Welcome Avatar! One of the major themes here has been “long degeneracy” where sports betting/gambling has been one of the major trends. Here we’ll outline why you should care (despite avoiding the industry). They did an incredible job of moving the marketing from gambling to predictions. Note: no one is actually great at predictions for sports because they ban the consistent winners. The consistent winners (called sharps) have to use various accounts and constantly move around farming new names/bookies.
Overview
Basically the new generation saw the prior generation fail. It is that simple. A lot of young adults live at home due to financial issues as they quickly learned the Old School financial advice doesn’t work anymore: Job, save 15%, 401K, starter home and compound.
Post COVID: This turned into a new nihilistic view “nothing matters, everything is too expensive”. Six figure salaries are not leading to a nice home + car anymore (after expenses, the savings rate is too low).
Result is max degeneracy, sports betting, 0 DTE options, meme pumps etc.
The lotto ticket mentality is just a way of purchasing hope. The majority don’t even expect to win, they just want a reason to think there is a chance.
The New World: This largely consists of 1) significant increase in housing costs, 2) much more student debt, 3) tech monopolies eating into profit margins of brick and mortar and 4) wild changes in new tech that results in a B-line to wealth or a B-line to irrelevancy. All of this encourages more risk taking because the reward for being responsible got delayed by years (perhaps decades in some cases).
Simplistically, if their income isn’t rising faster than asset prices, they feel like they are falling behind.
Always Look at Income vs. What it Can Buy (house, stocks etc.). People intuitively know this (hence the nihilism, however, if you quantify it the decision making for YOU will get massively, massively better).
Searching for Quality of Life Improvement
This is all people care about. If wage growth is low and inflation is high for a few years, people look at their quality of life and quickly realize the effort isn’t resulting in a material change. Similarly, it is why a millionaire will still live well below their means. $1M and $1.4M is not possible to see in your day to day living standards.
How It Gets Expressed:
If it doesn’t have a 5x+ potential, people are not interested
Popularizes options, pink sheets and anything high beta
People want to get rich fast because they don’t believe their current path has a future lifestyle upgrade within the next 5-10 years. The conclusion is their life won’t change so may as well swing for nothing but grand slams
How it Helps You:
If you are broad basket risk on, it means you’ll catch part of the wave without being forced to go into 0DTE ideas or pink sheet investing. Underlying bid is going up
If you go down the path of biz ownership, the multiples on riskier items get bid up anyway. This means your small company actually gets valuation re-rating to the upside
Every option/leverage blow up creates a time to either sell or buy. If it blew up to the downside buy more than usual. If it went up huge on the upside, just give it bit of time to let the options market and pricing to normalize
Basically by being unemotional you outperform without much thinking and use 99% of your time doing bullet two
Since there is so much demand for get rich type products, the financial industry made risk taking as easy as possible. Have a bad day? Instant pop up to gamble on your smartphone. Suddenly in two clicks you’re in some outrageously risky position to scratch the itch (buying hope)
Go Downstream Further
People will now finance the present instead of an unaffordable recurring expense. While people can still save some money, that amount isn’t being set aside for the Minivan, starter home and night nurse for the first year of newborn craziness.
Instead it is being put aside for: plane tickets, major events like Coachella and that new $200+ per person restaurant that just opened. There is a reason why ASMR eating type videos are still popular amongst the masses.
All part of the exact same trajectory. Delayed life transitions/responsibility which creates a clear loser.
Biggest Loser? Long-tail Middle of the Road Real Estate Businesses
US Existing Home Sales
While the luxury market isn’t impacted (can’t create beach front property), the middle of the road homes have expanded the rental market and decreased the turnover. Most just focus on the number of sales being low. There is a secondary dynamic at play as well. If people don’t buy until they are 40 (on average), that means the average rental period is expanding by a decade
Duration of a renter has doubled. A few years has turned into 6 years. Pretty huge for the land lord because the debt requires 5 renters to pay it off instead of 10. For the large number of you in E-com, it would be equivalent to someone telling you “only need to sell 50% of the units you normally do due to guaranteed LTV increase”. You’d fall on the floor instantly due to the stress relief.
Doomer Narrative Missed the Second Derivative: Prices can stay stable in a high interest rate environment if everyone wants to rent. Those rents do not need to hit risk free cap rates. They need to hit the rates that were issued in 2021 (3-4%). The owner simply says “alright if i don’t get the price i want, i can just rent it out and wait”. Exception to the rule is extreme building in the area ramping up supply or idiosyncratic changes with the city (COVID movement causing return to the office for example)
It’s Really Not Going To Change
Go look at other countries with huge wealth disparities. What we have in the USA is still nothing compared to parts of Asia and South America. In fact, this can last for decades
Asset inflation outpacing wage growth = lower relative wealth for people with no equity
Oddly, if you’re sharp you can actually get ahead faster than before. Think about it like this. Before, everyone basically participated in economic upside. This meant that there was no general sector outpacing everything. Now? Actually quite simplified.
Both sides of the wealth curve are coming to the same conclusion. The rich are saying “I don’t spend anything and can live off my portfolio so may as well swing for fences”
The poor are saying “Even with 7-10% returns for a decade my life won’t change, may as well swing for the fences”.
This means you can simply sit in a basket of higher risk but higher growth assets and wait out the terrible down years/months/weeks. This is easier said than done. However, with deep emotional control, if you hit singles/doubles you’ll slightly outpace the majority while you spend your time building equity (which we’ve already beaten to death, should outpace wage earnings for the foreseeable future).
Summary
We’re in a wild self fulfilling prophecy type stage. If someone is ultra rich or below the median, they are hyper gambling to increase their wealth. This creates immense long-term demand for risk assets. The only catch is the swings become much much more volatile. People say they can remain calm on an up 20% or down 20% day however the reality says otherwise (every year levered positions being blown up - short or long - get worse). In fact, every single year we get a wild event such as the Situational Awareness blow up.
This means you only really need a few things: 1) avoid leverage since the swings become much worse, 2) only care about increasing equity/ownership vs. dollars in a bank and 3) smile and nod when a random person tells you about their huge sports/prediction win.
Despite claims of hitting big gambling wins, those townhomes and rental leases are simply going to expand in duration + use. The money reveals the truth. Always follow the money.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.
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