Big Technology Podcast - Inflation and The Great Resignation — With SoFi Head of Investment Strategy Liz Young and Margins’ Ranjan Roy

Episode Date: November 24, 2021

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!).

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, you know, 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. Ron John 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 around, John. Good to be back here. Okay. And we also have another great guest, Liz, she's the head of investment strategy at SOFI. Liz, welcome to the show. Thank you. Happy to be here. 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 happened. So, so what explains this? 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 somebody would learn in school about economics, you would have expected inflation to have picked up much sooner than it has. But the reality is that it didn't, right? It was kind of dead in the water for a long time. So the argument about whether it's monetary policy and all 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. But what's actually happening is when you look at the goods economy, So basically the stuff side of things instead of the services side of things, the inflation is there. 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.

It's amazing that that's still going on. Like, I'd imagine 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 very interesting. Ranjan, 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 real.

Tell me what it's like from your view on the ground. Yeah, I mean, focus, 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, I think hitting it from both sides, I mean, I think we are definitely getting hit from both sides, but then the big question is, you know, how can 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? And, you know, the supply chain thing is definitely worth touching on because for my understanding, so I actually was speaking to somebody I know who was 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 system shut down as the pandemic set in. But then demand went way up and the shipping lines decided that they could potentially be a little slower, bringing things back online so the price for their services go up and they also just didn't have the capacity to bring everything on. So then all the shipping goods end up, 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, 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 chipping. That will eventually fix itself, and we will return to normal. What do you guys think about that, a hypothesis? 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 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 going to look in two, five, or ten 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 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?

What's nearshoring? Like, not going overseas. 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. It's an, it's an interesting. 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 almost disagree with it, though. I think it's a lot more difficult for companies to move production. I think 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, right? Because 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 the supply chain stuff resolves itself and they look at it in two years and say, well, that wasn't worth it, right?

Yeah. 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 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 numbers. And so if inflation is actually here to stay, what happens? 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? 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. 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 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. It's the housing side of it. wages. Yeah. Yeah, restaurants. Well, and interestingly, housing actually falls into that. I'm not sure how, but it does somehow. But I just read that housing prices are up 24.8% since last year. 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, it's difficult to measure housing. Yeah, it's, 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. 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. So there has to be

wage inflation that goes along with it so that they can absorb the high 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 two and a half, three percent 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. And I also don't think that's the case. It's going to take a while. Yeah, I guess like, you know, even if their wages are going up a little bit, you know, a turkey, like I said at the top, now it 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, 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? 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. 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 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. It's disinflationary over the long term.

I do think is already factored into whatever kind of inflation expectations the market is setting. So from a spending perspective, isn't necessarily the worst thing or going to set off some inflationary spiral. but I think these are going to be very, very pressing issues that need to be addressed. 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? I think we're going to find out in 2022 who decides it's their problem to solve. I don't know how it bakes through into consumer sentiment going forward, but I do think that some of the readings, and when I say consumer sentiment, 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 basically surveys where they literally call consumers and ask them how they're feeling, right? 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 hear about, we heard a lot of corporate earnings this week from retail. And everything that we've heard is that the consumer is spending. 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 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 you mentioned at the top that turkeys are how much more expensive this year? 14%. 14%. 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 to, go to Trader Joe's because it was reasonably priced. But still more than 14. Geez. Well, no, it's funny. Before that, I looked at, I was at Whole Foods. 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 $100 if I wanted to have it delivered. Yeah. 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. 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 getting off on a tangent here a little bit, but the last inflation reading, 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 expense of turkey, evidently Frankfurters are affordable. Sell hot dogs by turkeys. They're betrayed.

We found it. 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 going to, 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, the amount of money they have and what they can do with it. So he says inflation hits 6.2 percent, 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.

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 an immediate political ramification here. And I think we're starting to see this reflect itself in terms of the polling around Biden what happened, what people are predicting with the midterms, which is that, like, people are feeling poorer. 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 know, in relatively better shape. So I guess, I guess, like, you know, what's going to happen there? There's got to be some ramifications, I think, as you both have pointed to. to, you know, if people are, you know, their wages aren't going up and, and they're, they're feeling like they have less money.

Yeah, from the political side, obviously the biggest decision that's going to come up is, does Powell get reappoint, Jerome Powell, the chair of the Fed, get reappointed. And Alex, we've been on, 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. And you want to just give like a 60 second summary of that because we have some new listeners on. and I'm sure they'd like to hear, even though it's tough to. 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 D5 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.

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. 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. 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 Jen Roy, of margins, and talk a little bit about the Fed's role in all of this. And, you know, the employment question in particular, I find fascinating. because, you know, 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. Hey, everyone. Let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending. More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest. business headlines in 15 minutes or less and explain why you should care about them.

So search for The Hustled Daily Show and your favorite podcast app like the one you're using right now. 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 John Roy, the co-author of margins. So Liz, actually, before the break, you mentioned that, you know, this might not actually be a result of the way that the Fed is treating. is treating the interest rate and, you know, 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? 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 Ranjan 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 net. necessary. I think that the Fed did the right thing by stimulating the economy, stepping in into capital markets when they did, you know, when the pandemic hit in a big way. And we needed that to happen. So that was not a mistake. 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. thing. I want to be very clear about what a, 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 doveish stance. And, 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 dubbish.

The other speculation is that Lael Braynard would be the other nominee. And she is expected to be even more so, doveish, 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. 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. not like it. 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 was? 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. Okay. So 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, to hand that baton off and say, okay, we can we can only do so much with monetary policy. They can't pull jobs 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 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 effective at that. But they also need to control prices, right? Because that obviously affects the consumer. So I think what we're going to, what we're going to hear, what we're going to start seeing is not necessarily a pivot from the Fed, but we're going to hear that they are talking more about inflation than they were before. 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 going to see a labor force participation rate that goes back up to what it was before. So they're going to have to sort of readjust the position and say, you know,

what, maximum employment means something different than it did before the pandemic. Yeah, Ranjan, I'm going to. Oh, yeah, go ahead, chime in, and then I have a follow-up for you. I was going to say, so there's the kind of like conventional wisdom or just kind of theoretical certainty that low rates spur economic growth. But 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 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. 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. 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. 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 part of the government. I'm speaking as if I gave them this money.

I did nothing. We as the collective we gave corporations money. And what a lot of them did post financial crisis was raise dividends and buyback stock. 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? There's no argument there. I mean, 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. 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. 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 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 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 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. 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, but, 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 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 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 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, which gives them a bit

to makes them more empowered in making their decisions around labor. 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 yeah and and I'm highly prog 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 never happened well okay I don't know that the word resignation is entirely accurate. Because, okay, you were ahead of the curve, but you're still here working, right? Correct. Yeah, I'm in the labor for it. The great switch, yeah, or something. The great, I changed my mind.

I don't know. Somebody needs to come up with a better work 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 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?

There certainly wasn't a time where like we all left the labor force and just sat around and ate 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, 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 ways.

I don't know what that looks like. And this is a whole other 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? Yeah, I want to zero in on what I 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% raising their job is

not outpacing inflation. And they see the gains to be had in investing in the equity market, you know, are much stronger. I don't think that necessarily means that like you're going to end up like investing in the S&P and never working again. But it might mean you're a little bit more hesitant to take a job knowing what the output of your labor is compared to the output of your investing dollars. I don't know. Yeah. No, 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 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. And yeah, like as Liz was saying, I think not to get into a whole, what does the future of work conversations 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. 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 did it for five years. I was a 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 wheels up every week and I make this joke all the time I made diamond on delta without the credit card like I actually flew all the miles that takes work yeah it it does 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 anyway, you know, I went through the same thing

where it was like, 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 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 what we're seeing right now. Yeah. And just to build on that, we started this conversation about will be 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 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 I definitely think this idea that we go back to exactly the way things were pre-pandemic is it's it's impossible yeah I agree I agree with that I will say though I just took my first business trip a couple weeks ago out to our headquarters in san francisco and i got to see our stadium in l.A 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. I felt good to, you know, beer on 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 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. Yeah. And that's just something that's different. Go ahead. I think Delta was saying, getting 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. That was so ridiculous. But it is nice. I mean,

well, I mean, it's true. 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. person 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 a year and a half or whatever, depending on where you live, but something like that, locked at home in some shape or form. Absolutely. I think, I mean, 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. But I think it's great. I think we're all around each other again 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. 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. 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 subjects 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? Well, first,

first you can find me on Twitter at Liz Young Strat. 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. Oh, down it out 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.

Looking forward to it. So 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 nauseum with the Robin Hood stuff, but does this change the way the market works? And is this period of, you know, exuberance going to come to an end at some point?

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. I'm on board. I'm on board with that too. Yeah, that there are new people in the market, that there are investors getting started early. 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 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 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 investor that came in after the pandemic, so we'll call it post market bottom, which was March 23rd, 2020. So if you came in post market bottom, you haven't seen a broad pullback. There's certainly been pullbacks in in certain stocks of more than 20 percent, 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? And not only that, they've helped drive the market to such a crazy situation that it might even hurt more than you. Although maybe I'm being dramatic. I would actually take the other side of that argument and say 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'm going to, 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. 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-consume firms, you see when they're IPOing, 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 it's being told to whatever is kind of trending on Twitter if Elon Musk tweets about Dogecoin. And I really worry about what that sets people up. 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. And I just want to throw one thing out there before I, you know, to add before we go to final thoughts, Rivian, which is an automotive company that hardly makes any vehicles, has a $118 billion market cap. That's wild, right? Yeah. So, Liz, your final thought here. Wild, not good or bad, but why? I don't see how that could be good. It's fun.

It's fun. Well, you know, there's, anyway, I can't talk about individual companies, so I'm just going to pivot and save it. So final thoughts, you know, I agree with Ranjan, I'm going to 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 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 disqualification. discriminate and say, you know what, you bought this stock for the wrong reason so you don't get to have the gain, right? That's not how it works. 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. So I don't know 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 take their enthusiasm and put it together with some of those timeless investing principles, I think that is a recipe for success. Raja? 30 seconds.

That was a very optimistic scenario. trust me, I am regularly trying to marry the enthusiasm of today's investors with timeless principles. But 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. 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 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 I sit back and try to have fun watching the weirdness. 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 John Roy, of the margins.

Really appreciate you both joining here to talk about this pressing issue. Thanks to Nate Gawattney, 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.

Thank you.