Betting Against Ourselves: The Casino-ization Of America

Last month I wrote about something that had been building in my mind for years: the realization that active trading was doing more harm than good in my life.

I wrote about how I had finally put systems in place to turn my trading and account management over to trusted parties who are far better and more disciplined at it than I am. I had to separate the fact that I feel great about often being an accurate prognosticator on my blog about market trends, but that executing the corresponding trades was simply something I wasn’t good at.

Now, thirty days since my last trade, I couldn’t be happier that I made the decision. Admittedly, it hasn’t been incredibly easy, especially because I can’t remove all of my triggers and simply ignore the news, world and current events. I’ve been chugging coffee, reading headlines and trading every morning for the last 20 years. So I don’t expect it to be an easy habit to break.

But it’s getting easier, and I’m stepping away from reading every headline, every day, toward putting the phone down and living in the present moment once my work is done and my column is written each morning.

And I can’t imagine a better time to undertake this exercise. “The market” was once a symbol of integrity and serious business run by old f*cks in bowties and suits, like the Duke brothers.

Now it has become less a mechanism for allocating capital and more a 24-hour Las Vegas freak show carnival of increasingly exotic wagers. Our market has become the pro boxing equivalent of when Screech from Saved by the Bell fought Horshack on Celebrity Boxing.

Back in year like 1980, a company had stock. Simple enough. Today you can trade options on the stock, leveraged ETFs tracking the stock, tokenized versions of the stock at 2 a.m., and prediction-market contracts on whether or not Joe Kernen is wearing a toupee when he reports on the stock.

Wall Street and Las Vegas used to be different places. Those days are over. And new reporting from The Wall Street Journal confirms it. They reported this week that Charles Schwab is preparing to enter the prediction market business through a partnership with Cboe. According to the report, Schwab customers will soon be able to trade binary-style contracts tied to the performance of the S&P 500. The contracts function much like prediction market wagers: traders make a yes-or-no bet on whether an index finishes above or below a certain level and receive either a fixed payout or nothing at all.

In other words, one of the largest and most respected brokerages in America is moving further down the path of turning market outcomes into wager-like products.

To be clear, this is not simply a Schwab story, it is a sign of where the entire financial industry is heading. The distinction between investing and gambling is becoming harder and harder to identify.

Prediction markets have exploded over the last several years. Sports betting has become ubiquitous. Options volumes continue to reach extraordinary levels. Crypto exchanges offer leverage that would have seemed insane a decade ago. Every event, every opinion, every outcome increasingly becomes something that can be traded. Sometimes it’s tough to remember there’s actual company equity at the bottom of the pile of all this speculative shit somewhere.

Last month I wrote: “Every event is now a market. Every opinion is now a wager. Every moment of boredom can be monetized by putting money at risk on your phone.”

If anything, I understated the trend. The financial industry sees demand and it is responding exactly the way industries always do: by supplying more product. The problem is that the costs aren’t limited to individual traders. Most discussions about gambling focus on personal responsibility, addiction, and financial hardship. Those concerns are real. We already see rising stories of people using credit cards, personal loans, margin debt, and other borrowed money to fund speculative activity. The American consumer is tapped out, as I detailed a couple weeks ago.

Source: Zero Hedge

We’ve seen countless examples in crypto, options, sports betting, and meme stocks where people become trapped in cycles of chasing losses and doubling down on increasingly risky positions. But the risks do not stop at the individual level.

When enough leverage accumulates inside a system, personal mistakes become market problems. Speculation funded by borrowed money creates fragility. Fragility creates forced selling. Forced selling creates liquidity events. Liquidity events create contagion. The history of financial markets is filled with examples of this dynamic.

And as savings dwindles, margin debt as a percentage of GDP is consistently rising. In other words, we’re taking more risk. Gambling more. Investing less.