and what monetary policy, how it does affect the economy is now a mainstream topic of conversation. It's something that everyone's thinking about. It's obviously kind of like front and center that we have 6% inflation.
21:40 Speaker 02 Will the Fed switch to actually hiking rates sooner than predicted? And now that's something everyone's thinking about. And again, the most basic kind of economic policy type action that can be taken is when you have high inflation, the Fed will hike rates to try to combat that. But then there's the entire debate around, should the Fed be keeping interest rates low to stabilize the labor market and try to push labor and jobs to where they were pre-pandemic? And I mean, we are right front and center in that question, and that's going to come up more and more in the weeks and months to come. And I think that that's going to be the most central question.
22:20 Speaker 02 It's become, again, my mom asked me about the Fed and interest rates a couple of weeks ago. We had not talked about that in, I think, my entire life before.
22:30 Alex Kantrowitz? I do want to get into that when we come back from the break. So let's take a quick break and then come back here with Liz Young of SoFi, Ron Janroy of margins, and talk a little bit about the Fed's role in all of this. And the employment question in particular, I find fascinating because maybe they're all connected in a way that folks aren't really appreciating. All right, so let's take a break. We'll be back here in just a moment on the Big Technology Podcast. This episode is brought to you by AppPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about.
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24:01 Alex Kantrowitz? And we're back for our second segment here on the Big Technology Podcast. We're joined by Liz Young, the Head of Investment Strategy at SoFi, Ron Janroy, the co-author of Margins. So Liz, actually, before the break, you mentioned that this might not actually be a result of the way that the Fed is treating the interest rate. And maybe a rate might not help what we're seeing. But do you think that there's still a chance that the Fed will hike the rate? And what might go into its consideration on that?
24:36 Speaker 01 Well, first, let me clarify. What I meant to say, and I may have misspoke, is that I don't think that monetary policy is necessarily the main driver of inflation right now. If they hiked rates, that would change things. And Ron Jan was talking about this before we went to break. So the idea of hiking rates is it's really multifaceted. And there's a lot that we could say about this. First and foremost, what I would say is that rates are at zero because we were, past tense, in an emergency situation as an economy. And I think it was absolutely necessary.
25:19 Speaker 01 I think that the Fed did the right thing by stimulating the economy, stepping in into capital markets when they did, when the pandemic hit in a big way. And we needed that to happen. So that was not a mistake.
25:34 Speaker 01 We, in 2022, I think, are going to start to see an environment where We're going to start to talk about the chance of a Fed mistake. And that's what scares the stock market is a Fed mistake. But I want to be very clear too. Well, that's the thing. I want to be very clear about what a mistake could be. A mistake could be in either direction, too hawkish or too dovish. And I think we're going to start to talk about that in the first half of 2022. And when I say hawkish or dovish, what that means, just from a rate perspective, dovish would mean that they stay low. Hawkish would mean that they start to hike. Okay, so I don't know where the bird analogies came from. I didn't make these up, but these are the rules. So, anyway, doves and hawks. Right now, we're in a very dovish stance.
26:18 Speaker 01 And if rates stayed at zero, that would be about as dovish as it gets. And we're also awaiting an announcement of a nomination for the next Fed chair. Jerome Powell has been reasonably dovish. The other speculation is that Lael Brainard would be the other nominee, and she is expected to be even more so dovish, right? But I think the conversation starts to be, is too dovish the mistake? And the markets are kind of flexing their muscles right now and saying that they expect to hike sooner. And I think, you know, when we get the next dot plot, which is another thing that we can explain later, when we get the next dot plot or the next Fed meeting in December, we're going to see some yield curve volatility from that.
27:02 Speaker 01 And that's how inflation affects the stock market. Inflation affects the stock market because it affects the expectations for Fed rate hikes. And when rates get hiked, the stock market does not like it.
27:17 Alex Kantrowitz? Right. And so, the idea of keeping the rate low, folks have said, is that you want to get toward, as close as you can toward full employment, labor force participation rate. And so, the idea might be that even if we are experiencing some inflation, the Fed might not want to step in and raise the rate because that might end up, you know, harming our job recovery, even though the stock market right now and inflation have sort of gone kind of bananas. What do you think about that, Liz?
27:52 Speaker 01 Yeah, well. I mean, this is going to sound like a very simple statement, but the Fed knows this. Low rates don't create jobs.
28:00 Alex Kantrowitz? Okay.
28:01 Speaker 01 So that that doesn't solve the problem. And I think there's been, you know, some messaging that we needed spending in Washington. We needed some fiscal spending that would create jobs, or they wanted to kind of hand that baton off and say, okay, we can, we can only do so much with monetary policy.
28:20 Speaker 01 They they can't pull jobs out of a, out of a rate hat. So when you look at what the Fed tries to do, I think what they end up in right now is a little bit of a conundrum. They're kind of, they're stuck between a rock and a hard place because part of the reason that you lower rates is you want to stimulate economic growth, which does create jobs, right? If economic growth is, is effective at that. But they also need to control prices, right? Because that obviously affects the consumer. So I think what we're gonna, what we're gonna hear, what we're gonna start seeing is not necessarily a pivot from the Fed, but we're gonna hear that they are talking more about inflation than they were before.
29:03 Speaker 01 They're talking more about inflation being a decision factor than before, where, leading up to this point, it was all about unemployment, it was all about jobs. And I still think that that's an important piece of it, but we already hit the unemployment rate that the Fed had projected by the end of the year. So that box started to get semi-checked, right? And, you know, I think some of it is just a structural change in the economy. I don't think we're gonna see a labor force participation rate that goes back up to what it was before. So they're gonna have to sort of readjust the position and say, you know what? Maximum employment means something different than it did before the pandemic.
29:41 Alex Kantrowitz? Yeah, Ranjita, I'm gonna, oh, yeah, go ahead, chime in, and then I have a follow-up for you.
29:45 Speaker 02 I was gonna say, so there's the kind of like conventional wisdom, or just kind of theoretical certainty that low rates spur economic growth. But the, looking at why that's the case, again, if there's more capital to be invested to drive the economy, to build things, if a CFO of a company is sitting there doing a discounted cash flow analysis and trying to determine whether they should invest in a project and clear some hurdle rate. There is no shortage of capital in the economy. There's no shortage. No one is sitting there saying, I'm not going to invest in this project, or I will invest in this project because of where the interest rate is right now. I mean, there's any number of stock buybacks. There's capital going into everywhere.
30:29 Speaker 02 So this idea that if we keep rates low, that will be the catalyst for spurring economic growth because there's more capital in the economy. I don't see that connection any longer or that anything has changed significantly in the last year. So I do think it's worth everyone just kind of stopping and asking themselves, yeah, why are rates still low? Is it just a kind of knee jerk fear out of if we hike rates? That has always been bad and scares investors. So we do not want to do that, which is where I think we are right now.
31:03 Speaker 01 Yeah, I think that's totally fair. I think you just hit the nail on the head. And I think companies will reinvest the capital. And that's great for CapEx. And that's actually what we wanted companies to do after the global financial crisis with the capital that we gave them. When I say we, apparently I'm now a part of the government. I'm speaking as if I gave them this money. I did nothing.
31:27 Speaker 01 We, as the collective, we gave corporations money. And what a lot of them did post financial crisis was raise dividends and buy back stock. Right? They didn't necessarily reinvest in the company as much as we wanted them to. I think we do see a revival in CapEx in 2022, and that's definitely a healthy thing. Part of the other issue with the labor market is that there are plenty of jobs open. Right? That there's no argument there. I mean, people are, companies are trying to hire. It's just that the people who are unemployed don't want those jobs, aren't qualified for those jobs, and there's just not enough people to go around. We had a bunch of early retirements. We had people leave the labor force.
32:08 Speaker 01 And there's been a shift in the economy, which I think, I think we're going to look back on this 10, 20 years from now and say, oh, that's what happened. Right? The economy changed. We went into this pandemic. We were already obsessed with technology. Then it got to the point where we literally cannot live without it. And the economy changed, the companies that are going to survive and thrive changed, and the jobs around that also changed. And that's just, that's just a simple fact. So if there isn't the right skill set, they can't fill the jobs.
32:44 Alex Kantrowitz? Yeah, so here's a weird theory. People, so one of the hypotheses that underscores this low labor rate, labor force participation rate is that a lot of people who've been part of this great resignation have seen that they could probably make more money in Bitcoin or in equities than going to their job and, and actually making, you know, making a wage. And so by keeping the rate low, the Fed is encouraging this wildly speculative investment environment. And maybe that can keep even more people out of work. Like, is
33:26 Alex Kantrowitz? there a way that, you know, potentially keeping the rate low is also keeping the labor force participation rate low because people have gone from, you know, working in a day job to, you know, day trading and are, are willing to take the risk because the upside in their mind might be higher. I know it's a crazy theory, but I'm curious what you think that.
33:45 Speaker 02 While I like crazy theories, I think attributing it directly to crypto gains, I saw some survey that it was like 4% of people have resigned related to crypto, making money in crypto. But, but I, but I think whatever the reason for the great resignation, it's real. Everyone I know who runs a business, small business, medium, large business, it's such a huge issue. Yet, again, you have this disconnect where the Fed and Jerome Powell is still saying, we're trying to maximize employment. We want to reach the number of jobs that we had pre pandemic. Asking why are people resigning, I think.
34:27 Speaker 02 It's not even necessarily the right question. It's that they are. And rather than trying to solve that, it's still just acknowledging exactly as Liz said, the economy has definitely changed and trying to like get to find the exact root cause. I think there's any number. Obviously, everyone was talking before that unemployment benefits could be contributing to that. As you just, your theory that crypto gains could be contributed to that, stock market gains could be contributing to that. Any number of kind of additional government benefits, like the 600 bucks a month in child credit could be contributing. Whatever it is, I do think people have more money and which gives them a bit or makes them more empowered in making their decisions around labor.
35:10 Speaker 02 And I think that's a good thing and I'm, I think that's overall good for the economy, at least in terms of the individual worker. But yeah, where that goes and trying to either both solve that, but also just recognizing that the Fed is not going to create jobs, the Fed is not going to keep a low rate and get us to full employment where it was pre-pandemic, I think is the most important part of this.
35:32 Alex Kantrowitz? Yeah, and I'm highly pro the great resignation. I think that that's great that labor has like some power and you know, personally, I'll say I was a little bit ahead of the curve. I resigned, you know, in, in May 2020 before, you know, the summer's wave of resignation. We have a record like four million quits a month for a number of months straight. It's never happened.
35:54 Speaker 01 Well, okay, I don't know that the word resignation is entirely accurate because right because, okay, you were ahead of the curve, but you're still here working, right?
36:02 Alex Kantrowitz? Correct. Yeah, I'm in the labor force reshuffling.
36:05 Speaker 01 The great switch. Yeah, or something. The, the great, I changed my mind. I don't know. Somebody needs to come up with a better word than that. But there definitely are people who quit and didn't go back to work, but I think it's also people just changing jobs. I changed jobs. I, you know, I started at SoFi in March of this year. So I guess maybe that makes me part of the great resignation, but I took all of five business days off, right?
36:35 Speaker 01 There certainly wasn't a time where like we all left the labor force and just sat around and eat potato chips. And I think it's unfair to characterize all of it that way. But I also think, you know, as much as I think the crypto space is fascinating, I'm invested in crypto personally as well. So I believe in it as an asset class. I don't think that it's a good plan to use that as your income and replace it with, you know, I guess replace a job with your crypto investments. I don't think that that's a good long-term plan. And I think that at some point, people have to start working again or working in different
37:15 Speaker 01 ways. I don't know what that looks like. And this is a whole nother debate, too. Whose job is it to retrain the workforce, right? If that's actually the problem, if it's that we have this mismatch of skills, whose job is it to change the skills?
37:29 Alex Kantrowitz? Yeah, I want to zero in on what I said a little bit. And I think this is interesting. Let's let this breathe a little bit. So in terms of like the Great Resignation, I agree, probably a misnomer, but we also have labor force participation rates that are much lower than they've been before, or at least lower, maybe much is a bit of an exaggeration. The other thing is, in terms of taking the crypto winnings and walking away from the game, I think it might be less of that and more of someone sees that wages have been stagnant for years and years and years. And, you know, their 3% raise in their job is not outpacing inflation. And they see the gains to be had in investing in the equity market, you know,
38:12 Alex Kantrowitz? are much, are much stronger. I don't think that necessarily means that like you're going to end up like investing in the S and P and never working again. But it might mean you're a little bit more hesitant to take a job, knowing, you know, what the output of your labor is compared to the output of your investing dollars.
38:30 Alex Kantrowitz? I don't know.
38:30 Speaker 02 Yeah, no, no, I think it's fair to say that if you both factor in just for a number of months, you couldn't spend on anything other than ordering, you know, like some random thing on Amazon. People saved money, people were given more money, people have accumulated more money via investments, or they're seeing that you can accumulate more money. Of course, when you get to that personal level of do I want to go back to some job I don't like, it's going to be a factor, especially for employers that created environments that were not great for working. Of course, every single one of those people now has a bit more power to say, I do not want to take that job.
39:12 Speaker 02 And yeah, like as Liz was saying, I think not to get into a whole what does the future of work conversation look like, I think just in terms of kind of what the economy is looking right now, it's a really, really interesting time, and I think these are all huge factors. And again, as Liz said, I really like that, that we're going to look back years from now and be like, oh, that's what happened, and it's happening right now.
39:37 Speaker 01 And I don't want to make light of anything that we've been through in the last two years, but it is actually kind of funny to think about, you know, we all got locked in our houses, and we were left to our own devices, we were alone with our thoughts more than we've ever been alone with our thoughts. And I think we all pondered, what am I contributing to the world, right? What's it all for? And what do I really want to do? What's my purpose? And that's where part of the resignations came from, right? We all sat around and thought, like you said, do I want to go back to that job? And, you know, I mean, I'll be honest, from a personal level, I, in my last job, I was traveling a lot, and I loved it for a long time, but I didn't-
40:19 Speaker 02 What was your last job?
40:19 Speaker 01 For five years. I was an investment strategist at the Bank of New York. So similar, right, similar role, but I was client facing. So I did a lot of traveling, and I met with clients, and I spoke at a lot of conferences. But I mean, traveling for, it was five years straight, and then suddenly I was locked in my apartment, which at first seemed great, because I had time to like, watch TV shows and stuff. But eventually I got antsy. But either way, the travel lifestyle, it did start to wear on me. And I, you have to think about that and sit back, and once I finally had time to slow down and be home- I wondered the same thing, right? Can I go back to that lifestyle? Do I even want to go back to that lifestyle? I mean, I was, I was wheels up every week.
41:04 Speaker 01 And I make this joke all the time. I made diamond on Delta without the credit card. Like, I actually flew all the miles.
41:11 Speaker 02 That takes work, yeah.
41:12 Speaker 01 It, it does take work. And you know, I did it at the right time because now I get, I get free diamond status for like two or three years because of all the extensions. But, um, anyway, you know, I went through the same thing where it was like, I don't, I don't know that I want to go back to that. And I think it gave a lot of people an opportunity to examine that and maybe, um, even, you know, ask for a little bit of a different lifestyle or make a decision that they wanted a different lifestyle. And that's, that's what we're seeing right now.
41:38 Speaker 02 Yeah. And, and just to build on that, we started this conversation about will the economy go back to normal as it was before? And that's like a perfect example, business travel. I don't think it's going to look exactly like it did before. I don't think it's going away, but clearly, and the, taking a flight every week, once you realize that maybe it's not necessary, people will cut back on. And that will change certain parts of the economy. Airlines will be affected. And maybe that money gets shifted into the metaverse, meeting rooms or whatever. But, but I, I definitely think this idea that we go back to exactly the way things were, uh, pre pandemic is, it's, it's impossible.
42:22 Speaker 01 Yeah, I agree. I agree with that. I will say though, I, I just took my first business trip a couple of weeks ago, out to our headquarters in San Francisco and I got to see our stadium in LA. And it felt good to be out on the road again. It felt good to connect with people. It felt good to have business conversations face to face. Uh, it felt good to, you know, be around my boss in person. I mean, that, that hadn't happened in so long. So I think people will start to do it again and, and realize that. There's no replacement for face-to-face and in-person communication. But we now have another option, right? We have conferences that will happen in person, but there's probably going to be a virtual option as well.
43:03 Alex Kantrowitz? Yeah.
43:03 Speaker 01 And that's just something that's different.
43:04 Alex Kantrowitz? Go ahead. I think Delta was saying, giving some line where they think business travel is actually going to increase because now you can go on business trips and still zoom in back to headquarters and you won't miss a meeting. Okay, that was so ridiculous, but it is nice. Optimistic. I mean.
43:20 Speaker 01 Well, I mean, it's true.
43:21 Alex Kantrowitz? It is true, but it's just, I don't think that's going to be enough to buoy business travel. But I will say, I just did like four conferences and somehow didn't walk out with a breakthrough infection from COVID. And it was so amazing, like it just, the adrenaline of just like seeing people in person.
43:37 Speaker 01 Yeah.
43:37 Alex Kantrowitz? Was terrific and you just, you remember how great it is. You know, because you appreciate it more now that, you know, you've, we've all endured year and a half or whatever, depending on where you live, but something like that, locked, locked at home in some shape or form.
43:54 Speaker 01 Absolutely. I think, I mean, it's, it's also been a lesson in how to socialize again, right? It's like, we all went back out into the world and nobody knows how to behave. You go into a restaurant, everybody's talking louder than they used to. And, but I think it's great. I think we're all around each other again and, and we're really enjoying it. I mean, I was at a business dinner last night and we just, we couldn't stop talking about how great it was to be together. And it was, you know, a group of people that hadn't seen each other in a long time, all in one place. And it really, it was almost heartwarming, right? To be around each other again and have conversations in person.
44:31 Alex Kantrowitz? Liz Young and Ron John Roy are with us. They're two of my favorite voices on the financial system and tech in general. It's great to have them here. We're going to take one more break and then be back for a short segment talking a little bit about market craziness, which is one of my favorite things to talk about whenever I'm anywhere near Ron John. So we'll have to do a little bit more of that. We'll be back right after this.
44:54 Speaker 03 Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid, and risked 350,000 Virginians' health care to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes, and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the HouseMajorityPac.com. Not authorized by any candidate or candidates committee.
45:24 Alex Kantrowitz? And we're back here on the Big Technology Podcast for one quick final segment. We're talking with Ron John Roy. He's the co-author of Margins, a newsletter on Substack you most definitely should sign up for. Liz Young is also here. She's the head of investment strategy at SoFi. Liz, where can people find the stuff that you put out?
45:44 Speaker 01 Well, first, you can find me on Twitter, @lizyoungstrat. I tweet pretty often. I try to go light on Fridays, but I tweet pretty often. So follow me on Twitter. I also post all of the articles that I write on there as well, so you'd get alerted. But we also have a blog. So if you go to sofi.com, you can find our blog there. And there's an investment strategy section, so anything I write would show up there. And I also have a podcast.
46:11 Alex Kantrowitz? Oh, down it out.
46:12 Speaker 01 As well. It's called The Important Part. And you can find it literally anywhere that podcasts are available. So The Important Part: Investing with Liz Young. And I'm dropping a new episode this coming Tuesday, the 23rd.
46:28 Alex Kantrowitz? Looking forward to it. And you're both also on CNBC. Actually, the three of us are on CNBC every now and again. And Liz, I was actually watching one of your appearances recently where you talked about how the market is being bolstered by the exuberance of younger investors who are just plowing their money into it. So obviously, the market's been on an insane run recently. You can chuck it up to zero interest rate policy, or maybe people are hedging against inflation, or maybe it is just the younger folks are now diving in headfirst. So I mean, the question of whether this is good has been talked about ad nauseam with the Robinhood stuff. But does this change the way the market works?
47:11 Alex Kantrowitz? And is this period of exuberance going to come to an end at some point?
47:18 Speaker 01 Well, first of all, I think it's great. I don't think that's a question at all. I think it's great that there are
47:23 Alex Kantrowitz? I'm on board. I'm on board with that, too.
47:25 Speaker 01 Yeah, that there are new people in the market, that there are investors getting started earlier in life, and young or old, I don't care how old they are, right, just new to investing. I think it's absolutely amazing, because for such a long time, I know that there were many people out there that thought the stock market was a club for Wall Street, right, or didn't understand it enough to get started. And I think that this has brought the intimidation factor down considerably, and I think that's really important. It's how we build financial freedom, it's how we build financial futures, and how we get excited about being involved
48:05 Speaker 01 in the market at all and learning about it all. Where I think it becomes an issue is the next time the business cycle turns, because that's just a nature of the beast. At some point, we will have another recession. Shortly thereafter, we will have another recovery, right? That's just how this works. Now, none of us know when that's going to happen. We don't know when the next big pullback is going to be. We don't know when the next bear market is going to be. And for the listeners, I just want to define terms really quickly. A correction, when you hear about a correction, that generally means about 10% drawdown. A bear market is 20% or more. We haven't seen a lot of that, right? And if you're a newer
48:46 Speaker 01 investor that came in after the pandemic, so we'll call it post-market bottom, which was March 23, 2020. So if you came in post-market bottom, you haven't seen a broad pullback. There's certainly been pullbacks in certain stocks of more than 20%, but a broad market pullback hasn't happened. So I think that's where the problem comes in. When that actually occurs, you know, Are we giving enough education about how to deal with that? Are we showing people how to be patient through it? Are we showing them how to have a diversified portfolio so that they don't participate in that entire drawdown?
49:20 Alex Kantrowitz? And not only that, they've helped drive the market to such a crazy situation that it might even hurt more than usual. Although maybe I'm being dramatic.
49:30 Speaker 02 No, I would actually take the other side of that argument and say,
49:34 Alex Kantrowitz? Yeah, good, good.
49:35 Speaker 02 What we call the democratization of finance over the last year and a half or so is not necessarily a good thing. More because, and again, my background, I worked at a bank in trading for a number of years and left and have been in media for the past decade. But the questions I get, the statements I get from friends who have only recently entered the market are terrifying. I mean, even just like the idea that, oh, like 15% is normal, 20% is normal. I'm going to have this for the rest of my life. I just calculated that I could retire in the next five years. I mean, being explained yield farming by people who just are entering crypto like two weeks ago.
50:14 Speaker 02 I mean, these things, and the thing that actually worries me even more is companies now are targeting this type of investor. The way even, especially like direct to consumer firms, you see when they're IPO-ing, are creating entire marketing campaigns, targeting retail investors, not just trying to sell their products. One, this stuff is not even remotely regulated as a financial communication. It's still a marketing communication. But you see, everyone realizes there's this pool of hungry money that will go in any direction that is, it's being told to. Whatever is kind of trending on Twitter, if Elon Musk tweets about Dogecoin.
50:53 Speaker 02 And I really worry about what that sets people up for, for the next 10 to 20 to 30 years. If this is what they look at the financial market to be, and then in a year or two from now, if that's not the case, are you completely disillusioned? Or the likelihood that you stop, take a deep breath after a big hit and say, all right, now I want to learn about building a diversified portfolio and investing for the long term. I think it goes even more the other way.
51:24 Alex Kantrowitz? I just want to throw one thing out there before I, you know, to add before we go to final thoughts. Rivian, automotive company that hardly makes any vehicles, has $118 billion market cap.
51:38 Speaker 01 That's wild, right?
51:40 Alex Kantrowitz? Yeah. So Liz, your final thought here?
51:42 Speaker 01 Wild, not good or bad, but wild.
51:45 Alex Kantrowitz? I don't see how that could be good, but.
51:47 Speaker 02 It's fun. It's fun.
51:48 Speaker 01 Well, you know, there's, anyway, I can't talk about individual companies, so I'm just gonna pivot and save myself.
51:55 Alex Kantrowitz? Okay, yeah.
51:56 Speaker 01 Final thoughts, you know, I agree with Ranjan, I'm gonna go with 50/50 on, yes, it's a risk that this is how people are in the market now, and maybe they're not doing the same type of research and they're not building a diversified portfolio. I think, I think the bigger risk is that diversification piece. But the idea that, that people are in it and it's because of social media, or it's because of, you know, the meme stock craze, the market doesn't get to discriminate and say, you know what, you bought this stock for the wrong reasons, you don't get to have the gain, right? That's not how it works. It's, you can buy it for whatever reason you want. You could buy it because you like the ticker symbol, right? And it doesn't matter, you still get to have the gain, just like everybody else did.
52:40 Speaker 01 So, I don't know that, that it really, it matters why people got in, how they got in. I think that it's a responsibility of people like us to marry that, marry their enthusiasm, with some of the timeless principles that we know, right? About diversification and some of the things that we've learned in living through those downturns. And if we can, if we can take their enthusiasm and put it together with some of those timeless investing principles, I think that is a recipe for success.
53:18 Alex Kantrowitz? Ranjan? Thirty seconds?
53:21 Speaker 02 That was a very optimistic scenario, Liz. Trust me, I am regularly trying to marry the enthusiasm of today's investors with, with timeless principles. But, but I, I think, again, Even going back to the Fed decision, the thing that worries me is this idea that a 25 basis point hike coming sooner rather than later is a terrifying thing. It should not be a terrifying thing. It should be a boring thing that happens by decided by a bunch of economists, you know, and no one really pays that much attention to because it's just this small economic cog in the larger wheel.
54:03 Speaker 02 Yet, everyone is sitting here and all these exact kind of elements of this recipe have to be in place for us to be where we are today. And if any of them change, then everyone is terrified about what can happen. I think, again, but, but I always say this, and I've been saying this the last couple of times I've been on, and it's been over a year. Every day, it feels like the drawdown is around the corner and then things only get weirder the next day, the day after that. So, so I'm, I, I sit back and try to have fun watching the weirdness.
54:38 Alex Kantrowitz? And indeed, there's going to be way more to come. Inflation is up, the podcast remains the same cost. It's free. Thank you for listening. Thank you, Liz Young of SoFi. Thank you, Ron Jon Roy of The Margins. Really appreciate you both joining here to talk about this pressing issue. Thanks to Nate Gwatney, who edits the show, makes it sound good. Red Circle for hosting and selling to ads. And once again, to all the listeners, have a great Thanksgiving to those of you that celebrate, and we'll be back here next week on our typical time on Wednesday, and looking forward to seeing you then. Take care.
55:24 Speaker 03 Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid, and risked 350,000 Virginians' healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes, and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the HouseMajorityPact.com. Not authorized by any candidate or candidate's committee.
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