It's the Housing, Stupid

Summary

A few weeks ago, I was on The Compound and Friends, and there was a debate about why we were seeing 2021-like meme stock activity and money market funds holding record assets at the same time. For context, both of these things are true. If we look at the performance of the 100 most shorted stocks compared to the Russell 1000, that performance spread is nearing 2021 levels: It’s like a bunch of mini GameStop short squeezes all over again. And if we look at the non-profitable tech retail investor participation since 2021, it’s the same story: A subset of investors are buying into non-profitable tech stocks en masse. Where have I seen this before? Meanwhile, investors are also piling lots of assets into money market funds as well: What gives? Have investors collectively decided to go all-in on the barbell strategy by maxing out risk and safety at the same time? I don’t think so. What do I think is really happening? Housing—or the lack thereof. The Housing Problem The lack of a healthy housing market (due to high prices and high interest rates) is pushing lots of cash into other opportunities. Cash that would normally be going into residential real estate is finding its way into both meme stocks and money market funds/Treasury bills. There are two different kinds of investors that are being impacted. The risk-seeking investors are buying lotteries (i.e. meme stocks) and the risk-averse investors are buying U.S. Treasuries/money market funds. How do I know this? Because I’m one of them! My wife and I have been holding Treasury bills for the past few years waiting for mortgage rates or home prices to come down, but neither have. So, we keep rolling Treasuries until the right moment arrives. But it’s not just us waiting on housing either. There are a record number of people who are renting that would probably not be renting in a normal housing market. As Adina Dragos from RentCafe recently reported, “The number of renters…in the $1 million+ income category has surged by 20...