When trying to diagnose what's responsible for the speculative frenzies seen in both certain stocks and in many other assets, observers usually mention the Fed's very loose monetary policies and/or the impact of stimulus money.
Occasionally, observers will also bring up how a jump in disposable income/personal savings rates -- in large part a by-product of consumers spending far less on things such as vacations and visits to restaurants/bars -- has freed up more funds for goods purchases and asset speculation.
But I think less attention has been given to some of the psychological factors that have arguably been fueling all of these manias. Specifically, how purchasing goods/assets and making speculative bets on things gives people a sense of control and agency during an uncertain time in which they might feel powerless in the face of a public health crisis and government policies that are completely out of their control.
Here, it's worth keeping in mind that high-growth/high-multiple stocks are just one of a slew of asset types that consumers have been eager to place wagers on in recent months.
As Draftkings (DKNG) and FanDuel will attest, sports betting activity has also skyrocketed. And as eBay (EBAY) will attest, prices for sports cards and various other collectibles have also gone through the roof, as speculators join new and existing hobbyists in bidding up prices. Also, as readers probably know, prices for a host of cryptocurrencies have soared as well.
To some extent, one can draw a link between such speculation and the enormous jumps seen in PC, console and mobile gaming activity over the last 12 months -- particularly given how companies such as Robinhood, Draftkings and FanDuel have drawn heat over how they've allegedly gamified activities that have financial consequences when a bet doesn't go as hoped. While the gaming surge undoubtedly has much to do with the fact that consumers are spending a lot more time at home right now, it also seems to have something to do with how playing games can give people a sense of agency in a way that, say, streaming movies or using social media apps doesn't. And perhaps that holds doubly true for "games" that have financial consequences attached.
Meanwhile, we've also seen purchases of tangible assets for non-speculative purposes go into overdrive, a phenomenon that has led to shortages and (at times) higher prices for everything from houses to furniture to graphics cards. Once more, this behavior can't be chalked up to just one factor -- in the case of the housing market, for example, low interest rates and a jump in remote work activity are both clearly playing roles. But it does also seem that for many people, purchasing tangible assets is providing them with a sense of ownership and control at a time when they're unable or scared to do many of the things they've normally done.
All of this reminds me of a storyline from Season 3 of Breaking Bad. Specifically, how Hank Schrader (the DEA agent/Walter White's brother-in-law) builds up a giant mineral-rock collection while bedridden for a few months after being shot. Hank was a very active, extroverted guy who did an occasionally dangerous job. And when he was placed in a situation where he felt helpless and was incapable of doing just about anything that he normally enjoyed doing, he tried to gain a sense of agency by purchasing one box after another of an obscure collectible.
Now here's the thing: We never hear again about Hank's mineral-rock collection after he recovers from his wounds and goes back to work. Presumably, he either sold the collection or put it in storage somewhere. Once the psychological factors that had led him to build up the collection went away, the collection became an afterthought.
Along similar lines, I think some of the people who have been speculating aggressively on everything from sports events to cryptos to electric car stocks won't feel as driven to do such things as vaccines become more broadly available and we start to see some kind of return to normalcy.
Likewise, the sense of ownership and control that many people are deriving right now from purchasing goods and assets of various kinds might not have the same pull once they feel free to do so many of the things they took for granted pre-COVID, but which they generally haven't partaken in since last March.
But until then, the psychological factors that seem to have added fuel to asset-buying and speculative manias ignited by monetary/fiscal policies and consumer spending changes might continue exerting a strong pull.
