Hiring and Wages are Up, Reinforcing the Economy’s Resilience The U.S. posted surprisingly large gains in both jobs and pay, even though the unemployment rate ticked up to 4%

Employers added 272,000 new jobs in May, the Labor Department reported on Friday, more than in April and well above the 190,000 that economists had expected.(…) Average hourly earnings also topped forecasts, rising 4.1% from a year earlier. (…)

It was the first time in more than two years that the jobless rate hit 4%. It also marked the extension of a steady climb higher; the rate was as low as 3.4% last year. (…)

Government jobs increased 43,000 last month, returning to the steady pace of gains that had paused in April when just 7,000 jobs were added in the sector. Private sector hiring also climbed, with a noticeable pickup among leisure and hospitality businesses. (…)

Survey says…???

• The BLS Establishment survey shows employment up 1.0% since November 2023 and +1.8% YoY in May.
• Its companion Household survey, used to calculate the unemployment rate, shows employment down 0.5% since November 2023 and +0.2% YoY.
• PMI surveys say employment was weak in the past 2 months, particularly in services.
• Job openings have declined 10% since December 2023.
• May’s jump in the number of unemployeds is from workers aged 24 and under: +205k (vs +157k overall). The unemployment rate for this group rose from 8.2% to 9.2%. Seasonal aberration?

• BTW: US Jobs Household Survey Size to Be Cut Due to Budget Constraints

BLS will cut the size by 5,000 households to a total of 55,000 a month starting in 2025, Commissioner Erika McEntarfer said at the quarterly meeting of the Council of Professional Associations on Federal Statistics. She noted there’s a “real risk” of a decline in quality, especially as response rates have declined substantially in recent years.

And this: hourly wages (black bar below) jumped by 0.40% MoM in May, much faster than April’s +0.23% and the last 3-month average of +0.25%. Wages for Private Production and Nonsupervisory employees (80% of total) jumped 0.47% in May (+5.8% a.r.) vs +0.2% in April and +0.23% in the previous 3 months, and the fastest monthly growth rate since March 2023.

On a YoY basis, the nice slowdown in wage growth stopped in April and ticked up to 4.2% in May.

Aggregate weekly payrolls (employment x hours x wages) suggest that consumer expenditures should hold up around 5.0% growth in May:

One more thing blurring the everybody’s vision:

About half of the non-farm payroll job growth since October 2023 has come from asylum-seekers, refugees and other migrants who have been authorized to work in the U.S., per a research note from Standard Chartered Bank released last month. Migrants comprised one-third of the monthly jobs numbers in the 12 months before that, per the report.

The figures line up with a Brookings analysis of Congressional Budget Office data earlier this year that attributed higher than expected post-pandemic job gains to immigration. (Axios)

On Tuesday, the administration issued an executive order preventing people who unlawfully cross the Southern border from seeking asylum. Instead, they’ll be sent to their home country or removed to Mexico.

Economic Data Paint a Picture of Two Americas A growing disconnect between the fortunes of upper- and lower-income Americans could account for some of the crossed signals in the U.S. economy.

(…) In the latest shocker, the Labor Department reported on Friday that the U.S. added 272,000 jobs in May, up from 165,000 in April and much higher than economists’ expectations. The strong reading is especially perplexing because it comes on the heels of a string of weak economic reports in recent weeks, including soft income and spending data for the month of April and a lower-than-expected reading on manufacturing sentiment in May.

It isn’t just government reports: Companies have been warning in recent weeks that consumers are pulling back. (…)

There were also disconnects within the May jobs report that had analysts scratching their heads. For instance, while the overall unemployment rate remains quite low by historical standards at 4.0%, unemployment among 20- to 24-year-olds was 7.9%, up from 6.3% a year earlier. And earlier this week, job openings fell to their lowest level in more than three years.

One possible reason for the mix of caution and abandon is that people lower on the income ladder who spend a bigger share of their income on necessities are feeling pinched and less confident about their job prospects. Meanwhile, wealthier households are still spending.

Consider one of the biggest surprises in the May jobs report, which was that the leisure and hospitality sector added 42,000 jobs. That was up from 12,000 in April and better than an average of 36,000 over the prior 12 months. By contrast, the entire goods-producing sector of the economy added just 25,000 jobs in May. Within leisure and hospitality, food services and drinking places added 24,600 jobs and the “amusement, gambling, and recreation industries” added 10,200. (…)

What is becoming hard to miss is that companies that serve a wealthier clientele sound much more confident lately. While food makers see shoppers struggling with inflation, cruise lines are booming. (…)

Stepping back, this makes a certain amount of sense. The upper cohort in the U.S. mostly own their homes, and the lion’s share are likely sitting pretty with ultralow mortgage rates taken out or refinanced during the pandemic. They are also benefiting from an effervescent stock market, including downright euphoric valuations for anything associated with the promise of artificial intelligence. They also aren’t struggling with high rates on credit card or auto loans. Instead, high interest rates are actually supplying them with record levels of investment income, as The Wall Street Journal recently reported.

It is this cohort, whether by splurging on vacations or further bidding up Nvidia shares, that is making it harder for the Federal Reserve to get comfortable cutting rates.

This is a good time to revisit my September 11, 2023 post The Wealth Defect which showed that when inflation-adjusted household net worth rises rapidly above trend, like in the late 1990s, the mid-2000s and recently, consumer expenditures grow faster than income, i.e. the savings rate declines.

The Bernanke/Yellen unconventional monetary policies have rendered the FOMC’s conventional playbook ineffective!

Monetary and fiscal policies boosted household wealth 25% above their 2019 level and 20% above trend, thanks to rising stock prices but, principally, to rising home values due to unusually low supply of existing homes due to Fed-supplied mortgage handcuffs.

From a monetary policy perspective, the wealth effect is now a wealth defect: rising interest rates have little impact on a very wealthy, under leveraged, American consumer looking to enjoy life AMAP (as much as possible) post pandemic.

And we’re not even going back to trend just yet, are we?

Hence the continued divergence between expenditures and income…

… causing real expenditures to keep rising 2.6% YoY when real disposable income is only up 1.0% in April.

Many April data revived “hopes” for the desired soft landing but May’s labor income data suggest expenditures growth still around a +0.45% monthly range, 5.5% annualized. With PCE inflation below 3.0% YoY (2.6% in April), the “no-landing” scenario remain possible.

Canada Unemployment Rate Inched Up in May With Softer Hiring A spike in wage growth, however, adds a wrinkle for a central bank pondering further rate cuts

Employers across the country added 26,700 jobs in May from April while the unemployment rate edged 0.1 percentage point higher to 6.2%, the highest since January 2022, Statistics Canada reported Friday. The pace of hiring was slightly stronger than market expectations for the addition of 22,500 jobs but follows a 90,400 jump in employment the month before.

Hiring in May was all for part-time positions.

Statistics Canada’s survey showed 62,400 part-time jobs were added, which more than made up for the drop of 35,600 full-time roles. And that came even as the start to the summer job market looked soft, with the employment rate for students planning to return to school in the fall lower than a year earlier.

When calculated using U.S. Labor Department methodology, Canada’s unemployment rate was inched up 0.1 point to 5.2%. In contrast, U.S. job creation blew past expectations even as the jobless rate ticked up to 4% for a mixed view of America’s labor market.

The unemployment rate in Canada has trended higher for a little over a year, rising 1.1 percentage points since April 2023 even as employers have continued to add to their ranks. Canada in May added 402,300 jobs compared with a year earlier, though that strength has been outpaced by immigration-driven growth in the population, with almost 100,000 added to the population during May alone. The employment rate, the proportion of the working-age population that is employed, eased 0.1 point from April to 61.3%. (…)

Still, earnings continue to advance more strongly than headline inflation and average hourly wages for permanent employees advanced in May by the most since January, rising 5.2% from a year earlier to beat the 4.7% growth economists anticipated. The re-acceleration comes after signs in recent months, including in separate payroll data, that the pace was cooling. (…)

Europe Readies Tariffs on Flood of Cheap Chinese EVs

The European Union is expected to tell manufacturers of EVs in China as early as [this] week whether it will impose provisional tariffs from July 4 that would boost import duties above the current level of 10%. (…) The EU’s tariff levels are expected to be significantly lower than the 100% duty introduced by the US as they are based on a different approach within World Trade Organization rules and procedures. (…)

The manufacturer [BYD] plans to build a factory in Hungary and has said it’ll bring its $10,000 Seagull hatchback to the region in 2025. (…)

• Nio Inc. has established sales and service networks in markets including Norway, Germany, the Netherlands, Sweden and Denmark. The brand’s ET5 sedan and EL7 sport utility vehicle won the maximum five-star safety ratings in the 2023 Euro NCAP safety tests.
• Xpeng Inc. this year started selling electric models including its flagship G9 SUV in Germany, Spain and France and has plans to expand to the UK and Italy. In Germany, unlike some of its Chinese peers, the company is selling via a local dealer network.
• Other Chinese companies have bought European brands to facilitate their entry into the market. SAIC has had success in the region with the British-origin MG badge, while Geely controls Norfolk, England-based sports-car maker Lotus and Sweden’s Volvo Car AB. (…)

Closer to home, manufacturers are racing to offer more affordable EVs to defend against the cheap Chinese competition:

• Volkswagen, which has been struggling with its EV shift, is introducing more than 30 new products this year including the all-electric Porsche Macan and the ID.7 sedan, which comes with a display that beams information into the driver’s field of vision. The German manufacturer also has plans for a €20,000 EV developed and produced in Europe, but that won’t arrive until 2027.
• Stellantis — owner of the Fiat and Peugeot brands — earlier this year introduced the €23,300 electric Citroën ë-C3 and in September will start sales of cars co-developed with China’s Zhejiang Leapmotor Technologies Ltd. in Europe.
• France’s Renault SA said in May it will develop much of its sub-€20,000 EV in China, part of a push to speed up time to market. It plans to start deliveries of the R5 E-Tech city car — which is assembled in France — in September, with a price tag of around €25,000.
• Mercedes-Benz Group AG and BMW last year unveiled prototypes for their next-generation EVs, but those models won’t be available until around mid-decade.

(…) The European Commission in March said it had found “sufficient evidence” that the imports of new EVs from China received subsidies including direct transfer of funds, tax breaks, or public provision of good or services below market prices. (…)

It’s still far cheaper to make a car in China than it is in Europe given the country’s low cost of land, energy and labor, and its vast economies of scale from being a first mover in mass-production of EVs. That’s reflected in the contrast in EV sticker prices between China and Europe. In Germany, SAIC’s MG4 costs €34,990. In China, it’s 109,800 yuan (€13,917). (…)

The companies that rely heavily on sales in China — mainly Volkswagen, Porsche, BMW and Mercedes — have much more to lose if trade relations continue to deteriorate. Earlier this month, Mercedes CEO Ola Källenius said Europe should resist the urge to take protectionist measures, repeating a mantra he’s been championing ever since the EU opened its probe. Slapping tariffs on Chinese EVs will delay the transition to a cleaner economy, with an escalating trade conflict poised to hurt “the whole world,” former Volkswagen CEO Herbert Diess — now Chairman for chipmaker Infineon Technologies AG — said during a BloombergNEF conference in Munich in June. The Germans and US rival Tesla produce cars in China that are then exported to Europe, adding to the potential impact on their businesses from an escalating trade spat with Beijing.

China has urged Brussels not to impose the EV duties, and signaled in May that it’s ready to unleash retaliatory tariffs as high as 25% on imports of cars made in the EU with large engines — which would affect Mercedes-Benz, Porsche and BMW the most. Beijing has also hinted at possible tit-for-tat levies on European aviation, agricultural and dairy goods and wine, and has begun an investigation into European exports of brandy. It could also restrict exports of goods that are vital for EV production, such as rare earths or battery metals like lithium. The EU mines only a small fraction of the lithium it consumes, and relies on China to process it. Another retaliatory tool China has used in the past is to restrict tourism to inflict economic punishment.

The EU is expected to privately notify the Chinese carmakers of its planned tariffs some time after the June 6-9 European elections. Brussels will then accept comments, before officially announcing the preliminary tariffs in July. Final levies are due to be set in November. (…)

• Turkey to Impose Additional 40% Tariff on All China Vehicles

CAPS, LARGE AND SMIDs

From Ed Yardeni:

• The S&P 500 absolute P/E (20.6) nears the high end of its P/E range, the latter rising along booming profits. Ed’s MegaCap-8 P/E is at 28.3. S&P 500’s ex-MegaCap-8 {/E is at 18.2, 4% above the 17.5x historical median.

• The S&P 400 MidCaps and S&P 600 SmallCaps are currently trading at forward P/Es of 15.0 and 14.2.
• The LargeCaps outperformed the SMidCaps mostly because the former’s forward earnings has rebounded to new record highs since the last earnings recession, while the latter two’s forward earnings have been mostly flatlining below their record highs in early 2022.

As a result, as Bespoke explains:

While weak breadth has become especially pronounced in recent days, the trend is not new.  Look at the chart below which shows the performance of the S&P 500 market cap-weighted index versus its equal weight counterpart over the last two years. While the S&P 500 has rallied 30.3%, the equal weight index is up by just a little more than a third of that (11.3%).

Below we show the rolling two-year performance spread between the two indices over time.  At the current level of 19 percentage points, the spread has reached its widest level in nearly 24 years (6/30/00) putting it in the 95th percentile relative to all other two-year periods since 1992.  The last time the spread was this wide, it came just ahead of what ended up being a period of massive long-term underperformance for the cap-weighted index. That being said, the period during which the cap-weighted index had outperformed leading up to that lasted for years.

Yardeni’s price targets:

When we calculate our S&P 500 price targets for the end of each year, we project S&P 500 forward earnings per share for the end of each year and multiply it by a forward P/E range of 16 to 20. We are still forecasting the following forward earnings at the end of each year: 2024 ($270), 2025 ($300), and 2026 ($325). (FYI: “Forward” earnings and revenues are the time-weighted average of industry analysts’ consensus estimates for the current and following year.)

That gives us the following year-end target ranges for the S&P 500 stock price index: 2024 (4320-5400), 2025 (4800-6000), and 2026 (5200-6500). In our Roaring 2020s scenario, we are picking the tops of these three ranges as our point estimates: 2024 (5400), 2025 (6000), and 2026 (6500). By the end of the decade, we expect to see the S&P 500 at 8000, with forward earnings at $400 and the forward P/E at 20.

(…) the S&P 500 profit margin ticked up to 12.0% during Q1, while the forward profit margin rose to 13.3% during the May 30 week. Again, in our Roaring 2020s scenario, we expect the actual profit margin to rise from 13.2% this year to 13.7% in 2025, and 14.6% in 2026.

FYI, by comparison:

@OliverRakau

First-Quarter US Labor Costs Marked Down on Weaker Output, Hours Annual unit labor costs rose at slowest pace in three years

US labor costs increased in the first quarter by less than previously reported, reflecting downward revisions to economic output and hours worked and consistent with other signs of moderating activity.

Unit labor costs, or what a business pays employees to produce one unit of output after taking into account changes in productivity, rose at a revised 4% annual rate, down from an initially reported 4.7%, according to Bureau of Labor Statistics figures published Thursday.

From a year earlier, unit labor costs were up just 0.9%, the slowest pace in three years. (…)

Productivity, or the output per hour of nonfarm employees, barely rose in the first three months of the year, revised down slightly to a 0.2% pace. On the whole, quarterly productivity figures are volatile. That said, a sustained slowdown would represent another hurdle for the Fed’s quest to tame inflation. (…)

The productivity report showed output rose at a 0.9% pace in the first quarter, the smallest advance since 2022. Real hourly compensation climbed just 0.4%, compared to an initially reported 1.1%. Hours worked rose at about half the originally reported pace. (…)

A report from Challenger, Gray & Christmas, Inc. indicated hiring intentions this year through May were down 50% from the same period last year. So far in 2024, companies announced plans to hire 50,833 workers, the fewest for that period in a decade.

“Job cuts remained flat in May as companies assess performance and make plans for Q3 and Q4,” said Andrew Challenger, the firm’s senior vice president. “Meanwhile, hiring announcements are at their lowest levels in a decade. The typical churn in a healthy labor market appears to be stalling.”

• Since 2019Q4, labor productivity has grown at an annualized rate of 1.5%. Our wage tracker now stands at 4.4% annualized in Q1 and 4.1% year-over-year. (Goldman Sachs)

Compensation Plans at US Small Firms Decline to Three-Year Low

The share of US small-business owners planning to raise worker compensation fell in May to a more than three-year low, indicative of a cooling jobs market and moderating wage pressures.

Some 18% of firms said they intend to boost pay in the next three months, down 3 percentage points from April and the smallest share since March 2021, according to data out Thursday from the National Federation of Independent Business. A net 37% said they raised compensation, down slightly from the prior month but still historically elevated.

A net 15% indicated they expect to hire in the next three months. While that’s the highest print so far this year, the share of firms planning to hire is below pre-pandemic levels. The government’s May employment report on Friday is expected to show a broad moderation in job growth. (…)

Rising labour costs and weak productivity could spoil the next leg of Canada’s rate-cut journey

On the same day the Bank of Canada trimmed its benchmark interest rate to 4.75 per cent, Statistics Canada revealed Wednesday that labour productivity in Canada declined 0.3 per cent in this year’s first quarter from the quarter before. Productivity, or the amount of economic output per hour worked, has now fallen for 10 of the last 12 quarters.

But unit labour costs, or how much businesses pay workers in wages and benefits to produce one unit of output, jumped 1.3 per cent over the same period.

(…) On Wednesday, Bank of Canada governor Tiff Macklem cited several risks that could push inflation higher and delay interest-rate cuts, including global tensions, a surge in house prices, “or if wage growth remains high relative to productivity.”

The good news for the bank, albeit not for workers, is that wage pressures are easing. The growth in unit labour costs was 4.3 per cent on an annual basis, which was slower than the annual rate of 5.7 per cent a year earlier, though still more than double the 30-year prepandemic average. (…)

ECB’s Preferred Pay Gauge Accelerates in New Inflation Warning Pay per employee rose 5.1% in first quarter from year earlier

Compensation per employee rose by 5.1% from a year ago in the first quarter, up from a revised 4.9% in the previous three months, ECB data showed Friday. That exceeded a Bloomberg Economics forecast of 4.6%. (…)

Officials have still sounded confident that the risk of excessive pay pressures is diminishing. President Christine Lagarde said Thursday that the trove of labor-market data that officials are monitoring point to relief ahead, even if the analysis “is not an easy matter.”

“While still elevated — no question about that — we’re seeing those wages on a declining path,” she said. “And that will particularly be the case in 2025.”

In contrast to the indicator of negotiated wages, compensation per employee includes additional factors like overtime pay and bonuses. Until recently, the ECB had been expecting that measure to slow to 4.4% in the first quarter, though Lagarde warned Thursday that recently released national data rather pointed to 4.7%.

As the official data only arrive with a considerable lag, the ECB has developed more timely indicators. Those trackers pointed to moderation ahead based on new pay deals, it said.

From the May PMI survey:

(…) the increase in input costs remained sharp and well above its pre-pandemic average. It was a similar picture for output prices – the rate of inflation in selling charges eased to a six-month low, but remained considerably steeper than that seen on average prior to 2020. Manufacturers continued to register reductions in both of the survey’s pricing measures, whereas services companies registered historically sharp rises. (…)

Pricing pressures across the eurozone services economy remained elevated, despite cooling. (…)

Reduced inflation pressures are evident in both costs and selling prices. This development is expected to be explicitly mentioned in the press conference by ECB President Christine Lagarde, countering the unexpectedly sharp wage increases reported for the first quarter. However, the PMI price indices do not yet give the all-clear, as they are unusually high in the context of the rather weak economic situation.

China’s Exports Surge More Than Expected in Economic Boost Exports climbed 7.6% last month, beating economist forecasts

Exports rose 7.6% in dollar terms from a year earlier, while imports increased 1.8%, the customs administration said Friday. That left a trade surplus of almost $83 billion for the month. Economists had forecast that exports would expand by 5.7% and imports by 4.3%.

The value of [auto] sales abroad in May was the second-highest on record, down only slightly from April’s $10.7 billion, Friday’s data showed. But the large European market is about to get harder to access, with new tariffs on Chinese EVs expected next month.

Exports to the US rose 4.8% from a year earlier, the most in three months, while shipments to countries in the Asean bloc of Asian nations jumped 25% and those to the EU fell 0.7%.

• China’s imports grew 1.8% YoY in May, down from +8.4% in April. The slowdown was partly due to softer global energy prices and comparison with a higher base.

Trump Tax Cut Renewal Is Winning Wall Street, But Could Cost $4.6 Trillion Many Republicans reject CBO estimate of $4.6 trillion cost

The estimated $4.6 trillion cost of extending expiring portions of Trump’s 2017 tax cuts isn’t dampening Republican enthusiasm for renewal next year. Many simply reject cost projections, asserting that tax cuts pay for themselves through economic gains.

Independent analyses show that wasn’t true of Trump’s 2017 tax cuts and won’t be the case if they’re renewed in 2025. That sets up a big political fight over how — and even whether — to pay for them.

This time the nation’s debt load and interest costs are much heavier burdens after the deficit-financed Trump tax cuts, multiple rounds of pandemic stimulus and Biden administration spending on its signature clean energy, infrastructure and chip manufacturing initiatives.

US government debt held by the public soared from 76% of GDP in 2017 to 97% of GDP in December. Yields investors demand on 10-year US Treasury bonds nearly doubled, from 2.4% in 2017 to 4.3% on Thursday. The federal government’s annual net interest payments surged from $263 billion to a projected $890 billion this year — more than the Defense Department budget.

The fiscal impact of the Baby Boom generation’s retirement is also weighing on the budget, with Social Security projected to run out of money to pay full benefits in 2033 and Medicare in 2036. (…)

The Congressional Budget Office in May projected it would cost $4.6 trillion cost over the next decade to extend the 2017 law’s expiring cuts in taxes on personal income, large inheritances and pass-through businesses, which include many small- and medium-sized firms. The law permanently lowered the corporate income tax rate.

That, according to analysis from the left-leaning Center for American Progress, would cause projected debt, as a share of GDP, to rise by 36 percentage points, to above 200%, by 2054.

In theory, the revenue lost by maintaining the tax cuts would be partly offset if that spurs higher rates of investment, job creation and growth. The nonprofit Committee for a Responsible Federal Budget has estimated, however, this so-called dynamic effect would recover just 1% to 14% of what’s lost in revenue. (…)

President Joe Biden has a simple approach for handling the tax-cut expiration, though it is inimical to most Republicans: extend the lower rates for individual taxpayers making less than $400,000 a year, and make up the cost by raising taxes on corporations and the wealthy. (…)

Corporate income tax revenue took a big hit after the rate cut, coming in lower in both 2018 and 2019, before the pandemic rocked the US economy.

It bounced back strongly, however, in 2021 as the country recovered from the pandemic. Republicans point out that revenue from corporate tax in 2022 and 2023 exceeded projections the CBO made in 2017 before the tax cut. (…)

For a start, inflation after the pandemic was much higher than the CBO previously projected. Corporate profits as a share of GDP also rose during the pandemic as companies raised prices more than their costs, and the Federal Reserve dramatically cut interest rates during the pandemic.

In reviewing a raft of research through 2021, William Gale, co-director of the nonpartisan Tax Policy Center, concluded that “every credible analysis of the fiscal effects” of the law found it “reduced revenues significantly.”

Harvard Professor Gabriel Chodorow-Reich found the changes to the corporate tax rate and expensing rules had a meaningful, positive impact on how much firms invested. But that didn’t come close to offsetting the enormous cost to the budget.

I almost placed the above under the below section…

WANNA BET?

Meet the ‘Degen’ Traders Fueling the Latest Meme-Stock Mania Short for ‘degenerates,’ their risky style of trading has come roaring back in recent weeks. ‘It’s still better than a lottery ticket.’

A risky style of trading is roaring back in popularity, driven by amateur traders who call themselves “degens” and pile into long-shot trades that proudly have nothing to do with conventional ways of assessing investments. Some are flinging cash at specific stocks or cryptocurrencies just to be part of a movement. Others are sticking around for the jokes and memes.

“Degen” can be a noun, adjective or verb in their language, shared mostly among young men. It’s a self-deprecating identity that some have traced back to the term “degenerate gambler.” Behind it is an ethos that values audacious bets on the market and is skeptical of investment norms: You only live once, so why bother with traditional financial advice?

Through online aliases and in chat rooms, these self-proclaimed degens brag about buying little-known digital tokens, meme stocks and speculative options contracts. They are generally drawn to assets more for the excitement around trading them than their underlying fundamentals. There’s a potential for near-instantaneous profits, or huge losses if the bets go south.

Degens are part of the fuel for meme-stock mania, like the logic-defying action in GameStop shares in recent weeks. When these internet-fueled traders stick together, they have the potential to spark wild swings in assets. All it takes is for a meme to catch fire. (…)

“It’s quick money,” said 39-year-old Daniel Moravec, a former professional poker player who identifies as a degen trader. “Buying some options or going for a high-risk stock—it’s still better than a lottery ticket.” (…)

A boom in long-shot bets tied to GameStop and other degen favorites has helped send average daily volumes in options to almost 47 million this year, the highest level on record in Options Clearing Corp. data going back to 1973. Much of this activity is concentrated in short-term trades that allow investors to score big, or lose everything. (…)

Young people especially see record-high home prices and mountains of student debt, and some of them worry they will never make enough money to reach the milestones prior generations did. Long-running surveys of young Americans show Generation Z has emerged from the pandemic feeling more disillusioned than any living generation before it. (…)

“This magic internet money is changing lives.” (…)

The National Collegiate Athletic Association surveyed 3,527 individuals between the ages of 18 and 22 last year and found that 67% of students living on college campuses bet on sports. (…)

There’s valor in sticking together, coordinating trades on platforms like Reddit or Discord. Those who take these big risks are lionized by their peers. (…)

A 2023 academic study found that many individuals overpay for trades in the options market and end up with losses, particularly around events like earnings. Many investors haven’t timed crypto particularly well, either. New users flocked to crypto around the time prices peaked in 2021, for example, and some were left with giant losses in the subsequent tumble.

After the 2021 GameStop saga, the Securities and Exchange Commission has sought to curb what regulators see as the gamification of trading by proposing guardrails on trading apps. The initiatives so far have met heavy opposition from the brokerage industry and Capitol Hill. (…)

Like Bob Farrell said: “Bull markets are more fun than bear markets.”

He also said:

• Markets tend to return to the mean over time.
• Excesses in one direction will lead to an opposite excess in the other direction.
• There are no new eras – excesses are never permanent.
• The public buys the most at the top and the least at the bottom.
• Fear and greed are stronger than long-term resolve.