December 01 2023

I Can’t Get Satisfaction (remix)

There is a strange dissonance in our lives in 2023. We emerged victorious against a global pandemic. Economies rallied around the world. We are on a path to normalize the post-covid pent-up demand and the inflation shock that came along. The rate-austerity period seems to have run its course and markets price in a decrease from 2Q24. The S&P500 is up an astonishing 18.75% YTD23. What’s not to like?

Yet, FUD (Fear Uncertainty and Doubt) remains. After a sharp post-covid rally, consumer confidence is limping along unwillingly, and it looks like it is staring at the abyss again.

Why is that we have this “I can’t get-no-satisfaction” feeling? In 1965, Mick Jagger and Keith Richards expressed a sense of disillusionment and frustration with the status quo. Despite the buoyant economic context of a post-war boom of the early 1960s, growing consumerism, the war in Vietnam, and civil rights movement were fanning the flames of disenchantment with society.

Guess what? All these ingredients are here anew. Us grappling with climate change, diversity equity & inclusion, wars in Ukraine & Israel, the price of education and fast fashion, are only modern versions of our very human mind-raking quest for meaning. Just as in the Rolling Stones’ song, frustration is also vividly seen in a drop in sexual activity. From 2000 to 2018, activity waned for both men and women.

Watch out for the young. Mick Jagger was 22 in 1965. A 22-year old now would be a GenZ, born after 1996. She would have been born the year of 9/11 attacks, lived through their parent’s eyes the GFC at age 6, experienced social isolation during covid from age 18 to 20, and she stands ready to consider post grad school at eye-watering costs.

That brings us to the perception of inflation, a main culprit of the FUD. Yes, inflation is cooling down, but most prices have increased by 20% over the past 3 years. Notably, rents are up 28% since 2020 as per Bloomberg. Nominal wages have increased by 20% in accordance, but only 0.6% in real terms.

If you’re 22 and look past the promising land of a degree and a first job, accessing the American dream of home ownership is a tough ladder to climb, with 30-year mortgage rates above 7%, and home prices 42% higher than they were in 2020. Steep.

Overall, such situation makes it difficult for younger generations to make both ends meet, as suggested by a rise in delinquency rates on credit cards to 10% among the 18 to 29 year-old, highest since covid surge.

Perception of economic situation is therefore gloomy, and some argue that the FUD is being amplified grandly by social media vectors.

Is the reality so dark? Of course not. Thanks to lavish Government spending, the wealth gap has narrowed since Thomas Piketty flagged it in his now-famous book The Capital in 2013. Demographics and technology are augmenting opportunities for both younger and less skilled workers.

Yet, a sentiment is hard to fight, and the idea that capitalism fails young and low-skilled workers is entrenched. Investment attitudes has shifted toward hoarding, with larger positions in cash, all the more favored that short-term rates are still high.

It will require determination to shift the narrative toward a more optimistic view of the future, of the benefit of AI and the possibility of peace and enrichment for all. If Mick and Keith had invested $100,000 in the S&P500 in January 1965, they would now sit on $29.7 million. They might have got some satisfaction after all.

Stay safe out there !

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360 Advisory LLC is a Boston-based RIA managing investments