Today’s Stock Market is a Casino Powered by Easy Money and Boredom


from Birch Gold Group:

We are already aware of Federal Reserve Chairman Jerome Powell’s stance on rates and inflation (at least for the immediate future).

That loose monetary policy has the potential to inflate a big asset bubble on its own. But that isn’t the only Fed policy that could be (at least indirectly) wreaking havoc on the economy.

The first Fed stimulus was issued in March 2020 to prop up the economy in the midst of the pandemic. A second stimulus was issued in January 2021. Both seem to have set the stage to turn the markets into an overvalued “casino,” and here’s why…


What exactly did the stimulus stimulate?

The first pair of Fed “free money” stimulus packages seemed to, at least partially, do their job from a consumer standpoint. Consumers spent money in record amounts on both durable and nondurable goods according to official sources.

Durable goods spending spiked by about 18% to an adjusted rate of $1.86 trillion annually, as you can see on the chart below:

Durable goods sales

Nondurable goods spending (things like energy and food) also increased by roughly 6% to an adjusted rate of $3.21 trillion annually.

So why all the concern about the high-risk market “casino” if the stimulus checks went toward buying stuff?

Strap in, because this is about to take a weird turn in the wrong direction…

Less “pent up” consumer spending

According to Wolf Richter, it seems like one reason that consumers spent like they did for the last year is they deferred their mortgages:

Millions of homeowners didn’t have to make their mortgage payments because they’d entered their mortgages into forbearance programs.

But “2.6 million mortgages are still in forbearance,” according to the article. Eviction bans and student loans automatically going into forbearance are only some of the reasons consumers went on the spending spree we saw above.

The problem is, either these mortgages, rent agreements, and loans eventually have to be repaid by the consumer, or the lenders might have to seek other remedies.

To complicate matters even more, Wolf thinks any demand for consumers to spend more could evaporate completely:

What will come when this crisis settles down, and when this free money fades, is a scenario where consumers have bought all the goods they wanted to buy. That’s the opposite of pent-up demand.

If the potential implications of this weren’t bad enough, it still gets more interesting.

Even more stimulus?

At this moment, Congress is thinking about raining even more “free cash” down on Americans.

If Wolf’s prediction is right, and pent up consumer demand is gone, where will the money go?

Into the world’s biggest casino

Bloomberg columnist Matt Levine has an interesting theory

 I call it, or something like it, the “boredom markets hypothesis”: People got bored in their coronavirus-related lockdowns, and they couldn’t bet on sports because sports were canceled, so they turned to betting on stocks as a form of entertainment, not investment or financial analysis. The stock market is a casino that happens to still be open. [emphasis added]

“Robinhood’s (RBNHD) trading in equities and options spiked to a level more than double its previous peaks,” thanks to these gamblers.

You may think calling the stock market “casino-like” is an exaggeration. Massachusetts financial regulators disagree. When they filed a complaint against Robinhood last year, they accused the app of encouraging frequent trading, rewarding users with carefree animations like confetti (whether the trade is profitable or not).

Levine again:

I have to say, I sometimes play computer games on my phone, and my impression is that the thing that distinguishes Robinhood from other smartphone games is not so much the in-app animations as it is the money. Like, on Robinhood, you play a game on your phone, and sometimes you win money! Other times you lose money!

Whether or not it’s because of the confetti, we do know that Robinhood’s $0-per-trade business model forced other brokerages including Fidelity, E*trade, TD Ameritrade, even Charles Schwab to match their free-trading model.

This competition put even more money on the table.

Retail investors going “all in” on their casino bets?

In addition to Robinhood’s spiking trade volume, “Fidelity’s retail accounts totaled 26M in 2020, up 17% from a year earlier, while daily trading volume doubled,” according to an article on Seeking Alpha. “Brokerages were also bolstered as more people stayed at home due to COVID-19.”

We’ve been wondering why currently-astronomical stock prices keep rising, inflating the already historic “everything bubble” even more. It seems like the Fed isn’t just supporting stock prices through “quantitative easing,” but also by handing out chips for the world’s biggest casino.

We can expect more stock market chaos. Maybe from “short squeezes” like the WallStreetBets fiasco in the last week of January. Or we might see even sillier things like gambling on a stock because it has a cool name

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