Wednesday Briefs – 10 February 2021

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This week: Covid Baby Bust; New York City Bounces; Bitcoin in the Hamptons; FOMO and Schadenfreude.

Covid Baby Bust

It turns out that prolonged confinement with a special someone does not necessarily lead to amorous outcomes. Netflix, Zoom, Xbox and others all conspire to distract and entertain us at home. The twin evidence here is an increase in the number of people filing for divorce and a decline in the number of expected births. Both are easily explained by the economic and social stress that many people have experienced during the pandemic with little ability to seek relief through in-person social and cultural connections outside the home.

Before the pandemic, the rate of growth in the US population was already on a declining trajectory. This decline was made steeper by the pandemic. From 0.8% ten years ago, annual growth is estimated to have fallen as low as 0.4% in 2020. In the chart below, the blue line would have been the US population if growth had remained at the same annual 1% that it averaged in 1970 to 2000. The red line was the probable evolution if the US took in 1 million new legal immigrants every year. And the green line shows the same if there had been no new immigration starting in 2015. It is very probable that the red and green lines will be revised downward when new data is made available.

The question now is whether the fading of the pandemic will bring about a bounce in births and an upward correction back towards the former trend. The answer is probably yes if the economy continues to improve and if the recovery spreads to all sectors. Last year’s decline in births may have resulted from a decision by couples merely to defer, rather than to completely forego, having another child. Perhaps late 2021 and 2022 will see a mini baby boom.

New York City Bounces

The future of New York City has been hotly debated ever since the pandemic sent large numbers of city dwellers running to the suburbs and exurbs. Further, the ease of WFH (work from home) technology such as Zoom cast doubt on the eventual return of office workers after the pandemic subsides. As the thinking goes, why spend an hour or two commuting from one desk to another in order to do the same work that one can do just as well from home? And why live in a dense urban environment when open skies and a simpler life beckon from the country?

All fine and good for some. But New York being New York, its multiple attractions sometimes work in intangible ways. According to real estate experts Miller Samuel, the month of January saw a surprise doubling of new signed contracts in the Manhattan residential market. Signings for co-ops soared 167% from January 2020 and those for apartments jumped 51%. For more color, we reached out to Lisa Larson, a leading advisor at Sotheby’s International Realty, and she shared the following with us:

Manhattan seems to be turning a corner. The extreme fear about the market that we saw in the late spring and summer is behind us. There has been a remarkable uptick in signed contracts over the past month or so [January and early February]. While we will not have closed sales data available for another couple of months, there is no denying that the Manhattan market has its foot on the accelerator. Time will tell whether these buyers are a result of pent-up demand from 2020, or whether the market fluidity will continue into the late winter and early spring when our listing season is in full swing [when more inventory will come on the market]. Buyers are showing hope for the future of the city and confidence in the resiliency of NYC. Each bid represents a vote that NYC will be back.”

Indeed. Betting against New York City was a losing proposition after the 1987 crash, the 9/11/2001 attacks and the 2008 meltdown. After a year of shoveling snow, mowing lawns and driving everywhere, departed city slickers may decide that they have had enough and pack up for a return en masse to the mother ship.

Bitcoin in the Hamptons

It is possible that the price of Bitcoin will reach $150,000 and allow Chamath Palihapitiya to realize his ambition to “buy The Hamptons and convert it to sleepaway camps for kids, working farms and low-cost housing”. On the other hand, it is also possible that Bitcoin will crash to $10,000 or race towards zero, leaving a holder with just enough cash for a dilapidated rental on the other side of the tracks.

Still, the fact that Elon Musk and Chamath are bullish on the cryptocurrency should give all but the most entrenched skeptics some reason to sit up and pay attention. From our perspective, Bitcoin’s Achilles heel is the inability of its most ardent believers to explain in simple terms exactly what it is. In theory, it will not be enough to only explain what it is not, if the greater goal is to achieve wide acceptance and adoption beyond the current circles. There are many power centers that stand in its way.

It is also useful to remember that we are having this discussion in the midst of a market bubble that is fed by extremely stimulative conditions. Time will tell whether Bitcoin can retain and build on its popularity when the economy normalizes.

FOMO and Schadenfreude

For now, FOMO, or fear of missing out, seems to be a symptom of Bitcoin infatuation. FOMO is a powerful motivator in the markets and it made some people buy GameStop stock above $400 while its promoters were predicting $1,000 (it is now at $50). As far as investment strategies go, the success of FOMO greatly depends on when that fear first seizes the investor. If it comes early, he/she could make a tidy bundle. But if it comes when the headlines are blaring, he could lose a bundle.

For those left behind, there is always the dark consolation of schadenfreude which is defined as pleasure derived from the misfortune of others. This not so commendable feeling would come when the missed high-flying investments come crashing down to earth. There could be a dilemma therefore between fear of missing out on the appreciation of an asset and fear of missing out on the schadenfreude upon seeing it crash. The only way an investor would miss out on both is by buying at the top.

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