ogc163
Superstar
So, apparently last month’s main section “A Lack of Pretense That Any of This shyt Does Anything or Will Ever Do Anything”…was quite a doozy. I’ve been writing these for a long time so I think I have a decent sense of when I write something above or below the average of all the monthlies I’ve written previously. And I knew the one last month was a good one when I wrote it. But even I underestimated how much “A Lack of Pretense…” was going to strike a chord with folks. Because when I turned the main section into a tweet thread, it went properly viral – 2k+ bookmarks, 500k+ views. Big numbers for content that meaty. But it wasn’t just the raw numbers of the response, it was the qualitative characteristics of the response. The thesis REALLY resonated with people. I received many dozens of responses through numerous avenues (Twitter comments, reposts, DMs, Telegrams, text, email, podcasts). By my estimate:
- 80% of the response was strong agreement (with varying levels of begrudgingness);
- 10% was “you don’t know what you’re talking about”; and
- 10% was some form of pushback/disagreement (with varying levels of thoughtfulness).
Probably the topic within the thesis that garnered the most discussion was the concept of “financial nihilism” – the idea that cost of living is strangling most Americans; that upward mobility opportunity is out of reach for increasingly more people; that the American Dream is mostly a thing of the past; and that median home prices divided by median income is at a completely untenable level. You can click this link and spend 10 mins scrolling through the mentions of “financial nihilism” on Twitter over the last few weeks. It would be 10 minutes well spent.
Given how much discussion this concept sparked and how deeply it resonated with folks, this month we will unpack Financial Nihilism in more detail. To begin, it is not my term. Credit belongs to Demetri Kofinas, the host of the Hidden Forces podcast. He first introduced the concept at least 2 ½ years ago. Financial Nihilism goes hand in hand with Populism – a political approach that strives to appeal to ordinary people who feel that their concerns are disregarded by established elite groups. Populism is a topic I’ve discussed numerous times here in the past, perhaps most pointedly in my February 2021 monthly about Gamestop. The underlying drivers of Financial Nihilism and Populism are the same – this system is not working for me, so I want to try something very different (e.g., buy SHIB or vote for Trump).
How would you go about characterizing the drivers of Financial Nihilism? As previously mentioned, the chart of median home prices to median household income is the single most emblematic symbol of Financial Nihilism in my opinion.
Shown below with a couple annotations –
You can see Boomers (and GenX) bought all the houses at about 4.5x annual income. Then subprime lending fueled the housing bubble and the bubble collapsed. Not long thereafter, Millennials entered the workforce and got to the point where they could start buying houses at ~5.5x annual income. Then Covid happened, the Fed printed $6 trillion, and now houses are 7.5x annual income, much higher than even the peak of the housing bubble. Simply out of reach for many millions of Americans under 40. The numbers just don’t add up.
We can drill down into this real estate situation further. Shown below is the share of total real estate value by generation in the US-
From 1989 to 2023, the total value of US real estate held by households went from $7tn to $45tn, nearly a 7x increase. In 2020, when the youngest Millennial turned 25, Millennials held 13% of total real estate value. In 2005, when the youngest GenX turned 25, their share of housing wealth was 17%. And in 1989, when the youngest Boomer turned 25, they already had 33% of total real estate value. Kind of a raw deal for the current generation of young folks, right?
Let’s keep going though. Here’s the distribution of household wealth by generation. Similar type of chart as above, but looking at total net worth vs just real estate –
From 1989 to 2023, total US household wealth increased from $20tn to $143tn, a 7x increase.
Drilling down into these numbers, the rise of Financial Nihilism among young people is hardly surprising. In 2020, the youngest Millennial turned 25, and Millennials had a paltry 5% of total household wealth. Compare that to GenX – in 2005 the youngest Gen X’er turned 25, and their generation had already amassed 8% of all household wealth. Then compare that further to Baby Boomers – in 1989 the youngest Boomer turned 25 and by that point the Boomer generation had gathered 20% of total household wealth. Maybe they got that from making coffee at home and skipping the guac at Chipotle!
Looking at these statistics from wealth percentile instead of generation is equally as discouraging-
Again, total wealth over this time increased 7x from $20tn to $143tn. The top 10%, top 1% and top 0.1% all saw big increases in their relative share over this timeframe, while the bottom 50% actually lost a little ground. Literally watching the rich get richer while the American Dream of upward mobility slips out of reach for the majority. Tough.
Looking at the same analysis for real estate value yields a slightly different looking chart but with the same results –
The whole pie grows $38tn over this time, and the rich get richer while the Bottom 50% actually lose ground.
I’ll give you one last chart to prove my point before we move on. Below is the ratio of Median Household Income to the S&P 500. Think of it as, “how many shares of the SPX can I buy with a year’s worth of median income?”
