We have a problem. 

Young people today no longer believe in capitalism. 

And hey, I get it. What has been presented to them as “capitalism” looks a lot like a rigged game. They were told by people they trusted to borrow heavily to finance a college education… an investment with a rather poor return, it seems, as most recent college graduates have absolutely no possibility of affording a house or starting a family any time soon.

They’ve watched a criminally incompetent Federal Reserve inflate asset values by keeping interest rates pegged at zero for years and exploding the money supply with $5 trillion in asset purchases. This benefitted Baby Boomers and older Gen Xers who already owned homes and stock portfolios… but made getting on those first rungs of the economic ladder punishingly hard for people just starting their careers.

And they’re watching two of the most incompetent presidents in our nation’s history squaring off for a rematch in November’s election. 

Of course, none of this is real capitalism. Sadly, it’s been a long time since we’ve seen real capitalism in the wild. But young voters aren’t big on nuance right now. They’re angry. And the solutions they’re going to demand at the ballot box are only going to make the problems worse. 

My friend Justice Litle, the Chief Research Officer of TradeSmith, has a good take on this. Read and learn… Justice served! 

To life, liberty, and the pursuit of wealth,

Charles Sizemore

Chief Investment Strategist, The Freeport Society

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How the “Millennial-Gen Z Ghost Ship” Gives Biden an Election Edge

Last month we attended a private investment conference where all manner of themes were discussed. When the topic turned to politics and the 2024 election, the overwhelming consensus was that former President Donald Trump would win.

Taking a contrarian view, we argued the opposite case: Not only is President Joe Biden the favorite, but he is likely to win easily.

The polls and prediction-betting sites saying Biden is behind Trump are way off the mark. A reasonable estimate of Biden’s reelection odds would be 70% to 80%.

Prediction is not endorsement. For the sake of sanity, we try to avoid political fights. With that said, we don’t shy away from controversy either. We try to be objective and say what we see. That’s it.

Biden is the favorite, in our view, because of a phenomenon we call “the Millennial-Gen Z Ghost Ship.”

When we described this idea at the conference, some folks were intrigued. They asked for a deeper explanation of the concept, and we said sure — so here it is.

We first introduced the Millennial-Gen Z Ghost Ship idea in November 2022 — just ahead of the midterm U.S. election results — to explain why predictions of a “red wave” – meaning Election Day victory for Republicans over Democrats – were likely to fall short.

If you recall the mood that year, the “red wave” consensus was deep and widespread.

Polling data suggested Republicans were going to crush Democrats and take decisive control of Congress.

“All of these polls that call for a red wave could now be overdoing it for Republicans,” we wrote… and then explained why.

When Millennial and Gen Z voters start turning out to a significant degree, they could wind up destroying the validity of classic polling methods thoroughly and completely.

It is hard enough to get a millennial to have a phone conversation with someone they know, let alone a complete stranger. They generally prefer text messages; and for Gen Z the old-school communication allergies are even worse.

What this implies is that, if a significant political event caused millennial and Gen Z voter turnout to rise substantially… it is possible that this young voting bloc, aged 18 to 42, could move through the electoral process like a massive ghost ship, with no effective polling footprint at all… and a major bias toward Democrats.

That is the gist of it: Millennial and Gen Z voters are a huge voting bloc with no discernible polling footprint. And their natural voting preference decisively favors Democrats.

To be clear, modern-day pollsters have access to mobile telephone numbers and email addresses. They aren’t stuck in a world of landlines and snail mail. With that said, the vast majority of polling survey calls, texts, and emails still go unanswered.

A rule of thumb response rate is about 2%, meaning, for every 100 attempts at contact, two of them achieve some kind of result.

And then one has to ask: What type of person is willing to, first, answer a phone call from an unrecognized phone number (versus letting it go straight to voicemail) and, second, have a conversation with a stranger about politics?

Even with adjustments for modern-day communication methods, polling efforts are going to skew toward people with time on their hands who like having conversations with strangers (or replying to emails from strangers) on sensitive topics. That is an age cohort that skews older.

As for why Millennial and Gen Z voters are likely to favor Democrats, consider the results of the YouGov survey below — and keep in mind it was conducted in 2019.

Five years ago, 64% of Gen Z responders and 70% of Millennial responders were “somewhat/extremely likely to vote for a socialist candidate.” Barely half had a favorable opinion of capitalism.

There is something amusing in describing the unreliability of poll data, and then citing a poll to underscore a point of view. But with that said, big-picture trends bear this out in more ways than one.

In a more recent poll — conducted by YouGov and Business Insider in mid-2023 — the favorability of capitalism had eroded significantly further. Gen Z Americans were almost evenly split between socialism and capitalism (28% versus 29%) as their economic system of choice.

Millennials and Generation X voters had a slightly stronger capitalism preference — at 34% and 39% respectively — but those numbers are still shockingly low.

To piece together what is happening here, consider two things: 

1. Pandemic stimulus
2. The housing market.

In response to the pandemic, the government air-dropped trillions of dollars’ worth of emergency stimulus onto U.S. households and small and medium-sized businesses. Checks were sent directly to households, and pandemic loan programs were like a free-money bonanza.

It was the closest thing to Milton Friedman’s “helicopter money” experiment — dropping money from helicopters — that the United States had ever seen.

And now we are being told by Wall Street that a “soft landing” is on the way — and that all that free money came with zero negative long-term consequences.

For the 70% or so of Americans who are struggling financially — the top 30% are fine, the rest treading water or hanging on by their fingernails — the lesson of the pandemic is that free money is available on tap when politicians are willing to authorize it.

So why not get more free money — free everything — especially if the system is unfair?

Now consider the U.S. housing market, where affordability has hit all-time lows and prices remain stuck in the stratosphere.

If the American Dream includes owning a home, such implies that, for the vast majority of young Americans — and for many Gen Xers, too — the American Dream is deader than a doornail.

According to Redfin, a real estate brokerage, the average U.S. housing payment hit an all-time record of $2,721 per month in March.

At the same time, per Redfin, the average U.S. household makes $29,000 less than the income required to afford a median-priced home.

On being told the peasants had no bread, the French queen Marie Antoinette supposedly said, “let them eat cake.” The modern version of that sentiment is “let them eat rent” — and multiple generations of Americans look ready to send capitalism to the guillotine. Because why not, if the system no longer works for them?

Then, too, the Millennial generation is already larger than the Baby Boomer generation… and Generation Z is almost as large… and with every passing day, the Millennial-Gen Z voting footprint gets larger as the Baby Boomer voting footprint shrinks.

Presidential elections are a game of inches. In the modern political era, a 10-point swing — meaning a 55%-to-45% result — would be considered a huge blowout.

Given that reality, both Biden and Trump have their problems as candidates — but the problems mostly cancel each other out.

For example, Biden has Democratic voters who are alienated by the Israel-Palestine situation, but Trump has Republican voters who supported Nikki Haley in the GOP primary who won’t return to the fold (there appear to be a surprising number of these).

And so it goes: 

• Biden has age-related issues, but Trump is only four years younger; 
• Democrats are losing minority voters to Republicans at the margins, but Republicans are losing suburban moms to in vitro fertilization (IVF) issues, as demonstrated by Marilyn Lands, a Democrat, flipping a special-election House seat in ruby-red Alabama by a whopping 25-point margin; 
• Robert F. Kennedy is seen as a spoiler candidate, but it isn’t clear which side he will draw more votes from (alienated Haley supporters could flock to him);
• And so on.

The decisive factor that doesn’t cancel out, in our view, is the Millennial Gen-Z ghost ship — which saved Democrats in the 2022 midterms and will dominate every election cycle moving forward — and younger Americans’ general frustration with capitalism as expressed most painfully in the housing market.

Until next time,

Justice Litle

Chief Research Officer, TradeSmith