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ProfGalloway | Scott Galloway | Feb 28, 2020

carnival cruise cartoon - CarnivirusThe worst thing about a cataclysmic weather event, or a single-stranded-RNA virus that wipes out the species is … it might impact the economy. Take my eyes, but don’t let the NASDAQ breach 8,000!

That’s how it feels, no? In a capitalist society, good or bad, the first words out of Lester Holt’s mouth tonight will be about the market plunge. The last 3 minutes of the show will be a touching story about a dog that helps wounded warriors make breakfast. National sacrifice and devastating injury are meaningful, but Apple dipping below $180 is profound. On Thursday, the markets registered their largest recorded one-day drop, plunging to levels not seen since ... 4 months ago.

So, as I too opt to ignore the non-carbonated plague inspiring mayors of major cities to declare a state of emergency, I’m planning on visiting several hot zones tonight. I’ll have dinner at Indochine, then hit The Blond (a lounge where I feel old), and then another lounge called Casablanca, where I should feel really old, but will be 4 Maker’s & Gingers deep and will feel like I belong … right there, right now. In-between acts of arrested adolescence and suppressing the sum of all my fears, I distract myself by thinking about the markets.

Bright Side

Let’s be clear, the NASDAQ dropping is a bummer for old people, who own most of the market. But it’s an opportunity for young people, who would also someday like the chance to buy a home for less than $2,000/sq ft or shares in Amazon below 50x earnings. So where is the opportunity? Two ways to play it — defense and offense. I’ll talk about offense next week.

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Defense: Find great companies on sale whose business, short term, may be significantly impacted, but whose fundamental value proposition is largely unchanged and will enjoy a disco-like recovery.

Demographic Shift

Sound travels 4 times faster through water than air. In general, cruise lines offer a similar ROI relative to other transportation firms. Peter Drucker said that all great businesses are powered by a demographic shift. The Queen Elizabeth 2 has two huge variable-pitch propellers, each with a diameter of 22 feet and weighing 43 tons. The propellers of the cruise industry are an aging population and consumers’ desire for less choice and frictionless leisure.

Rookie marketers make the mistake of thinking choice is a good thing. Choice is a tax on your time and attention. Consumers don’t want more choice, but more confidence in the choices presented. Customers want someone else to do the research and curate the options for them. You could try to merchandise a better itinerary on a boat through Southeast Asia (hotels, meals, activities, planes, trains, cars), or you could let someone else figure it out for you.

In addition, the largest transfer payment in the history of mankind has become one of the biggest corporate subsidies in history. Social Security is a transfer of wealth from the young to the old that costs more than the defense budgets of the US and Europe combined.

See:  Regular investors are cut out of a major financial market and the SEC chief wants to change that

The $1 trillion we spend on Social Security each year takes senior poverty rates from 38% to 10% percent. So, is Social Security the most successful program in history, reflecting well on our society, or the meteor heading for our economy? The answer is yes. Social Security lifts 7% of Americans (28% of the elderly) out of poverty. Put another way, we spend $50,000 a year per person to lift 20 million people above the poverty line.

Twice that — 37.2 million people, including 18% of the nation’s children — live in food-insecure homes. Home instability in turn leads to double the cortisol levels of children in secure homes, which leads to poor academic performance, which leads to lower professional success. In contrast to Social Security, we don’t leave $400 of groceries every week on the porch of every household that has children. Why? Because kids don’t vote.

Why are we stealing time and work (i.e., money) from future generations? Because mostly old, mostly white people, mostly in Iowa, New Hampshire, and other predominantly white and old states, determine who is elected president and write the script for politicians’ narrative. The greatest threat facing our society is not income inequality or climate change, but generational inequality. We have legislated theft from young people, which leads to loss of faith in democracy, the rise of fascists and socialists, and defunds governments, who are our best hope to counter climate change and income inequality.

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