Where Are the Workers?

If you’ve ventured outside in the last few years, among other changes, you’ve likely noticed there’s a shortage of staff. Help wanted signs are outside of service businesses. Major hotel chains have stopped providing daily room service. Starbucks have shut down for days at a time and my very expensive gym has reduces its hours. Modern day anarchy. Let’s see what’s going on and if there’s anything we can do about it.

Here’s a qualitative summary of what we are experiencing: we cannot get the same services at the same quality and price today compared to before the pandemic. Moreover the narrative of unavailable services is accompanied by workers decrying working conditions, low pay, and inflexible hours, among other things. My favorite manifestation of the plight workers is the subreddit r/antiwork.

The membership for the subreddit r/antiwork has hockey-sticked in past year. While this subreddit recently suffered from a Moderator’s unfortunate interview with FoxNews (I’m not linking because Mods aren’t paid, they’re not supposed to be prepared for 15 minutes of fame, and they don’t represent a ‘movement’), the subreddit exposes predatory treatment of regular workers and the fact a lot of jobs don’t provide for any kind of human decency-type of features (not calling them benefits because in some countries they are rights) like sick leave, bereavement leave, safe working conditions, consistent working hours, and provide a sane way to spend 8+ hours per day. Here’s the subscriber growth:

This looks a lot like r/wallstreetbets during the $MEME stock craze of 2020 and 2021. $MEME stocks finally died; see my post that aptly preceded its inevitable decline (also see my note (1) about selling at the end of this post).

The growth of r/antiwork highlights the growing awareness in the US that some employers take advantage of their employees. Reading through the posts, as expected, most of the complaints arise from entry level, lower paid jobs created by small businesses. It makes sense that if small businesses are strained by a global pandemic they try and pass on as much of the strain to their employees, even if it doesn’t sound like the most humane response. In contrast, most tech companies sent their employees home in March 2020 and gave them a one-time payment to set up a home office and tacked on additional vacation days as the pandemic challenged mental health. As mentioned in my post about the shape of recovery, some industries have grown stronger while others such as travel, entertainment, hospitality, and food services are still struggling.

As we enter a new normal, we would expect to see a recovery in industries most affected by the lockdown. Consumer spending came roaring back, American savings accounts are the highest they have ever been, and a lot of states are acting like Covid is no longer a threat.

Overall employment is on track to fully rebound. Employment in the US will recover to pre-pandemic levels in 2022.

Statistic: Employment in the United States from 2012 to 2022 (in millions) | Statista
Find more statistics at Statista

The US population only grew .1% last year, thanks to Covid and Millennials preferring craft beer over babies, and we all got 1 year older. So why are we noticing a significant difference in the quality, quantity, and cost of literally any service?

The US labor force participation rate is not back to pre-pandemic levels. I think we’ve all seen the headlines that unemployment rate is 3.9%, which is historically low and some would argue below the natural churn rate. So, that’s why labor-force participation rate is such an important statistic to focus on. Couple a decreasing participation rate with an aging population and 0.1% population growth rate, we can clearly see there are fewer of the folks available to work pre-pandemic than current-pandemic state.

I’m going to make a few controversial points here. I’m open to criticism and changing my mind. Just don’t #cancel Adam Sutler. A lot of service jobs pay minimum wage or just above. Prior to the pandemic on-demand delivery and ride-share drivers accepted wages near minimum wage. Hospitality, food service, retail, construction, transportation, you-name-it workers accepted low wages. A lot of the lower wage workers are foreign-born. A lot of these services required people to show up in person to receive these services. Service workers in the US who were forced out of jobs that required in-person human interaction started different careers. Here are some trends around the change in population of foreign-born population in the US.

The US relies 10% more on foreign born labor than any other major economy, yet our foreign born population dipped sharply at the beginning of the recession triggered by the Great Trump Border Surge in March 2019. Yes, the US let in fewer immigrants, but it also had fewer jobs for immigrants during lockdown. After lockdown, applications for immigration spiked. Also job openings spiked in sectors where US-born workers already changed careers. Here’s a look at the backlog.

Ok, so we know there’s a backlog of folks that want to live in the US. I’m going to assume they want to work here as well. We know there are job openings. Tying back the earlier graph about r/antiwork, people want more money, more flexibility, and to just be treated better in general. I don’t think it’s a stretch to say if employers don’t want to do any of those things they need to hire people who are more desperate. While wages are going up, job openings are going up faster.

I hope it’s not too controversial to say that if employers don’t want to offer more to employees, they are going to need to hire foreign born employees. Please don’t think I mean it’s best for society that small businesses take advantage of people, quite the opposite. All I’m saying is looking at the data, companies struggling to hire need to either offer more or offer the same to folks who need it more. Also according to the Economist, quoting Giovanni Peri and Reem Zaiour from UC Davis, there are 2m fewer working-age immigrants in the US than before the pandemic.

At the end of December 2021, there were 1,596,193 pending immigration cases and growing at a seemingly exponential rate. Biden’s perceived softer stance on immigration, as well as the pandemic, have encouraged the highest immigration attempts in history. The average wait time is 2.5 years and up to 4 years for asylum seekers (I thought there was some kind of correlation between the word ‘asylum’ and ‘urgency’).

Let’s also look at what has been growing: Amazon. I can’t find recent employment data on Amazon, but this chart is through 2020.

During the Pandemic, Amazon added 500k workers while other industries lost workers. It’s safe to say the 2-day free delivery has taken a huge chunk of the labor force away from other industries.

So we have fewer foreign-born workers, a lower labor force participation rate, growing non-service-sector jobs and a whole movement dedicated to exposing just how bad employers in the US treat their workers. We also have a record-high number of people knocking on the US’s proverbial front door for a place to live and work. I’m not here to make policy recommendations, but there’s no sense in ignoring the supply-side. If society thinks we should fill jobs with the work force living in the country today, it’s clear the work force is demanding more.

I particularly love these types of conclusions that turn both Democrat and Republican headline ideologies against each other. I’m sure there’s smart policy folks on both sides that can reconcile this contradiction.

Well that’s all I got. There’s a lot more data and a lot more to this story, but hopefully this is a start. What are the solutions you may ask? The US has jobs, let’s let in folks to do those jobs. On a personal level, I’d like to see wages rise, particularly for teachers and nurses and anyone else who puts in a concerted effort to build the machinery that powers our society. I’d also like to see people be more grateful for service industry workers. I’d love to see a world where we move from the ‘Have a Nice Day’ service-sign-off to a ‘thank you for the help’. Personally, I don’t really need anyone to be unrealistically fake nice, just don’t be realistically mean. My employer pays for my help and I’ll absolutely never tell them to ‘have a nice day’. To be fair, I’m not going to say ‘fuck you, pay me’ either. I’ll land somewhere in the middle.

  1. Quick aside, a lot of folks are upset with me because I didn’t explicitly tell them I sold a specific stock. First of all, see my post where I announced I’m selling 60% of all $MEME stocks. If that’s not enough, feel free to make your own decisions about selling. Once you double your money I don’t care what you do next. Sell, hodl, whatever. I did my part. Every dollar that is invested should have an investment thesis and every day that thesis should be evaluated. I understand it’s not practical to do every day, but once the thesis is either achieved or no longer valid, sell. Simple. That’s how fund managers work. They set a target, say a 20% IRR and 2x multiple. Once they hit it their return in the set investment period, they sell. It’s mechanical. The only reason to hold would be if they reevaluated the current state of the investment and underwrote, say, a 20% IRR and 2x return in the next holding period, say 5 years. Also, this blog is about uncovering rare market anomalies controlling for the current macro economic environment sprinkled with a bit of technology because, hey, market anomalies arise because people don’t understand the implications of technological innovations. Its this very misunderstanding and uncertainty where you can make a short-term buck. As you all know, long term I’m holding a lot of Vanguard funds and BRKB (I’ll buy an A share before I die). I’ve never claimed to to know what will happen in the long-term.

There’s Chaos Outside the Markets Too?

I keep starting to write something, but end up stopping when some earth-shattering news story hits. We have cave-men occupying the Capitol building, staggering Covid-19 numbers, Bitcoin and Ethereum at $40k and $1.2k respectively, and here I am trying to find some pithy blurb about why some company is 10x undervalued or overvalued. Well, whatever, I can’t wait an eternity to get a word in amongst anarchy and division. Also, aren’t we supposed to be quarantining? Every damn time I decide to see what’s going on in the world I am disappointed and retreat back inside.

Dems and a New Stimulus?

I’ve been focusing a lot recently on stimulus checks. I think they are a good thing, but it doesn’t mean the money distributed by the government came from some kind of reserve or that there’s some kind of plan to pay this money back. In fact, it challenges the basic existence of money and debt. In short, that’s probably why BTC and ETH (along with a whole lot of other coins) have spiked. They are a decentralized store of value. The real commodity is the graphics processors minting BTC, which is why I prefer proof of stake versus proof of work, but that’s another topic.

Financial Product Idea: Someone really needs to create a ‘currency index coin’ that holds in reserve a mix of currencies (Dollar, Euro, etc), decentralized currencies (BTC, ETH, etc) and hard commodities (Gold, Silver, etc). That covers all sorts of doomsday scenarios along with a myriad of other scenarios like business as usual, high inflation, low inflation, hype cycles, recessions, and new innovative stores of value. The index itself should be crypto-based, but actually hold all this basket of stores of value in reserve so it could theoretically be liquidated at any point and distributed according to the basket mix.

Ok, back to the long-term implications of just handing out money. We need a new tax code. Income tax is fine, but tends to unfairly tax salaried workers and favor anyone who makes their money off of ‘capital gains’. Capital gains can come from any business or property venture, but what usually happens is people who make a lot of money in business invest in property. Property, which is literally secured by the Constitution of the United States is taxed at the State level, which makes no sense to me. The US army protects our land, the value of everyone’s property should be taxed appropriately to pay for that privilege. It certainly shouldn’t be completely left up to the states to charge as little or as much as they choose. This is how California ends up with the highest income tax, but lowest property tax for the rich. If California votes for Democrats, how can they let this stand? I mean, I live in CA, but I still think it’s ridiculous (no I’m not leaving, it’s beautiful here).

Next tax to talk about: inheritance tax. If we actually had a significant one, Donald Trump would not exist in our lives. I don’t believe in passing along wealth from generation to generation from the simple economic standpoint in that it hinders innovation. If you believe in trickle down economics (no one should), then you believe the rich deserve to be rich and their innovations will trickle down jobs and wealth to the middle class. Well, if you inherit all your wealth, odds are you spent most of your college years bullying underclassmen, doing a bunch of coke, and coming very close to failing out (our last two Republican presidents people). How is that supposed to foster innovation? If necessity is truly the mother of invention, then we will invent what we need. But if the inventors, and more importantly the capital providers behind the inventors, just need to hold on to power, we’re in for a wild ride mixing extremist populism and fascism. Instead of building a better future, ‘some people’ encourage crazy people in bear suits to storm the Capitol. I understand this argument doesn’t hold up in practice, but it’s something to think about.

So, now that the Dems control the Congressional and Executive branches, what does this mean for taxes and the market? Probably not as much as effectively distributing and delivering the Covid-19 vaccine, but there are some probable events. First, I think we can expect a $2,000 stimulus. Do you think the Democrats will go back for $2,000 in addition to the $600 or an additional $1,400? I think we can also expect big tech to be put under a microscope. They have good lawyers, so my guess is that everything will reach a reasonable conclusion. Also, as I’ve been saying, Biotech should continue to explode. And if you believe the hype, electric vehicles and clean tech will keep blowing up. These are more long-term investment ideas, which the market doesn’t seem to favor right now. It is shocking Elon Musk is the world’s richest man, yet his innovations and products, which are fantastic, affect so few people. We’re not going to live on Mars in our lifetime, so there’s no reason Tesla’s stock price should be living there right now.

Mitch McConnell took a lot of shit for blocking the $2,000 stimulus, but given his situation (like take this literally, be him, trying to accomplish his goals, and the goals of the Republican party), I can’t really fault his decision. It was a solid example of a Prisoner’s Dilemma. If he didn’t block it, he would be signaling to the true Republicans that the budget deficit is not a priority and government handouts are rarity. The Republican base in the next election would have very little to stand on in terms of fiscal policy and aligning their fiscal policy with the Democrats probably favors the Democrats long-term. But, by opposing it, he was a major contributing factor throwing the Georgia senate seats to the Dems. When faced with a classic Prisoner’s Dilemma, shoot the hostage is the answer I guess :).

So, if we increase the stimulus from $600 to $2000 (assuming people get an additional $1,400 sometime soon), it will cost between $465bn and $600bn depending on how many dependents and spouses are included in the calculation. If the government issues $600bn in bonds and decides to pay that back over 30 years at 1.18%, the government basically owes $900bn over the next 30 years, which is $30bn per year (it doesn’t really work like that, but humor me). The US government has annual revenues of $3.5tr. It seems like a drop in the bucket, but it’s really not (I would continue with the math, but it becomes circular because basically the government just needs this money back because it’s spending money it doesn’t have). The US government needs to save an additional $30bn per year for 30 years to make this work. Instead, this year alone, it increased the budget deficit by $3.1 Trillion. So for every $2k the government hands out, it’s going to need that money back. Either tax rates will go up, or we all better start earning more money. Hey, what if we just make everything just cost more so salaries go up without needing to increase actual output efficiency? 🙂

In other news, I’m not sure why we are all so upset. Would you rather be alive today, current wealth and living situation, or live in the 19th century enjoying the wealth of the top .1%? Well if you’re over the age of 40, there’s no point in even answering that question because the average life expectancy in 1860 is 39.4 years. If you’re 30 or over, great, you’ve got another decade with absolutely no Netflix, iPhones, or Ugg comforters (I just got one, it’s fantastic). So, maybe we should all just chill out and rather than trying to be the loudest in the room, try to appeal to reason, because at the end of the day, we live in an insanely advanced world capable of solving world-sized problems.

Stock Picks

BTC: I have to say something about Bitcoin. If you’ve forgotten you bought in 2017 and looked at your account today, you’d be pretty happy. I think the future of Bitcoin is a lot more clear. First, it will never replace any government backed currency. Second, it can work as a store of value, similar to gold. Unlike gold, it has no physical (or digital) use besides the fact it exists. Third, millennials love Bitcoin. Fourth, If Bitcoin was valued like gold by the market value of investor’s positions, it would be worth $146k today. And fifth, BTC moves with the stock market, instead of against it, which is not what traditional investors want for a currency, inflation, volatility or recession hedge. So, while BTC is probably going through another hype cycle, I’d say a reasonable upside in the next 5-10 years is $146k, if not higher because it will probably attract more investors than gold as more teenages race to open Robinhood accounts to gamble their allowance money.

FuboTV: What a wild ride! Kerrisdale Capital published this:

Fubo is not Roku. Fubo is not the next NetFlix. Fubo is not the next DraftKings. Fubo is a streamier version of a pay TV distribution model that is going away, only with far worse underlying economics.

I beg to differ! LiveTV will live on because, sports. If you’re like me, you watch most of them, basically know the rules, but I’m never going to pay for any sport in particular. Enter FuboTV. Also, betting on sports is fun. Enter DraftKings. Add premium content and sponsored events, and boom, you have Netflix + DraftKings + $$$. Silly Kerrisdale. Buy and hold baby!!! K, I’m going to stop talking about this one

PSTH: Price is ~ $27 with a par value of $20. If you buy this stock, you are pay a 35% premium. The fund raised $4bn and are value at $5.47bn. They have done nothing for 5 months and have an additional 19 months to close on a ‘mature unicorn’. You’re supposed to buy this stock because the market is acting irrationally, not because it makes any kind of sense. Ackman is well-known hedge fund name and odds are whatever he buys will make a splash. He can certainly get meetings with any company he wants.

SPACS – In General: SVAC, YSAC, PSTH, IPOC, BTWN (disclaimer, I sold IPOC and BTWN because I went up 15% for absolutely no reason. This is why we buy these things). There’s not much of a point in doing a ton of research, they all seem to rise and fall together and your guess is as good as mine as to what these entities will purchase.

XL Fleet: This is an EV company taken public by a SPAC purchase. They provide vehicle electrification solutions for commercial and municipal fleets. I like that they are relatively still small at a $2.75bn market cap and they have been around since 2009. They have thousands of vehicles on the road and seem to fit into my SPAC and clean energy bets