The New Millennial Superpower: Why It’s All About The Rent

Mar 23, 2021

The New Millennial Superpower: Why It’s All About The Rent

Do Millennials control the stock market?

This week we explore:

• The impact millennials have on short term momentum

• The ultimate endgame we can expect from that impact

• The precarious Catch-22 that puts us in

“Insanity is contagious.”

― Joseph Heller, Catch-22

Financial markets seem to have gone haywire over the last few years – especially during the pandemic. “Analysis” seems like it’s nowhere to be found, and valuations continue to soar amidst an everything bubble fueled by endless government stimulus and a gamified investing landscape. “Investing” in today’s world is no longer based on any type of fundamentals, and the power seems to be in the hands of millennials.

Today, you can go to Robinhood, open a trading account, and be trading “with leverage” in just minutes. These types of “investment platforms” look a lot more like a videogame, and are far more akin to a gambling hall than a trading floor.

The idea of “buy and hold” investing for young people is seen as a loser. The younger investors understand that valuations in the stratosphere guarantee that long term returns will be less. The higher prices go, the worse the future returns will be. This is a mathematical certainty. And you can’t blame young people for understanding this math.

Think of it this way… it’s far better for your long term returns to buy TSLA at $400 than at $600 or $800. The entire goal for long term investors is to “buy low and sell high.” This presents a terrible challenge when everything is high, and nobody seems to be a long term investor anymore. It’s precisely why valuations no longer matter in today’s casino. But they will very soon. And that’s the problem.

Add to that the ongoing and focused currency devaluation “strategy” from the Fed and the tidal wave of fiscal spending that we cannot afford to repay, we can be certain that our future dollars will be worth less, and why so many people feel free to gamble today.

This gamification of Robinhood and other financial platforms are a major contributor to the euphoric, “free for all” environment we find ourselves in today. We have created a new generation of high stakes gamblers in millennials, and I believe we have inadvertently given them power over our current “now now now” financial landscape.

The BIG Picture

According to CNBC, about 20% of renters in America owe back rent totaling $57.3 billion. However, Bloomberg notes that total to be closer to $70 billion.

A new analysis from Mark Zandi, chief economist at Moody’s Analytics shows the typical delinquent renter now owes $5,600, being nearly four months behind on their monthly payment.

Fortunately, the government is issuing a new round of stimulus checks, giving Americans a whopping $1,400 each.

Statista notes the average apartment rent in the US to be $1,124 as of February 2021.

Let’s do the math, shall we?

If the average rent is $1,124, and renters owe as much $5,600, with a stimulus payment of $1,400, don’t we need five stimulus checks instead of one if we are going to cover all of the back rent owed? This same issue exists within mortgages with an estimated 22% in forbearance and on pause.

Ok. So we have a huge hole that needs filling. Before we dive deeper into that, let’s recognize where the past stimulus checks have flowed.

There has been zero obligation to pay the rent, which is why so much millennial free cash has flowed into “stonks”.

With no liability or requirement to pay what they owe thanks to an ongoing eviction moratorium, more and more millennials are flooding financial markets with an inflow of capital.

A federal nationwide eviction moratorium has been in place for over a year as part of the CARES Act to ensure that no one is displaced as a result of the pandemic. That moratorium has since been extended three times.

For millennials who are out of work, that essentially means they don’t have to pay rent. Meanwhile, they continue to receive unemployment benefits that are often more than what they’d earn at work.

More money, less expenses, young minds.

This is why meme stocks and crypto have boomed, regardless of rhyme or reason.

GameStop Corp. (GME) was just above $4 a share in June of 2020. Then millennials in the WallStreetBets subreddit went to war with Melvin Capital over the hedge fund’s short squeeze and the stock surged as high as $483. Today, shares are around $186. This is fantastic for those who bought the stock at $4 and awful for those who bought at $483.

Meanwhile, actual sales have fallen 10 of the last 11 quarters.

So why is the stock still up 46X with no actual reason?

Because it’s a video game.

This is completely untethered to fundamentals. It’s all speculative to people playing with rent money that no longer needs to go towards rent.

It’s insanity.

And as Joseph Heller said in Catch-22, “insanity is contagious.”

According to a quarterly survey conducted by E*Trade Financial Corp last year, more than half of Gen Z and Millennial investors said they’ve been trading significantly more often since the Covid-19 pandemic began (compared with just a 30% increase for the general population).

Roughly 46% of millennials and Gen Zs are trading derivatives more frequently — double the average rate. And 51% say their risk tolerance has increased.

In short, these young traders are a key driving force behind the everything bubble we’re seeing today. They continue to drive stocks higher with funds that would normally be earmarked for rent.

This momentum sends a false signal to many long term investors that stocks are the place to stay invested.

But what happens when the rent gravy train stops flowing?

What happens when the eviction moratorium ends?

The market boomed because of disposable income and the flow of capital into paper assets and cryptos. Now it will all have to go to rent – and back rent. However, we personally do not feel that young people can (or will be able to) pay a year’s worth of rent.

So what happens when a 25-year-old can’t pay that back rent?

For the millennial, s/he can just move back in with parents. 52% of 18- to 29-year-olds now live at home.

But, again, what about the back rent? Who is picking up that bill?

We’ve already seen $50 billion in emergency rent funds to cover the situation, but that’s simply not enough, even by the conservative estimates mentioned above.

And if we keep printing dollars on demand, at what point does it become meaningless?

I believe this will all come to a boil in Q4 of 2021.

There’s an old saying that goes “buy the rumor, sell the news.”

The market is forward-looking. Right now it’s looking at stimulus and rent checks. I believe two things will happen when that starts to change.

First, we’ll see a sell-off once that stimulus gravy train runs out.

20% of people (renters) will be making 20% less (working again rather than collecting bonus unemployment checks) with the funds they’re earning going to bills rather than “investing.”

Then I believe we’ll see a brand new round of stimulus funding in response to that drop. So we can see the stress this creates in the short term.

Now let’s consider what the long term investor can expect.

I believe within the next five years we will be $50T in debt, with $20T on the balance sheet, and a dollar that has lost tremendous value as the excitement of free money turns into the reality of a broken, over-indebted system.

While we can expect that the government will try to do everything in its power to protect its beloved stock market, the reality is that when the rush for the exits occurs, there will be a whole lot more people trying to get out the door than can fit through it.

What’s even more alarming is that as we continue to print more money with no seeming negative impact, we will continue to convince ourselves that this is evidence that money printing is good. And the more that asset prices stay elevated, the more we will continue to print, and why this will likely end suddenly when it does end – and believe me, it will end.

Think of it as the straw that breaks the camel’s back.

One straw doesn’t make a difference. Another straw and another straw and then 28 Trillion straws later, and lo and behold the camel is still standing.

Many will see that as evidence that the camel is strong, rather than understand that there will be a moment when only one more straw of additional debt and the entire system collapses.

The only problem with that is once this camel's back breaks it will never stand on four legs again.

Eventually, the dollars, while worth less and less, will pile up higher and higher, until our markets (the proverbial camel) can no longer take it, and we break.

What’s crazy to me is that no one is questioning this insanity.

No one is looking ahead.

What about 5 years from now? Or 10?

How soon will it be until a gallon of milk is $20?

How soon will it be until your $100,000 salary is only worth $60k?

What do we do then?

I believe the Fed will just continue to print more money in pursuit of what I believe is their ultimate goal – a monetary reset.

And we can see it in the plight of millennials.

The new stimulus bill that Biden passed extends protections through September. No surprise there as this keeps the “have nots'' rolling in free money, furthering the Fed’s redistribution of wealth agenda.

Again, I believe this means a huge inflationary push through summer, followed by a slamming-on-the-breaks reversal as money goes back to paying rent and away from chasing the green dragon.

And then we will simply lather, rinse, and repeat until the Fed gets its desired outcome.

This is why I’ve never been more excited to buy physical gold, and continue to do so. I believe gold is more undervalued today than ever before – even while it’s up 70% over the last 5 years.

That’s because everyone is focused on the now, and no one is looking at future returns.

Again, who can blame them?

The Fed has created an everything bubble that makes future investments worth less and less. It’s all about “the now,” baby.

YOLO!

If the Fed gets its way, which I believe is a guarantee because you can’t fight the Fed, then millennials are right to go all in right now. It’s the only way they can see to secure future funds.

Unfortunately for them, they don’t know they’re playing a rigged game. Even more unfortunately for long term investors, the pain coming when this overleveraged bubble incinerates will be eternally damaging.

The market is now a casino. It’s one big video game that I believe is being played by millennials who could care less about winning five years from now.

I’ll end this with a quote from The Daily Stoic, a book that was recently sent to me as a gift.

“What is it then to be properly educated... It is learning to apply our natural preconceptions to the right things according to Nature, and beyond that to separate the things that lie within our power from those that don’t.”

– Epictetus, Discourses, 1.22.9-10a

Or as Ryan Holiday so eloquently puts it, “begin with awareness and reflection, and focus only on that which lies within our power to control.”

We can’t control the craziness, but we can control whether or not we participate in it.