The Generational Short: Banks, Wall Street, Housing And Luxury Retail Are Doomed

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Generational Short: Banks, Wall Street, Housing And Luxury Retail Are Doomed

If Gen-Y cannot afford to buy Boomers' houses at bubble-level prices, then what will keep housing prices at these elevated levels?

Mish recently posted excerpts of a Brookings Institution study on changing generational values: How Millennials Could Upend Wall Street and Corporate America. The gist of the report is that Gen-Y (Millennials) view money, prestige, adversarial confrontation and managerial methods differently from the Baby Boom and Gen-X generations, and that this set of values will change Corporate America, the economy and the culture as Boomers exit managerial positions and their peak earning/spending years.

Though we have to be careful in characterizing tens of millions of individuals as all reflecting one set of generational values, the basic idea is simply one of context: people who grow up in a specific milieu are naturally prone to sharing broadly similar perceptions and values.

The Brookings authors claim that Millennials do not favor the adversarial style of the Boomers (competition and confrontation as means of advancing one's cause/position) nor do they place great value on luxury goods as evidence of exclusivity. They actively distrust/loathe the banking sector and are financially conservative, preferring cash to investing in Wall Street.

Asked to choose their ideal (corporate/state) job, their choices reflect preferences for a mix of security, idealism and technology. The big flaw in this career questionnaire (as far as I can discern) is that it did not offer the alternatives of self-employment/ entrepreneurship. Anecdotally, it seems clear that there is a strong entrepreneurial drive in Gen-Y--for example, What I’ve learned in my first year as a college dropout.

One factor the report did not address fully is real estate/housing, which depends on bank-issued debt (mortgages) and the belief that a lifetime of paying a mortgage will magically result in financial security, based on the greater fool notion that someone in the future will be willing to pay more for an asset that hasn't changed either qualitatively or quantitatively (other than needing more maintenance as it ages).

This raises two issues: if Gen-Y cannot afford to buy Boomers' houses at bubble-level prices, then what will keep housing prices at these elevated levels? Answer: nothing. Without strong demand for housing at sky-high prices, valuations will drop to whatever level demand can support. That level can be far lower than conventional housing analysts believe possible because they are still extrapolating Baby Boomer preferences and earnings into a future which will be quite different from the housing bubble decades.

The second issue is a question: how much of the Boomers' housing wealth will trickle down to Gen-Y when they actually need housing, i.e. when they're starting families?

The answer may well be: very little. If Gen-Y is unwilling or unable to take on enormous mortgages to buy bubble-priced housing, we can project a housing market in which Boomers are unloading millions of primary homes as they seek to downsize/raise cash for retirement but there aren't enough Gen-Y buyers willing or able to buy these millions of homes at bubble valuations.

In this scenario, home prices must decline to align with Gen-Y's salaries (i.e. their ability to qualify for huge mortgages) and their willingness to shoulder bank-based debt.

If Gen-Y essentially opts out of the belief that financial security depends on buying a house with a large mortgage, then the U.S. housing market will have no sustainable foundation for price appreciation. Housing could easily decline by 50% in highly inflated markets.

The same dynamic will shred stock market valuations. If Gen-Y opts out of supporting the banks and Wall Street, the demand for Wall Street's products will plummet, bringing stocks back down to historical levels--once again, perhaps 50% of the current bubble valuations.

The funny thing about core values is that they are resistant to arguments such as "you should get a mortgage and invest all your money in Wall Street." Once people opt out of the fantasy that buying a house and entrusting one's capital with Wall Street leads to guaranteed financial security, no amount of cajoling or propaganda will change their values-based decisions.

For example, those who have decided to eschew debt will never take on debt, even if the banks (or the banks' pusher, the government) offer debt at 0% interest. Those who have lost trust in Wall Street or actively hate it and everything it stands for (neofeudalism, unbridled greed, the corruption and collusion of the revolving door between the state and Wall Street, etc.) will never change their minds and hand their money to Wall Street to play with.

If the primary assets held by Boomers (houses and stocks) both decline for these fundamental reasons, there may be relatively little wealth left to pass on to Gen-Y. There is a peculiar irony in this: if Gen-Y avoids bank debt/mortgages, buying conspicuous consumption luxury goods on credit and investing in Wall Street's scams and skims, this generational lack of demand for housing, stocks and luxury goods will effectively crash the sky-high valuations of these assets.

That will reduce the value of whatever generational wealth the Boomers have left to pass on. Since many Boomer households are currently paying for three generations--soaring college costs for their Gen-Y offspring, care for their elderly Silent Generation parents and their own expenses--how much wealth they will have left once Gen-Y is dominant is an open question.

These factors suggest a generational bet against banks, Wall Street, housing and luxury retail stocks. I am not recommending such a bet, mind you; it's just one potentially interesting speculative consequence of the changing of the generational guard.

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Stuck on Zero's picture

How the hell do 60 million baby boomers expect to sell their $1M McMansions to retire?  Who is going to buy these things?


takeaction's picture

Just watched JACK RYAN movie last night...How in the hell do TPTB let this stuff be created.  This movie depicts exactly what is coming...Russians to collapse the dollar...that is the premise of the movie.  I about fell of my ccouch when I listened to the dialougue.  I am very surprised.  This movie even goes as far to show how a "False Flag" will be used to distract the public.  I am floored. Do I think it will be the Russians pulling the "False Flag"...nope.  Who has a track record for the most "False Flag" events?

Tao 4 the Show's picture

I would like to think he is right about the generational short, but I figure if he was any good at trading, he wouldn't be writing blogs. Besides, one good mind suffices and is generally better than dealing with a doppelganger.

donsluck's picture

As for real estate, there was an article here on ZH regarding the IMF warning of an international real estate bubble. In that article, the USA is shown to have a relative advantage in housing prices versus income. The market for housing may come from foreigners buying up US real estate.

SafelyGraze's picture

we have developed a college-short vehicle

you can pick your time horizon, from 1 year to 20 years

right now, the smart money is on 6 years, after the 2020 elections and the colloge bubble finally, mercifully, pops

and the billnmelinda commoncore foundationz 


dryam's picture

If the role of the Fed would remain the same and the timeline would be taken to infinity, the Fed would end up owning everything.

garypaul's picture

Well actually their cronies would.

Son of Loki's picture

China is a good example when people lose confidence in an asset such as the stock market. Thet used to have packed rooms of people sitting there staring at the big screen flashing their stocks.


Then came the crash.


Now most Chinese call the stock market a "Black Hole" and do not go near it. Volumes very low on Shanghai index and very few people pay attention to it anymore. All those rooms with the Big Screens are now quiet...empty...or shuttered.

deflator's picture

 I would like to think that markets are free and they go up and down based on market forces rather than being controlled by technocratic central bankers and governments. What I would like to think and what I have to think are two different things. What I have to think is that markets go up and down at the discretion of Tecnocratic central bankers, governments and ever consolidating global corporations. 

 Do I believe that the next generation of central bankers, governments and corporations will be any different than they are now? no, I have to extrapolate the trend of ever consolidating centralization of power to it's logical conclusion.

CH1's picture

The question is not about their intent, but about their ability.

They have tremendous power, but only because people stupidly obey them. That foundation may not be as solid as it currently appears.

Plus, they just ain't that bright.

deflator's picture

 I have given this generational difference thing some thought. There is definitely a paradigm shift that is occuring. The boomers are more likely to think of governments as being benevolent as they bought into the ponzi early and are naturally it's biggest group of beneficiaries. X and Y are being forced to buy in late and will likely view governments as being malevolent because they will only pay into the ponzi. Now that governments have such high levels of command and control over economies I don't see how this translates into collapsing markets. 

ajax's picture



Something tells me these kids won't be feeling too much monetary pain:

I realise "the kids" are usually 'off-limits' BUT scroll 3/4 down the page for Jonathan "JB" Blankfein.

William Banzai7 should get a kick out of it, the kid looks just exactly like the images Banzai7 uses of his illustrious father Lloyd.

deflator's picture

 I usually like CHS's writing but his views about deflation are wrongheaded IMO. Markets would go up and down based on fundamentals as Mish and other deflationists say if we had real money but we do not. We have fiat money. When reading comments about deflationary death spirals and shorting markets makes me wonder if the authors fully grasp the concept of what fiat means. I can't help but wonder if they are confusing a real money economy and one that operates by decree.

Pool Shark's picture



"...if he was any good at trading, he wouldn't be writing blogs."

Not necessarily in the case of shorting housing and luxury goods.

Somebody has to yell: "The Emperor has no clothes!" and get the ball rolling...



in4mayshun's picture

Oh there's plenty of people yelling. The serfs just aren't listening- too dumb/distracted to hear.

vulcanraven's picture

Two words...

"Predictive Programming."

crazyjsmith's picture

You must read Jim Rickards Currency Wars. He War Gamed this EXACT scenario at the freakin Pentagon. In his book, Russia holds Europe hostage over Nat Gas, breaks the dollar by demanding payment in the new Russian currency which is backed in Gold. This was in 2009. That Jack Ryan movie is a total ripoff on his book. He was spot on, and the Pentagon knows all about the consequences of this strategy - yet they push full steam ahead. Something really really stinks about all of this. It's all very scripted, but we all know that -

doctor10's picture

Scripted more so than you ever could imagine-or possibly believe

"Mr. Dodd, we operate here at the Ford Foundation under directives which emanate from the White House...We operate and control our grant-making policies…as follows: We shall use our grant-making power so as to alter life in the United States that it can be comfortably merged with the Soviet Union."

Greenskeeper_Carl's picture

i actually watched it last night myself. I laughed a few times and said something like 'no fucking way' and she asked what it was, and I said this is axactly what is happening right now, obviously the movie was written probably 2 years ago, but its crazy how accurate it was. Most people won't see past the " 'Murica, fuck yea " propaganda factor though. Before watching it, when my wife asked what it was about, and i told her it is warfare state, police/spy state propaganda. It ended up being an easy way to explain what is going on with Russia right now

BigDuke6's picture

Yes. Thank you.
The most accurate comment on this thread

Larry Dallas's picture

Short Luxury Retail?

BS. What about the Asians? Most of the sales come from wealthy South America and Asia, not poor Middle America. Let me make this relative to you:

Luxury Retail is to Asians as EBT Cards and bastard children are to ____________.

Midas's picture

young men that look like the sons Barack never had?

markpower49's picture

I hope the coming deflationary depression ends the nation-state, esp. the US evil empire. It obviously is dysfunctional for most citizens. Works great for the elite, gov. employees and illegals.

I am Jobe's picture

Leave the debt to the future generation to clean up- Da Plan. Nice going fuckers and having kids and saying it is all for the Kids- WTF 


HappyCamper's picture

I understand your frustration, but if you voted for progressives and/or expect govt to pay off your student loans, you gots no one to blame but yourself.  Yo!

Marco's picture

Progressives as in plural? Is there even one left in congress? Kuchinich got gerry mandered out remember.

BigDuke6's picture

Who needs kids when they can import slaves at zero cost

I am Jobe's picture

Did it for the Children, the baots, RV, Disney Porn Fest all for the kids. They deserved it 

q99x2's picture

Fed buys up everything. Have you any reason to believe that will stop?

Greenskeeper_Carl's picture

that may be true, but eventually other countries are going to stop trading us real things for pieces of paper with numbers written on them, and all those dollars we export are going to come flooding back to us, and in that case it ain't gonna matter what the fed does, its zimbabwe time

duo's picture

I sure see a lot of Yrs shopping at WalMart.  Thet must not loathe the yellow smiley face as much as Wall St.

holgerdanske's picture

I can see people not investing in shares, tick. Not investing with the banksters, tick. Investing in gold, tick.

But not investing in housing, that might exactly be where the money then will actally go, for a place to live makes more sense if you own it outright rather than renting it.


So my thinking is, housing might well be one of the few things that could tend to hold their prices.


But I have been wrong before, maybe I am again.

DoChenRollingBearing's picture

I am guessing that some US cities will do just fine re high-end condos & housing, as things economically decline and/or get more violent in places like Mexico, Venezuela, Colombia, Argentina, China, Russia and even Brazil (note three BRIC countries).

We are seeing that in my city.  All IMO of course.

Miffed Microbiologist's picture

Well, they could try multigenerational mortgages. Worked great in Japan.


mathdock's picture

I won't invest, but I'll trade.  We moved from a city to a village, sold the city house for a $30K loss I could cover with equity (25% down)  and savings (reserves = mobility); nice house but lousy investment.  This time, bought small, payoff in four years.  Then , if we have to move, I can sell for whatever or rent it out (or have it moved ;-)  Manufactured, double-wide 1600sf, 0.4 acre.  I do believe I am avant garde for the late boomers; no trophy home for me to saddle my kids with to solve.  They can share it as a vacation home, move it to wherever on some nice land they prefer as shared vacation place, sell as is, or adjust their inheritance by taking possession.  

girlsunshine's picture

Baby boomer brother/sister - $350,000 -$500,000 houses (check)

My generation (X) - $250,000 house (barely) (check)

My young son - $100,000 house (if lucky) (who knows)

We will return to the 1800s where we belong - 200 years of fake bubbles.  (At least our food will be more high quality than the crap chemicals that now pass for food...if you have any food of course)  learn to grow a garden!

holgerdanske's picture

Growing your own food is actually hard work! But it is also satisfying.

And frankly, some of the stuff you buy today, masquerading as food, is just chemicals, poison and fillers. You would most likely not eat it, if you saw how it was made!

greatbeard's picture

>> Growing your own food is actually hard

I'm growing a good bit of my own food right now.  I don't see it so much as hard work as it is time consuming.  My spring/summer garden comes in right at the same time as my fruit.  I'm spending all of my free time every day caning and preserving. By months end I suppose it will be pretty much over, but for now it seems never ending.  Yesterday I caned 3.5 gallons of black eyed peas (14 quarts).  Right now I'm picking and processing lima beans.  I've got pole beans that are no doubt going to waste.  Corn needs picking and canning, pronto.  Potatoes, ditto.  I've still got several batches of apples to pick and process.  I did make some killer apple butter, peach/nectarine jam and sour kraut. 

I don't work and spend all the time I have on my property so I can keep up with it.  If I had a job, or friends, or family, it wouldn't be so easy to keep up.  OTOH, I've got some health issues that leave me totally debilitated, or at 50% efficiency, at least half the time, so I guess that's a wash.

All in all a very interesting and mind expanding experience.  As time goes on I see I'll switch to easier to grow and process products.  For me, bush beans are so much easier to grow and process than pole beans.  English peas are a huge amount of effort for little product.  Ditto lima beans.  OTOH, I can process a mountain of black eyed peas with very little effort.  Same with corn, broccoli, cabbage, onions, etc.

It is all very interesting and if I end up off the mini farm and back buying from the big box folks it will give me a whole new perspective of just what it is I'm paying for.

BigDuke6's picture

Growing ye old food has always been an up ticker here at zh
Prepping the same
Lotta folks at the top just laughing at u

USA will export war
That's what what will really make u money

Flakmeister's picture

High end luxery retail will be fine...

The middle market poseurs like Coach are doomed to oblivion...

Spastica Rex's picture

We'll have to start using the term "Median Class."

Flakmeister's picture

A rose by any other name would smell as sweet....

JR's picture

When the Fed governors explain daily to you why your middle class standard of living must decline as the economy bounces along the bottom of the tub, here’s the real reason for the prediction: it’s wealth transfer; the construction of a world oligarchy.

It's all the same problem; that's what's happening to housing.

As Gabriel Black explained yesterday: “This policy of an open spigot to the banks has benefited the ultra-rich and rich exclusively. While the global economy grew at the rate of 2.9 percent in 2013, those owning more than $100 million dollars in assets saw their wealth increase by 19.7 percent. Again, this excludes the wealth that a capitalist may have through his own company’s stock.”

Excerpt from  "Spiraling Global Private Financial Wealth amidst Poverty and Unemployment"::

Global financial private wealth grew by 14.6 percent in 2013, according to a new report by The Boston Consulting Group. The surge, concentrated in the hands of the billionaires and millionaires of the world, has been driven by the policy of the Obama administration and other governments to pump cheap cash into the hands of the major banks and stock markets.

Private financial wealth, as defined by the Boston Consulting Group, “includes cash and deposits, money market funds, and listed securities…life and pension assets, and other onshore and offshore assets.” However, it does not include “investors’ own businesses, any real estate, and luxury goods.”

Total global private financial wealth grew to $152.0 trillion in 2013. The percentage increase was almost double the 2012 increase of 8.7 percent.

The growth in wealth was driven, overwhelmingly, by the inflation of the stock market. Of the total growth of $19.3 trillion, $15.2 trillion came from already existing assets and only $4.1 trillion came from newly created wealth. The entirety of the growth in already existing assets came from “equity performance.” This growth actually made up for losses in the performance of bonds.

The world’s actual GDP expansion rate in 2013, 2.9 percent, tells a completely different story. Throughout the world, economic growth has slowed. Wealth, primarily concentrated in the hands of the super-rich, has increased at a rate that is five times faster than the actual growth of the economy.

The data point to an unmistakable trend: the global economy is not in a recovery. New wealth in the world has primarily been an increase in the paper value of existing assets, not the expansion of production.

This process has been driven by the policy of quantitative easing and low, and even negative, real interest rates

Meanwhile poverty, hunger, homelessness and joblessness are on the rise throughout the world. In Britain, a new report estimates that a third of children in Britain will live in poverty by 2020. The 85 richest people in the world have more wealth than the bottom half of humanity, 3.5 billion people…

DoChenRollingBearing's picture

JR, great reporting.  One thing I have never been able to understand -- other than maybe gamesmanship and/or sociopathy, why do they want even more financial wealth?  Cleary I do not understand the very rich, yet I have spent some time among some:

Why is it that so many of those who are very rich (let's just say the top 0.1%, just to sketch a picture here) have to get such much MORE?  Can they not buy almost anything they want?  If a rich Texan can buy a rural mansion in the Hill Country (with 1000 acres), why would he want 3000 acres?  Why buy a new Gulfstream every other year? Do you need that Ferrari anymore after you have bought the Lambo?  When is enough, enough?  


In my case, there are few things I want now.  And I am not in the 1%, much less the 0.1%.

donsluck's picture

Enough is never enough for a sociopath. It's not about the money, it's about the domination.

in4mayshun's picture

I recon' there are 2 types of elites. One has come to amass incredible wealth and will do anything to keep it, including selling out their own countries and anything else required. The other, more nefarious class is spawned from the devil and is often 3rd generation occultist. To the latter, money is simply a tool to complete the multi-generational plan of one world order under Lucifer. These scum hold ultimate control over the "2nd tier" of rich and most likely provide a simple ultimatum- "support us and we will allow you to keep your wealth and power, or we will destroy you and give your wealth to someone more to our liking." ( Here's lookin at you Soros) this symbiotic relationship has allowed the evil to spread their chaos over the whole chessboard through proxy. It's brilliant really; we simply can't focus our attention on so many fronts of attack. Our media, food, education system, healthcare, and banking system are all being used as weapons, which prevents people from focusing on any one. Domination indeed.

Skateboarder's picture

Which is why it is important to acknowledge that there is no winning their game.

BigDuke6's picture

All this lucefarian chap i read here -is it written by religious nutters?