Monetary Matters with Jack Farley From Bad to Less Bad: A Quantitative Approach to Turnarounds | Bloomberg Indices’ Steve Hou on “Reformers Index,” Baumol Disease, and Structural Inflation
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Dec 20, 2025 
In this discussion, Steve Hou, a Senior Quant Researcher at Bloomberg Indices, delves into the structural forces driving inflation, highlighting decarbonization, demographic aging, and deglobalization. He introduces the Reformers Index, a unique strategy aimed at identifying companies transitioning from 'bad to less bad,' like Uber and Palantir. Hou explores the implications of Baumol's Disease on costs for middle-class families and challenges traditional investment approaches, emphasizing how systematic fundamental momentum can lead to impressive market outperformance.
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Five Structural Forces Raising Inflation
- Steve Hou argues we entered a structurally modestly more inflationary regime driven by long-term forces.
- He lists Decarbonization, Demographic aging, Deglobalization, Debt/fiscal dominance, and rising Defense as core drivers.
Baumol's Cost Disease Drives Core Inflation
- Baumol's cost disease explains rising prices in low-productivity services like healthcare and childcare.
- Wage pressure migrates from productive sectors to labor‑intensive services, inflating essential costs.
Tech Deflation Is Uneven
- Technology produces strong deflation in some tradable goods while services remain inflationary.
- This unevenness concentrates spending into low-productivity services, raising overall cost pressure.