Why A Rise In Retail Trading May Signal Another Mania

A BOOMING INDUSTRY OUTSIDE OF TRADITIONAL FINANCE

The coronavirus pandemic brought the global economy to its knees. The sudden stop of commerce rippled through all aspects of life, from travel to dining, and retail. The premise of social distancing – avoiding close contact to reduce the spread of COVID-19 – also prove antithetical to another aspect of life: professional sports.

Like financial markets and retail trading, professional sports attract masses of individuals in all sorts of ways, springing offshoot industries in the process. One such ballooning industry is sports betting. Since 2018, when sports betting became legal outside of Nevada, American sportsbooks have handled over $22 billion in bets, garnering just over $1.5 billion in revenues.

That’s a significant amount of capital sloshing around outside of traditional financial markets. And the industry is only expected to grow Morgan Stanley predicts it will become an $8 billion per year revenue industry by 2025.

LIQUID(ITY) ALWAYS FINDS ITS OWN LEVEL

In March 2020, when professional sports leagues around the globe started to temporarily close their operations due to the coronavirus pandemic lockdowns, something changed in financial markets. After all, something had to happen to those sports bettors and their $22 billion of bets since 2018; that liquidity needed to find its own level, its new equilibrium in a coronavirus pandemic world.

But for a time in March, capital markets were looking dry: companies starved of cash in the short-term were facing long-term insolvency – i.e. bankruptcy – threats. That’s when the spigot opened: the Federal Reserve began to flood markets with over $3 trillion (and counting) of fresh capital, while the US Treasury announced paycheck relief programs for businesses and individuals. These two efforts combined injected over $6 trillion of stimulus in an effort to stem the worst economic crisis since The Great Depression.

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