You Can't Take It With You

The Times They Are-A-Changin’

The halcyon days of post-World War II America ushered in an era of American exceptionalism. It also destroyed communities and changed the way Americans live.

Baby Boomers, those born between 1946 to 1964, have experienced a goldilocks economy for most of their adult lives. Though some studies suggest that those born closer to the first half of that generation have done better than those born later, the cohort has a whole haas certainly accumulated massive amounts of wealth.

And what are they doing with all that glitter? Turns out, not much. As one advisor on X recently posted, the path forward may be to start gifting wealth and take advantage of the current $13.67 Million dollar lifetime gift exemption. That’s right Boomers: you can give away $13.67 Million of your wealth to your kids and not have to pay any tax on that transaction.

But the issue is that for many Americans, their wealth is tied up in value of their house. A recent Redfin survey showed that these people aren’t going anywhere.

78% of Boomers plan to stay put, and of those who are empty nesters 28% live in three plus bedroom houses. Which begs the question: where are 35 to 40 year-olds with families supposed to go? How many rooms do two people need? And sure, the argument on the other side is - “we bought this place, we don’t have to leave, and if we did, where would be go?” But that’s not helping the Millenial or Gen-Xer currently renting a 2 bedroom apartment with two or three kids.

What this country needs is more 55+ communities. Not a retirement home, but a community of like-minded and similarly aged people that have decided to downsize. Problem is, as it currently stands, there aren’t any tax incentives for developers to build those kinds of communities. And I think there should be. We should really encourage builders to make these communities and allow them to offer subsidized mortgages or fixed rents to allow for this mass of people to leave the homes they bough in the 80s and allow the next generation - now with children of their own - to take their homes.

The Rise of the Nuclear Family

One thing of note is that the origins of our housing crisis finds its genesis in what we’ve come to call the “nuclear family.” Had we never broke up extended families into smaller units, we probably wouldn’t have this entrenched housing crisis.

If you haven’t seen it, the 1990 Barry Levinson film Avalon explores the intricate dynamics of establishing the nuclear family in mid-20th century America. It follows the Krichinsky family, immigrants from the old country who do everything together. This is how most people lived during the 1930’s and 1940’s And in many other parts of the world, it is common to live with your parents long after gettin married and having kids.

In moving to America the Krinchinksy’s confront the dangers of assimilation while chasing the American dream. As they transition from a close-knit, multigenerational household to a more isolated nuclear family units. This transformation underscores how the nuclear family ideal was often leveraged to fuel consumerism, pushing families toward the acquisition of one home per famiy unit of four or five.

In doing so, not only did we cause the deterioration of our communities, but now we have a horrible housing crisis to contend with - while seniors live out their days in assisted medical facilities rather than with their children and grandchildren surrounding them. I could go on about how loneliness is literally killing seniors, but I think that’s enough of a downer for a Sunday evening. So call you mom, tell her you love her, and then let’s make a hard left to check out what’s happening in the economy and markets this week instead!

Earnings and Service Sector In Focus

Last week markets were all over the place. U.S. equity markets experienced mixed performance amid cautious optimism. The Fed’s decision to hold interest rates steady, while signaling to cut in September, briefly buoyed the market, but as investors sobered up things took a turn into the end of the week. The weakness in the JOLTS and unemployment reports raised concerns about slowing economic growth. Add to taht the increasing geopolitical tensions weighing on broader market indices, and we had a recipe for red on the board. The S&P 500 ended the week slightly up, while the Dow Jones Industrial Average and Nasdaq Composite exhibited more volatility, reflecting investors' cautious stance amid economic uncertainties.

More bad news? The economic data that came out last week showed a slowing and weakening of economic activity. Tomorrow we get the ISM Services PMI report. You may hear about this in passing, by way of explanation: This report is a monthly survey of business activity in the service sector. It gauges new orders, employment, and supply deliveries. A PMI above 50 signifies expansion, while below 50 indicates contraction. The service sector includes businesses in healthcare, hospitality, IT, finance, and the like. As we can see from the chart below, we’re already seeing weakness in the services sector. If this continues it only makes the need for easing of monetary policy that more urgent.

Earnings Continues: Discretionary Spending Spotlight. This week major names in technology/discretionary spending report - Uber, Lyft, Airbnb, Disney and Wynn, to name a few. The issue with disruption is that initially investors don’t mind losing money initially, but ultimately companies like Uber, Lyft, and Airbnb have had some trouble creating consistent profits since they’ve had to increase prices in recent years. The issue with inserting a technology into an existing business model is that it simply adds a middle man, creating more - not less - friction in these transactions. This week we’ll see how well they’ve done managing these pressures.

Can tech continue the come back? This week we get earnings reports from technology firms primarily in the data business: names like Datadog, Palantir, Rivian, Robinhood, and The Trade Desk. Recently big tech has taken a beating as earnings and forward looking statements have not done much to satisfy investors appetite for profits. It will be interesting to see how well these companies do, especially if that ISM Services PMI number comes in lower - these names may struggle if the sector as a whole is underperforming.