Economic Catastrophes Loom for 2021

Some of the best-known contrarian forecasters and commentators are predicting economic catastrophes in 2021.

The oddest prediction is that universal basic income (UBI) could decimate cites around the globe. Analysts at Denmark’s Saxo Bank predict basic income will kill the commercial real estate market in many cities.

“But in the new era of UBI, tech-driven job redundancies, and frequent work from home jaunts made more normal by Covid-19, city office real estate is suddenly faced with 100% or worse overcapacity,” Saxo analysts wrote. “Commercial office property values are crushed, together with the commercial real estate containing restaurants and shops aimed at servicing commuting worker drones.”

Basic Income will empty the Cities

“The new UBI also drives changes in the attitude toward work and life balance, allowing many young people to stay in the communities where they grew up,” Saxo predicts. “Meanwhile, the professionals and the marginal workers in big cities also begin to leave, as job opportunities dry up and the quality of life in small, over-priced apartments in higher crime neighborhoods loses its appeal.”

Consequently, many cities will face a bleak future full of empty office and apartment buildings. Lofts, walk-up apartments, and office buildings will sit empty because nobody wants to rent them. All the professionals will move out to better-quality-of-life small towns or cities where they can work remotely.

Meanwhile, all the young people who move to the city because they cannot find a job back home stay home. Those young people live off UBI or take jobs servicing the work-from-professionals. For example, driving for Amazon (AMZN) or Grubhub (GRUB) or remodeling old houses in small towns for investment bankers and software engineers.

Furthermore, I predict enormous amounts of suburban real estate will lose its value as a side effect of this process. To explain, two groups buy suburban housing, professionals who work in the inner city, and people who provide goods and services to those professionals.

For example, in the New York City area the investment banker lives in Greenwich, Connecticut, or Long Island. Meanwhile, the UPS driver lives in New Jersey or Staten Island.

Urban Dystopia

What happens to all the housing around New York when both the investment banker and the UPS driver decamp for North Carolina or Colorado? Similarly, what happens to the gigantic skyscrapers full of offices and all the infrastructures that support those building, when most professionals work from home?

What happens to subways with no riders, freeways with no drivers, parks with no dog walkers, and restaurants without patrons? Worse, what happens in a New York or Los Angeles with no tax base?

Under that scenario, I think cities could have two futures. First as ghost towns that serve as cheap places to live for the poor and desperate.  Only people who can afford to live nowhere else will live in some cities. Urban residents could include new immigrants, students, the homeless, addicts, the elderly, and the desperately poor, for example.

Decaying American industrial cities such as Baltimore, Youngstown, Ohio, and Pueblo, Colorado, provide a glimpse of this future. Abandoned homes, declining populations, high-crime, a total lack of community, and nonexistent government services plague those cities. Basic income will make the situation worse by giving many of such areas’ remaining residents the resources they need to move away.

Second, as Disney-fied tourism environments, think what they’ve done to London or Manhattan. Most apartments will be Airbnb rentals, and most of the tenants will be tourists enjoying a mock urban experience. Tourists will fly into enjoy the theater or a “walking tour” of the city.

How Basic Income will lead to Urban Dystopia

A possibility is that companies such as Disney (NYSE: DIS) could takeover areas of a city and transform them into urban theme parks. The streets will be clean, and crew members will impersonate urban residents. Meanwhile, security will keep the poor, the homeless, and other potentially offensive people out of the tourist areas.

I think older and historic cities such as Boston, Washington, DC, Philadelphia, Denver, New York, and New Orleans could become Disney-fied. Most cities; however, will become dystopian as residents leave, political power declines, tax bases empty, and governments collapse.  Future Dystopias could include Dallas, Houston, Kansas City, and Orlando.

Cities that could go either way include Los Angeles, San Francisco, Miami, Portland (Oregon), Las Vegas, Reno, and Chicago. Either way, we will see a mass exodus out of many cities that will devastate urban life.

Conversely, some high-quality-of-life smaller cities such as Salt Lake City, Flagstaff, Arizona, Austin, Santa Barbara, Boulder and Fort Collins, Colorado, and Charlottesville, Virginia could benefit. These communities could become destinations for remote workers seeking a better and more laid-back lifestyle.

The remote workers will chose cities because they want some urban amenities without big-city hassles. Undiscovered small cities that could benefit from this trend include Colorado Springs and Grand Junction, Colorado, Riverside, California, and Saratoga Springs, New York.

Hence, basic income could turn many of our cities into post-industrial dystopias and destroy the real estate market. Government planners and real estate investors need to prepare for these dystopias because I think coronavirus will cause many governments to set up basic income schemes.

Those basic income schemes, disguised as “stimulus,” will become permanent laying the groundwork for an urban apocalypse. Basic income will become permanent the minute politicians realize it can buy them millions of votes.

Stock Market Crash 2021

Today’s stock market has some frightening similarities to the market before the Great Stock Market Crash of 1929 that began the Great Depression.

The first similarity is a bear market against the background of high income inequality. In 1929, the richest 0.1% of American adults owned almost 25% of US wealth, Gabriel Zucman estimates. Zucman is an economics professor at the University of California of Berkley. Similarly in 2019, America’s three richest men, Warren Buffett, Jeff Bezos, and Bill Gates had more money than the bottom 50% of Americans, claims.

I think such inequality drives speculation because people fear that they will finish with nothing in America’s Hunger Games economy. Consequently, people who would normally avoid the stock market enter because there is no economic security.

Income Inequality Makes Stock Market Crashes

Stock market performance in the 1920s, and the last decade shows a similar trend of growth.

During the 1920s, stock markets more than tripled in value. The Dow Jones Industrial Index rose from 71.95 in 1921 to 381 in 1929, The Balance reports.

During the 2010s, the stock market also tripled in value. The S&P 500 rose from 1,136.03 on 15 January 2010 to 3,669.62 on 10 December 2020.

I think economic inequality drives stock market growth in two ways. First, desperate middle and working-class people turn to speculation to accrue wealth because they see other ways of advancement closing.

Second, the rich have more money to invest in the stock market. Thus, brokers redouble their efforts at marketing stocks to high-income individuals.

Conversely, many of those marketing efforts reach lower-income people desperate to accumulate wealth or just make money. For instance, a schoolteacher who has not had a raise in years, or a college graduate who lives from gig to gig as an Uber (UBER) or DoorDash driver. I think such middle-class investors drive most of Robinhood’s growth.

Stock Market Populism

The wealthy investment in the stock market convinces many ordinary people that stocks are the way to get rich. Hence, ordinary people invest more and more money in stocks.

The two causes of the 1929 Stock Market Crash were an over-inflated market and mass investment in stocks. Note, the 1920s mass investment in stocks was not the public, but elements of the population.

Ordinary people with extra cash, seeing traditional paths of economic advancement closed, put their money into the market. The 1920s economy was full of restrictions. Racism kept African Americans out of most high-paying jobs, sexism kept women out of most jobs, and class and religious barriers and lack of education restricted most white men’s opportunities.

Today’s economy has many similar restrictions. Most high-paying jobs require a college degree, yet most Americans lack a college degree. Moreover, many professional jobs offer no security and low pay.

Frighteningly, such investment is booming today. By June 2020, traders were making 4.3 million daily average trades trades  or DARTS, on the Robinhood platform, muckraker Matt Taibbi estimates. Robinhood added three million new accounts in 2020.

Robinhood is an addictive gamelike app that lets ordinary people trade fractions of a stock, say 1% of Amazon (AMZN) or Alphabet (GOOG). Bloomberg estimates over half of Robinhood users are first-time traders. In addition, Taibbi estimates 80% of Robinhood managed assets belong to Millennials (Americans under 39).

Robinhood’s growth has been incredible, Taibbi claims Robin Hood traded nine times as many shares as E-Trade, and 40 times as many shares as Schwab in 2020. Predictably, investors are pouring cash into Robinhood. Venture capitalists invested over $200 million in Robinhood in April 2020, CNBC claims.

The Robinhood Bubble

Robinhood is wreaking havoc in ordinary people’s lives, Taibbi charges. For instance, on 12 June 2020 University of Nebraska student Alexander Kearns allegedly committed suicide by in front throwing himself in front of a train.

Kearns had just learned he had a negative balance of $730,000 on his Robinhood account, Taibbi charges. The Consumer Financial Protection Bureau has received many complaints from Robinhood customers who could not contact the app’s operators. Taibbi also alleges that Robinhood sometimes gives traders inaccurate information.

There is no phone number, chat, or fast way to reach Robinhood customer service. Instead, customers send emails and can wait over a week for a response. Thus, Robinhood traders could not know how their trades are really doing.

Oddly, Taibbi alleges Robinhood makes most of its money by selling data to high-frequency traders that execute trades for Robinhood investors.

Those firms, including Citadel LLC and Virtu Financial Inc. (NASDAQ: VIRT), make money by speculating on market price differences before other traders notice them. Notably, Bloomberg claims Virtu paid Robinhood 17₵ for every 100 shares it trades.

Robinhood makes money by encouraging high-frequency trading, Taibbi alleges. Forbes claims Robinhood paid trading firms $180 million in the 2nd Quarter of 2020. That number rose from $91 million in the first quarter of 2020.

Taibbi charges Robinhood makes money by encouraging high-volume trading. For instance, Bloomberg alleges Robinhood trades cost 19% more than the ordinary trade. Hence, Robin Hood’s commission free trades could be more profitable for trading firms than conventional trades.

The Roaring 20s All Over Again

I think Robin Hood resembles the infamous Curb Trading of the 1920s. In the late 19th and 20th Centuries, brokers and day traders gathered at a street corner in Manhattan to trade stocks.

This market became formalized as the American Stock Exchange that grew into the second largest stock market into the world. Until 1921, they called the American Stock Exchange the Curb Exchange.

Curb Traders sold dangerous new products the New York Stock Exchange would not touch. Those products included index options and sector indices similar to today’s Exchange-Traded Funds (ETFs).

Today, the term Curb Trading refers to any decentralized trading activity that occurs away from organized exchanges. In today’s world, apps such as Robinhood and the mother-fucking Cash App are the new Curb Exchanges.

By the height of the 1920s bull market legions of homemakers, farmers, Pullman porters, small-town merchants, and bootleggers were using Curb Trading to cash in on the boom. Barbers, salespeople, taxi drivers, street-car conductors, and shoe-shine boys were sharing stock tips.

Here comes the Crash of 2021

One of the most interesting legends of the 1929 crash concerns speculator Joseph Patrick or Joe Kennedy Sr., the super-wealthy father of President John F. Kennedy (D-Massachusetts) and US Senators Robert F. Kennedy (D-New York) and Ted Kennedy (D-Massachusetts). In 1929, Joe Kennedy stopped to have his shoes shined.

The shoeshine boy; probably an African American man, began sharing stock tips with Kennedy. To explain, the first half of the 20th Century racist Americans often referred to grown black men as boys. Shining shoes was a simple and sometimes lucrative profession that uneducated African American refugees from the Jim Crow Apartheid regime in the South could enter fast when they reached northern cities.

After the shoeshine, Kennedy allegedly sold all of his stock out of his fear of amateur stock traders. History proved Kennedy’s instincts were correct.

On 29 October 1929, the Dow Jones Industrial Average fell by 24.8% in the Great Crash. On Friday, October 25, 1929, the Dow Jones rose to 301.22 points. By 18 July 1932, the Dow fell to 41.22 a loss of 89.2% from its 1929 record high.

Only future history will show if this assessment is correct, but today’s bull market has some similarities to the bubble of the 1920s. I think we could be on the verge of an economic transformation as disruptive as the Great Depression of the 1930s.

I think the chaos a great stock market crash creates will lead to Basic income and a new economy. Investors, smart enough to see what is coming could become as successful as Joseph P. Kennedy Sr.