Can the Free Market Police Itself? Maybe, Sort Of....

When people do bad things in the marketplace, other shady actors may call them into account.

A reader recently sent me this link to an article about Square, the "fintech" (throw up in mouth a little) company that is basically a credit card processing company (and if that is "tech" then I'm the Pope).  You've probably used their services before, and although they are pricey (if you are a retailer) it is a turnkey solution for small businesses and they send you receipts by e-mail, which was a pretty neat feature - ten years ago.  Today, there are many competing companies, such as Clover, which we use at the Parcheesi Club.

Anyway, the article alleges (act shocked) that this silicon valley tech-that-is-not-tech company overstated its earnings so that the founders could exercise their stock options and make countless billions of dollars.  I know - shocking!  A silicon valley company that turns out to be nothing more than a vehicle to cash-out millions, if not billions, for venture capitalists and founding members?  I mean, that has never happened before, right?  Or is it the blueprint of modern "business" practice?

The game is played like this:  You start a company with an idea - a good idea or a bad idea, it makes little difference.  Then you do an IPO and before that, a "roadshow" to hit all the financial channels and blogs and newspapers and whatnot (even town-hall type meetings) hyping the crap out of the company.  The IPO "drops" and the share price soars - making huge amounts of money for the banks and others who sponsored the IPO, but raising very little actual money for the company.

So what's the point?  The point isn't to raise money for the company, but to create a market for what were basically untradable shares of a closely held company, before the IPO.  Post-IPO and after the "lockout" period, insiders can sell their shares, which are inflated in value, for a hefty profit.  Problem is, you have to sell the shares in a trickle, lest the plebes on r/wallstreetbets catch on to the scam (no worries - they never do, and the well of chumpism is bottomless!).

If the share price starts flagging, well, you go out and hit all the financial channels again and hype the crap out of your stock.  You can also hire an army of bots to slam social media with positive spin on your company - and sometimes this is even legal.

In Commercial Law, we call this "puffery" - if you say your company is super-duper great and so on and so forth.  It isn't really "lying" to say that you are excited about your prospects for the future or all the great projects you are working on - provided they exist.  It is lying to say something works, when it clearly doesn't (Theranos) and you could go to jail for that - and people did.  It is lying to say you made a billion dollars in profits when you actually lost more than that.

And that is where Square - or its parent company - comes in to play.  Someone is accusing them of over-stating earnings in order to prop up the stock price and cash out big time.   But who is that someone?

Hindenburg. Not the Zeppelin, but a hedge-fund type of company that "shorts" stocks of other companies.  And I digress here, but a Zeppelin is a rigid lighter-than-air craft (airship) made by the Zeppelin company.  A dirigible is a rigid airship of any brand or make.  A blimp is an inflatable, non-rigid airship.   It pisses me off to see professional writers for newspapers call the Goodyear blimp a "Zeppelin" or refer to the Hindenburg as a "Blimp".   A trivial complaint?  Perhaps, but words matter and while we expect you and I to be sloppy with language, we expect more from people who write for a living.   But what am I saying?  Even the NYT and WaPo are riddled with typos these days.

Anyway..... Hindenburg, the company does sort of the reverse of what silicon valley companies do.  They buy "shorts" on a company's stock (bets that the price of the stock will go down - and pay off massively if they do) and then do a roadshow (sounds familiar?) telling all the financial press and prognosticators what a shitty company they are shorting is, and how the stock is overpriced and how the company founders are a bunch of fraudulent bastards.

And sometimes, they are even right, too!

People wake up and realize that XYZ company and its purported "hoverboard" product were just vaporware and the company was overstating earnings for the last four quarters.  The stock plunges, the short-sellers make millions (if not Billions) and maybe XYZ company goes bust and the founders go to jail.  Justice is served, right?

Libertarians and free-market mavens would argue so - that left to its own devices, the free-market is self-policing.  After all, the SEC can only level trivial fines and doesn't have the manpower to scrutinize the balance sheets of every damn company out there.  So let the free-market balance it all out!  

Cold comfort to the small investor who bought $5000 of XYZ stock and is wiped out completely when XYZ goes bust.  But hey, he should have known better, right?  And that is the conundrum of the Social Media Stock Market - where hundreds of millions of plebes are "betting" small amounts of money on startup companies which - even if legitimate (ha-ha!) - are more than likely than not to fail in short order.

The free market has other self-appointed police besides short-sellers, and like the short-sellers, they profit themselves greatly, while the individual makes little, if anything.  Class-action lawyers, for example, can rake in tens of millions of dollars for their firm, as these sort of lawsuits are always settled before trial for a trivial amount ($5 per victim).   But you could argue that the threat of class-action lawsuits is enough to keep companies in line, much as the lone gunslinger enforced the law in small towns in the Old West.  His law, of course.

Or, you could argue, as many companies do, that these class-action lawyers are just parasites who feed off the success of major companies and contribute nothing to the bottom line.  On the other hand, lawsuits like this (along with Patent Troll lawsuits) are a barrier to entry for small companies - who may have to merge with a larger company or go bust - while major corporations just write a check and call it the cost of doing business.

Personal Injury attorneys arguably work the same way.  They rarely recover much for the "injuries" suffered by the bulk of their clients (most of these suits are slip-and-fall or minor car crash cases worth only a few grand apiece, which the lawyers take most of).  You could argue this makes grocery store aisles safer or makes truck drivers drive more carefully.  Or you could argue that it just means the grocery store has cameras in all the aisles now, and that truck drivers are worse than ever before and insurance rates are jacked up and again, considered the cost of doing business.

You can argue it either way.  There is something of a poetic justice, though, of a company accused of fraud being taken down by short-sellers.  The free-market incentive to police the world is a greater force than actions by government employees - in some cases, anyway.  Government employees can be pressured by politicians to back off - or their budgets cut, as the GOP routinely does to the SEC and the IRS.

Congress has, however, in other situations, actually passed laws deputizing the general public to "go after" bad actors.  You can sue someone for a fixed amount per phone call or fax if they call you unsolicited or send you junk faxes (back in the day).  And a few citizens have cashed in on this (including me) - but the majority of such bad actors are overseas and hard to sue.

And of course, there have been Qui Tam actions for a long time - allowing you to sue on behalf of the government if someone is ripping the government off.  You get a percentage of the settlement, which can amount to millions of dollars.  And a few people have cashed in on this, as well.

In recent months, however, this sort of thing has taken a dark turn, as States like Texas have passed laws allowing individual citizens to sue doctors if they are suspected of performing abortions - sometimes even across State lines. The net effect, if such laws are upheld, would be to chase OB/GYN doctors out of those States, as is already happening in Idaho.

Sometimes, in the end, Privateers sometimes end up being hanged a pirates!

Maybe real police isn't such a bad thing, after all.

I (Still) Don't Want To Know The Name Of Your Cat!

Quentin Crisp said it best: "There is no dark man!"

I had a dream last night, I was reading one of those Gothic romance novels - the kind you used to call a "bodice-ripper" before that was considered date rape.  It went something like this:

"Oh, Rex, take me away from my evil stepfather, on your mighty steed, so that we may live together forever in happiness!" she cried, burying her face in his muscular chest.

"Surely, Stormy - take my hand, and we shall both be free!" he replied, gently caressing her head and lightly kissing her face.  "But there is one thing I need to tell you, first!"

"What is that?"

"Well, I live with my Mother and have a cat named Mittens.  You're not allergic to cats, are you?"

Mood spoiled.

It is human nature, I'm afraid, that we are all human.  If you go to a leather bar, you might see some guy who looks like a cross between Arnold Schwarzenegger, Tom of Finland, and half the Village People.  He's nearly seven feet tall, a wall of muscle, and handsome.  Surely this is the man of your dreams, right?  Then he opens his mouth and in the most mincing voice imaginable, reveals he is an interior decorator named Bruce - and yes, with a cat named Mittens.  Do you want to go home with him and meet Mittens?

I wrote about this effect before - we all want to project our fantasies and desires onto others.  And nowhere is this more true that with celebrities.  And in recent years, celebrities have let us down by turning out to be mere mortals with mortal failings.  In fact, they tend to turn out to be first-class jerks.

I was listening to 80's music on YouTube and they played an old Joe Jackson song.  I remember hearing that on the radio all the time back in the day (when people actually listened to the radio).  Come to think of it, one of the lines in the song was "We'll leave the TV and radio behind" - and I guess our generation did - replacing it with streaming services.  But I digress.

I was curious as to what happened to old Joe Jackson - was he a one-hit wonder?  Well, I looked him up and was bitterly disappointed.   He has written a bit, but his writing kind of sucks.  And his big, big deal since the 1980's?  Speaking out against smoking bans.  He decided to die on that hill, (as did Penn & Teller) claiming that the "Nanny State" was going too far and there was no evidence that secondhand smoke (or apparently, firsthand) was bad for you.

Mood spoiled.

The problem with taking stands like this, is sometimes you end up on the wrong side of history.  Smoking would still suck, even if it had health benefits.  It smells bad and is a fire hazard - so many people die in bed from smoking. In fact, the whole urban legend about "spontaneous human combustion" died out when smoking died out - it was, after all, just people who were dead drunk, falling asleep in bed or an easy chair, dropping a cigarette, which caused the upholstery to smolder.  With fewer people smoking, there are fewer such fires.  That, and most modern furniture is made with fire-resistant stuffing, instead of smoldering cotton batting.

But the main deal is, a minority of people don't have the "right" to blow tear gas in your face, or throw stink bombs in restaurants, which, in effect, smokers were doing for a century or more.   The "rights" of smokers trample on the "rights" of everyone else.  And trust me, living on Old People Island and seeing friends die of COPD, it isn't pretty.  Imagine being smothered with a pillow, slowly, over a number of years.  It is a horrible way to die.

But that is what Joe Jackson will be famous for.  You know, he might have been better off keeping his mouth shut and he would have been remembered for his music!

Yea, yea, I know, "everyone has the right to their opinions!" and that is true.  But being a celebrity amplifies your opinions, and being a celebrity doesn't make you right about anything.  People are sick and tired of political Oscar speeches, or celebrities using their celebrity to advance a "cause" like a First Lady or Miss America contestant.  Just shut the fuck up and cash those fat paychecks - right?  Because the fact you were born attractive (or made that way under a knife) and have a good Agent, doesn't mean the thoughts going through your empty skull are in any way significant.  Hollywood hired you for your looks, not your brains.

OK, maybe Meryl Streep excepted.

But we see this a lot today - people who had successful careers who then, later in life, show us exactly what kind of shitheads they were and are.  And again, I get this - they are human after all and not Gods.  So when they fall from their pedestal, well, we should not be surprised.

And maybe part of the problem is that once you become so successful and have an entourage, you start to think you really are so clever.  Gyneth Paltrow apparently thinks she owns the ski slopes and is an expert on quack cures for diseases you don't have.  Again, sort of spoils the mood, don't it?

There are others - a litany of others - such as JK Rowling, who, after cracking open a box of wine, gets tipsy and goes on Twitter to say mean things about "Trans" people.  And by that, I don't mean having a meaningful discussion of whether it is fair for a trans athlete to play on a girls team, or whether government or insurance money should be forced to pay for expensive operations or whether children should have hormone treatments.  No, no, rather she has to try to troll trans people and say horrible things.   It is not just a matter of her "expressing her opinions" but rather showing us her real character.

And like clockwork, when these sorts of people show us what rotten sons-of-bitches they are, they complain they are being "cancelled" for their opinions, when in fact they are being cancelled for being shitheads.

There are exceptions to this trend.  Keanu Reeves, by all accounts, is a nice guy and a decent human being, even if the movies he stars in (such as the John Wick franchise) are rather over-the-top violent.  But he doesn't have a "Controversies" section on his Wikipedia page, and when asked about religious beliefs, he gives oblique answers - allowing us to project onto him what we want to see.  The only "political" position I could find he supported was reading a poem at a "Free Tibet" event, which earned him the ire of China, which banned his films.  Oh, well, even he steps in the dogshit once in a while - China is a huge market for Hollywood films, although I guess the Chinese can stream him through Starlink or something.

Once in a great while, you read about a celebrity who fades off into obscurity without bursting our bubbles.  You really wanted to root for Clint Eastwood or Charlton Heston, but they both sort of lost their minds toward the end, and became gun nuts.  Worse yet are the washed-up stars who shill for utter scams like second mortgage companies or burial insurance.  I mean, what a way to screw your own fans!

Even getting married is problematic for some celebrities. Teen heartthrobs in particular, are often forced to conceal their marriages or relationships - or at least downplay them - as their teenybopper followers want to project their romantic fantasies on these icons.  And no one wants to know the name of their cat, either.

Just a hint:  If you become a celebrity someday, keep your opinions to yourself and appear as neutral as possible, so people can project onto you what they want to see, and not who you actually are.  If you do this, you can keep your celebrity going on for a good long time.  And you won't end up hawking burial insurance at 2AM on some off-beat cable channel.

F150 Panoramic Sunroof Repair

Sometimes, you can do it yourself.

The King Ranch was in storage for a few months and when we went to go camping, I realized I had left the sunroof closed.  I usually leave it in the popped-up (vent) position to air out the truck in storage.  Anyway, I hit the button and it made a sickly cracking noise and wouldn't open.  I tried it a few more times and it finally opened, but sounded like there were rocks in the mechanism.

It is the kind of thing you dread owning a car with a sunroof, or a convertible with a fancy electric top - or worse yet, one of those retractable hardtops with motors and limit switches and levers and gears.  It all goes wrong over time and only the dealer has parts and know-how to fix it - right?

Well, in the case of the sunroof, many dealers are clueless about them as they tend to break out of warranty.  So they quote astronomical prices to repair them - from $600 to $1000 or so.  One dealer had the balls to ask $4000.  The repair, in this instance, turns out to be simple, and the parts cost about $150 from sunroof doctor and there are all sorts of DIY videos on YouTube (some better than others - it pays to watch several).  I also pays to take the time to understand how the thing works, which becomes quite clear once you work on it - it is not the giant mystery it seemed at first, nor was it horribly complicated.

The problem is twofold.  Panoramic sunroofs, unlike ordinary one-piece sunroofs, have two pieces of glass.  So in a regular sunroof, you have a seal that goes all around the glass and seals against the sheetmetal of the car.  In the Panoramic, one side of the glass has a rubber seal that seals against another rubber seal on the rear glass.  These seals can stick together over time, if the roof is left closed.  When you finally open it, it acts like it is glued shut and the "pop" you hear is a plastic part of a metal rail cracking.  A piece of this plastic can fall off and get in the track, causing further problems down the road.  And as the plastic track is now cracked, the "follower" that moves the sunroof along this track will jam or can jam.  The good news is, Ford designed this with a torque-sensing overload, so if it does jam, it will reverse or shut down to prevent damage to the cable drive.

I ordered the parts - about $170 delivered, and they came in a few days.  I sort of put it off (CoVid) but we wanted to go camping, so after watching all the videos, I gave it a shot.  Removing the glass was easy - three 9'mm bolts on each side and you put an old blanket on the back of the roof and push the glass up and rest it on the blanket (hint: slam the edges of the blanket in the rear doors so it doesn't slide off the roof and destroy the glass.

Removing the "rails" was a little trickier, but the kit even came with some extra parts and screws.  The first one was the hardest, and took about 30 minutes. The second took about 15.  It isn't really a "rail" as it moves with the sunroof.  It is a track that moves the rear edge of the glass up and down to open fully (down) or pop into vent mode (up).  It also moves the front of the glass up or down as well.

Once the rails were in place, I could work the mechanism a few times and confirm it worked.  I re-installed the glass, putting in the bolts loosely and then pushing up on the glass until it was flush with the roof, adjusting both sides accordingly.  Once I confirmed it was flush and worked properly, I tightened down the bolts.

And... done!

Supposedly Ford has had a big problem with these rails and redesigned the part with a different kind of plastic.  We'll see.  In the field, things happen that you don't see during development.  I guess they don't have live oak pollen in Dearborn - it lands on everything here.  Add a little water and it is like glue - particularly on that rear seal!

So, keep the seals clean and lubricated and be prepared - after seven years - to fix it.

Some people say, "Well, that's why I would never have a sunroof!  Nothing but trouble!  Best to stick to simple things!"  Well, that's one approach, Amish.  But the point of this blog is how to live better on less, not how to live like a Monk on bread and water.

$170 repair after seven years and 68,000 miles.  Not bad.  The only other thing I've done to it is change the oil and put in a new battery and a set of tires.

I can live with that!

A New Gold Bubble Coming Soon?

Are we at the beginning of  a new gold bubble? 

A reader recently was looking at this blog entry from 2010, which I have updated as follows:

UPDATE 2023:  Gold has gone up - and gone down.  Usually the "little people" buy when it goes up, based on FOMO and because it is being hyped online.  Then it goes down and they sell at a loss - again due to fear.

Is gold a good deal?  A hedge against inflation?  A safe harbor?  None of the above?  I think the latter. As we saw in 1982, the price peaked and people had to wait two decades to get their money back, not even accounting for inflation.

Recently, there has been an increase in inflation and a lot of panic-talk about bank failures.  Surely this will spike the price of gold, right?  Yet, oddly enough, it remains relatively flat, if not in fact, decreasing slightly.  And maybe this is because all the gold-bugs went over to the Crypto sites and started obsessing about that instead, leaving gold to be what it always was - a commodity mineral, no different than diamonds, silver, or for that matter, zinc, lead, or even dirt.

Gold has gone up - and down - and really hasn't kept pace with even inflation.

If you look at the chart above, your first impression might be, "gold has shot up in value!"  But if you look most closely, you see that the guy who bought in March of 2022 lost nearly 20% of his investment by September of that year.  And if you factor in inflation, $1400 in march of 2018 is worth nearly $1700 today.  When you dial that into the equation, you can see that Gold isn't making wild gains after all.  In fact, your mutual fund likely did better over the same period of time.

So did the gold bubble "burst?"  Well, one of them did.  Maybe more to come, who knows?

This chart, from 2000-2023 shows the 2010 bubble.

As the chart above illustrates, in 2010, when I wrote this entry originally, the price of gold peaked at about $1800 an ounce and then dropped to about $1200 for a long time until 2020.  That's ten years to earn your money back, not factoring in inflation.   Factor in inflation, and that $1800 in 2010 should be worth $2400 today.  Yes, the gold bugs got burned if they bought in 2010.

So what does this all mean?  Well, in 2010, people were panicking because the economy was in the toilet.  2023 seems poised for that pattern to repeat again - panic and fear are ruling markets, people are pulling back from investments and new businesses.  Layoffs are starting to accelerate.  And the housing market is finally slowing down as interest rates rise.

Wait for it - 3...2...1....  Some idiot on social media is going to say "buy gold!" after they already bought it.

Wash.  Rinse.  Repeat.

Of course, some may argue, "Well, this time, I will get in on the ground floor and clean up when those other idiots buy in!"  And maybe that will work, or maybe it will not.  Maybe, if you are lucky, you may double your money in a few years.  Maybe if you are unlucky, you may lose half.   You could make the same arguments for buying bargain stocks when they hit rock bottom.

My only take is that if someone is hyping whatever it is on the Internet, it is probably a bad bet.

Sometimes A Crises Is A Good Thing!

The chickens are coming home to roost at America's overpriced colleges.

First of all, let's debunk the term "crises" - the media loves to use it to describe just about everything these days.  Gas goes up ten cents a gallon and it is a "crises" because some idiot who bought a monster truck, jacked it up and put Bozo tires on it, is getting only 11 miles per gallon and he's entitled to cheap gas.

Crises is a mega-volcano blowing up humanity.  Crises is not a small drop in college enrollment.

But it is happening and has been happening and it was one of the first postings in this blog - colleges are headed for trouble and acting like nothing has changed.  But two things have changed, dramatically.

Demographics is the first part.  This generation of High School grads is smaller than the previous one, which was smaller than the one before.  Colleges thus have to compete, quite literally, for admissions.  You need butts in the seats to make a college work, and no students means no college.

A ran into a fellow who said his grand-daughter is having trouble getting in to college.  She has good grades and good SAT scores, but is relying on a needs-based scholarship to get into a prestigious school.  She has been accepted by her "backup" schools but is wait-listed at her desired schools.  It appears that many of the top tier schools are putting scholarship students on wait-list, hoping that some wealthy "legacy" applicant who will pay the full tuition amount will apply at the last minute.  They are that desperate for money.

The second problem is that schools have priced themselves out of the market.  Many would-be applicants are reading the horror stories online of young people who mortgaged their lives for a college degree and end up as a Barista at Starbucks instead of a Barrister at Law.  They still have to pay back fifty grand or more in school loans.

It is no different from GM back in the 1970's.  People saw poorly-made cars selling for close to ten grand and getting shitty gas mileage.  Meanwhile their "kooky" neighbor just rolled over 100,000 miles on his eight-year-old Toyota, getting 30 mpg in the process.  It takes a while, but eventually people catch on to what is happening.  Markets have a lot of hysteresis, as we are seeing today in the housing market. But you cannot hold back a flood, for long.

What will happen as a result of this drop in enrollment?  Well, more of the same thing.  Small, liberal-arts colleges are the canaries in the mine.  Many have sky-high tuition rates and the resultant degree is viewed as less valuable - if not worthless - in today's job market.  Granted, education should be much more than vocational training.  But then again, many of these small colleges started out as places to park young women for four years, while they found a spouse.  And this was the case not only in the early 1900's but until even the 1960's.

Times have changed, and having any college degree is no longer seen as a sign of distinction.  This idea that everyone should go to college is flawed, as what made a college degree worthwhile, was its exclusivity, even if that was a bit elitist.  When everyone goes to college, college becomes the new high school.  And these statistics that "You'll make 75% more money" by going to college are created by... colleges (Georgetown University, for that particular boner).  Yes, that was true in 1967.  Maybe less so, today.  And it depends on what kind of degree you get, of course.

If more schools go out of business - as many already have - it will mean more applicants for larger colleges and universities.  If that is the case, not much will change - tuition will remain sky-high and students will fall into the same traps as before.  But if the trend continues, maybe - just maybe - some schools will have to figure out some alternatives.

For example, cutting costs.  Many schools have built building after building when a wealthy alumnus kicks in money - and they want something with their name on it.  But maintaining these buildings - many of which are half-empty most of the time - is costly.  Many schools have cut the important parts to the bone - replacing tenured professors with adjunct, part-time faculty or graduate students - while padding the perks for the administration.  It may take bankruptcy to reverse this trend.

Then there are majors.  It is possible that students may demand more out of their education than an easy "A" in touchy-feely studies.  Again, this is problematic.  Florida is experimenting with removing "wokism" (which means whatever you want it to mean) from school curricula, including State universities and perhaps even private ones.   Whether students will flock to these "anti-woke" schools of flee from them, remains to be seen.  Perhaps not politicizing education in any direction is a good start.

Like I said before, the "Gay and Lesbian Student Association" at my alma mater (and its weekly beer bashes) is gone, replaced by a "Center for Queer Studies" and some way-too-serious people.  I guess you can get a degree in this now, although I am not sure why or where it would lead to.  I think that is best a home-study course.

Economics cannot be denied, and you would think colleges which teach economics would realize this.  You can install as many rock-climbing walls as you want in the student center, it doesn't make the resultant degree more worthwhile.  Rather, it just turns college into a hangout for rich kids to play around in, and for middle-class kids to make the biggest mistake of their lives, by signing up for student loans.

Of course, one reason why nothing has changed for so long was that it is 18-year-olds making these economic choices, and they are not a very experienced lot, when it comes to finances.  While young people decry the antics of oldsters, they do, subconsciously, put a lot of faith in what their teachers and parents have to say.  And when everyone says, "go to college, you'll earn more money that way!" they tend to believe it, even if it makes no sense if it incurs $100,000 of debt.

Compounding this are parents who - let's be honest here - want to get their hormonal and stinky teenager out of the house.  And college is a good way to do that.  And parents really believe the "college is key to success!" bit, because it was true for their generation.  Not only that, they want to impress their friends that their kid is college-bound and not some slacker working a slug job.

Colleges know this, which is why they have resisted change for so long - and will continue to do so.  They know that people salivate at the chance to get into their school, and so long as people feel that way, there will be no incentive to cut costs or lower tuition rates.

So, after nearly 15 years of blogging about this issue, I doubt much will change.  And no, "student loan forgiveness" or "free college" are not the answer but rather just throwing more gasoline on a fire of burning money.

I mean, come on, you tell these greedy college deans that the government will pay the bill?  Tuition will double overnight!

UPDATE:  See this article, which notes that many companies and government agencies are eliminating college degree requirements for many high-paying jobs.

The Decline of the Family Empire

Adult children should not be kept as pets.

You may recall the recent online viral video of a "young" man (age 38) in New Jersey, who was arrested for threatening to kill a Sheriff in Florida.  He lived with his mother, who announced, "They're here!" as the Police arrived, as if this was something she had long expected.  And she probably did.

What was odd about the whole thing (well, there was a lot of odd) was that the Sheriff was taking a stand against neo-Nazism and apparently this pissed off this living-with-mom-always-online dude.  How on earth is Nazism going to make his life better?  It is just another prime example of The Pariah Mentality - a chance to sacrifice your life for imaginary internet bonus points from your "chums" on 4chan (or 8chan or whatever) who are likely Russian trolls.

Another article recently claims that more young people than ever before are living with their parents, or some such nonsense.  This fails to take into account, I think, the agrarian society we used to live in, a hundred years ago or more, where just about everyone lived with their parents until (and if) they married. It also doesn't account for cultural differences - many recent immigrants are from cultures where young people live at home until (and if) they are married.  The article posits this as an economic problem, though, when I think it may be more of a matter of some young people taking the easy way out.

Some young people argue that the "cost of housing!" makes it too hard for them to move out.  And if you are living in your parents' house, rent-free and banking your paycheck for the day when you can afford to move out or even buy a home of your own, then good for you.  But I have witnessed, firsthand, many young people who live with their parents and then spend all their income on consumer electronics, new cars, restaurant meals, and so on and so forth - saving nary a penny.

To give you an idea of what I mean, I saw an attempt to discredit a stupid online "meme" that posited that "Millenials" (or some such punching-bag) were spending $900 on a new iPhone, but couldn't afford to save up for a down payment on a house (or whatever - it is a stupid meme).  But what was even more idiotic was the "response" that "Well, we don't have $900 to spend on a new iPhone - so we pay for it in $27 monthly installments!"

Ugh.  I buy used Samsung Galaxies on eBay for $99 to $199 each and pay cash.   Of course, I am not concerned about impressing the girls with my new iPhone or live in fear that my texts may appear in green bubbles - and thus be mocked by strangers.  Or imagine having no tattoos!  It would be like walking around naked for chrissakes!   I am not saying that all young people are this stupid, only that I was that stupid at that age, and not much has changed since I allegedly grew up.

And again, I think a lot of this "Let's feel sorry for ourselves, we have it so bad!" mentality is spread online by trolls who profit for your depression.  Russia for starters.  Commercial enterprises also know that depression results in more sales - of everything.

But I digress.....

From what I can see, families have this three-generation dynamic.  The first generation is born into poverty and then struggles to make good.  Their children - the second generation - is exhorted by their parents to improve their lot in life.  They get jobs, start business, buy a house, accumulate some wealth, and have children of their own.  This third generation is born into relative comfort - if not outright riches - and is spoiled by their parents who say, "I want you to have all the things I never had when I was growing up!"

The third generation has to deal with the decision matrix of inherited wealth.  If your parents are wealthy enough that you can "get by" on their largess and live comfortably for the rest of your life on an inheritance when they die, well, why bother trying hard and taking risks, when you can sit in an easy chair and relax?   And many people "do the math" on this and decide to take it easy, instead of working hard.

If your parents let you do this, it is so much easier to fall into this trap.  Some parents secretly like to lord over the failed lives of their children.  I've had parents report - with almost apparent glee - about what lazy good-for-nothing layabouts their children are.  Although the stereotype of the live-at-home 30-something is that of an "incel" type "neckbeard" male, women are more often subject to this form of parental abuse.  As noted in the book The Millionaire Next Door, many successful men view their daughters as damaged goods who will require support for life.  And I know of many, many daughters who, while not living at home, live a life subsidized by, or in fact paid for entirely, by fathers or even brothers or uncles or helpful Grandmas.

This three-generation pattern seems to be fairly consistent, from what I can see.

Let me give you some examples of what I mean, starting with my own family. My Dad's father (Grandfather Bell) was on the tail-end of this three generation pattern.  His Grandfather came to America as an immigrant from Ireland (or Scotland - the records are unclear) with not a penny in his pocket.  He struggled.  His son did well, and by the third generation, the "Bell Brothers" were running a Maxwell and later, Buick dealership in New Jersey (Note:  There is a Bell Buick in New Jersey today, but it is of no relation).  My Grandfather sort of coasted and his own brothers eventually threw him out of the dealership, as he was a chronic drunk.  The cycle is primed to begin again.'

Enter my Dad, who is born into this abusive nightmare of violence and poverty.  He vows "never to go hungry again!" and gets good grades in school and gets accepted to MIT - as a business major.  After the war, he changes his religion to something more palatable to the corporate suite, and marries what he thinks is a girl from an upper-class family (but itself removed by one generation from poverty).  He climbs the corporate ladder and has three children who are want for nothing in life - private schools, college educations, etc.

And like clockwork, this third generation falls down the economic ladder.  My elder siblings, raised in the 1960's, "renounce materialism" and seem to intentionally sabotage their own lives.  My late sister - again, following the pattern - lived on handouts from my Dad her whole life.

Her children seem to be following the pattern yet again.  As the "second" generation, they are (largely) pulling themselves up from poverty and becoming successful.  Their kids will  end up living in their basement and smoking pot and playing video games.   It is a perfect machine.

Or take my Grandmother Bell's family.  As I noted before, they came over here as Swiss immigrants in their teens (early teens) and worked as servants on the Steinway estate on Long Island.  That is where they met and became Mr. and Mrs. Wilby and moved to Little Silver, New Jersey, buying 100 acres of farmland, back when that part of New Jersey was farms - and not a bedroom community.  Great-grandfather Wilby built a house (and by built, I mean he put it together, himself, one nail at a time) and raised a family of four daughters and a son.

Once again, the pattern continues, although this time, in two generations, not three.  Three of those daughters apparently never left the house.  They were still there when I was a kid going to visit my "great aunts" who were perpetually old.  I think my great uncle moved back in with them later on.  I am not sure if he had any kids or not.  My Grandmother escaped and married my alcoholic Grandfather - but even she eventually returned (kicking and screaming) back to that family homestead.  When you have so much handed to you, the incentive to leave home diminishes rapidly.

But what about my Mother's side?  Same deal.  The Wiggens and Platts came here in the 1700's and cycled through this three-generation deal.  My Great-grandfather Wiggins killed himself in his 30's, leaving his wife to raise three kids on her own, which she did by trading second mortgages - which was unusual for a woman in the late 1800's to be doing.  Her children all went to college, including my Grandfather, who ended up as a lawyer and mayor of Larchmont, New York.  Once again, the pattern - raised in poverty, he vowed to do better.  His kids?  Not so much.  While they were not living in their parent's basement, they did rely to some extent on an inheritance (which indeed, was fought over) and were not as successful as their Dad had been.

It is a pattern, but of course, not a perfect one.  And no, you are not destined to follow such a pattern.  I was able to break free from it, to some extent, myself.  I saw that my siblings were sort of going nowhere in neutral and decided to start taking my life and career more seriously.  I finished my degree, got into law school, and the rest, as they say, is history.  I broke free from the pattern and was lauded by my family for being successful resented for not lowering myself to their level.

And right there you see the problem and how the trap can ensnare you.  The crab-bucket mentality raises its ugly head.  When my Grandmother Bell started dating men and going to speakeasies in New York City in the 1920's, her spinster sisters told her, "Who do you think  you are!  Your behavior is scandalous!"   And no doubt what they really meant was Who do you think you are, leaving the nest, having a boyfriend, getting married, raising children?  You should be staying home with us for the rest of your life!

Sounds weird, but it is true.  Families are weird and a lot of this shit is way under the radar.

Look at the Trump family, for example.  Fred Trump makes millions in real estate and his Number One Son says, "Dad, I just want to pilot airplanes" - a safe job that pays well, but certainly isn't a millionaire-maker.  Fred Trump Sr. is left with Little Donnie as his successor and everyone knows Little Donnie was dropped on his head as a baby.

But Little Donnie grows up and inherits a pile of money and throws it at one ill-conceived venture after another.  He would have made more money putting it in a mutual fund.  But he does find success as a "Reality TeeVee" star - and licenses his "brand" for millions.

His kids?  Ne'er-do-wells who don't venture far from the family home or business.   None of them become independently successful outside of the orbit of Trumpworld.  And once Trump is gone for good, it is likely they will fade from the limelight, quietly living off their inheritances, from Dad, which divided by six, will be a lot less than they think.  And again, they are choosing what to them will seems to be an optimal outcome.  After all, they know what happened to their Uncle who decided not to follow his Dad in the family business!

The list goes on and on.  I know so many people who are successful in life - and by that, I mean a comfortable middle-class existence - who regale me with tales of failed sons living in the basement or how they pay the rent on their perpetually single daughter.  And they say this almost with pride, as if having children as chattel is some sort of perverse luxury, which in a way, I guess, it might be.

Many on the far-right are decrying the demise of the American family, by which they mean, the White, Anglo-Saxon Protestant family.  And maybe there is a nugget of truth to this - it seems that the big wasp-y families of yore are going by the wayside, with successive generations having fewer - if any - children.  Meanwhile the worst sort of people are  squirting out children like litters of puppies.

For centuries, people have worried that the best and brightest of humans would die out, as the poorest and least of us have dozens of children.  It was part of the Eugenics movement.  It drove racist arguments about [fill in the blank name of minority group] "taking over" the country.  It drives arguments about "miscegenation" and other nonsense.  It is the same racist arguments made concerning "The Irish Problem" back in the days of the potato famine.

Of course, on the flip side, the same arguments can be made.  European "royalty" was so inbred that the successive generations were prone to bizarre genetic illnesses and of course, craziness.  And maybe right there is why this three-generation pattern occurs.  As I alluded to above, mental illness sort of ran in my Mother's family (and landed on her, exactly) and that in part kept the successive generations from building upon success.

And maybe that is not a bad thing.  People come up from the poorest backgrounds, regardless of race or religion or upbringing.  It isn't common, but I have seen people raise themselves up from the rural trailer park or the inner-city ghetto and strive for greatness - or at least more than their parents' ever hoped to achieve.

Maybe too, that is where the miscegenisists and racists are wrong - interbreeding of various races and types of people doesn't weaken the strain, but improves it.  We have bred generations of dogs to have certain traits and looks - and often, too, genetic defects that cause premature death or disease.  This is particularly true for inbred dogs from puppy mills.   On the other hand, a cross-bred "mutt" from the pound is more likely to live a long, healthy life, as their genetic makeup is more diverse and tends to suppress those recessive genes that carry defects.  Perhaps - I don't know.  I am not a biochemist.

And of course, there are exceptions to the rule - or is there a rule at all, or is my brain merely seeing patterns because it is a neural network programmed to find patterns?  There are some families who build dynastic wealth, with each generation building upon the success of the previous one.   It does happen, but it isn't all that common.

All that being said, is there any way to avoid this trap, either as a parent or a child?  I think so, and it begins at home.  Whenever you read a story online about some "kid" (age 32) doing something odious like a mass-shooting or organizing a Nazi rally, it often turns out they are living in their parents' basement and Mom and Dad are basically doing nothing to change this, and in fact, are enabling it.  "Gee, son, you need me to sign these documents so you can get an AR-15?  Where's my pen!"  "Hey thanks Mom, for taking me to the shooting range!  Now I don't have to get up close to murder you!"

People read about these tragedies and often it is the parents who are pilloried for letting this happen. And it didn't happen overnight, either. It took years of coddling and support to create the perfect parasite, and when they turn on you - and society at large - it is of no surprise.  Parents often identify one or more of their children as "special needs" kids, even if the kids are not special and what they need really is a kick in the pants.

Of course, in some cases, these kids (and I use that term loosely as a 30-year-old is not a "kid" except emotionally in these circumstances) are indeed mentally ill and that is tragic.  But it is also dangerous, too.  Mental health advocates like to argue that mentally ill people are not a threat to society at large, but are more of a threat to themselves or more likely to be a victim of violence.  Maybe that is the case, but that is cold comfort to the person assaulted and maybe killed by some sainted homeless person who gets off on pushing Asian women in front of subway trains.  Google it, it is a thing.

Early intervention is probably a good idea - but again, the stigma of mental illness may prevent some people from seeking such help.  The craziness of parents isn't much help, either.  I know two young men driven to madness when their parents just could not accept they were gay.  One "Dad" actually had his son treated with aversion therapy - electric shocks - to chase away the gay.  It didn't work, and now he is into S&M as a result (just kidding about the latter part).

In other words, sometimes the parents are clearly to blame as they are crazy themselves (particularly religious crazy).  But also parents can be blameworthy for not pushing the child out of the nest when the time comes (as my parents did) and not letting the child back into the nest when they discover the cold, cruel world is not as cozy as their parents' basement lair.

As a child, there are things you can do as well - starting with not settling for a basement lair.  Yes, it is expensive to live on your own. Welcome to reality. When I was in my 20's, it appalled me that nearly half my income went to paying rent.  I worked at what I thought was a good job and at the end of every month, I was pretty flat broke.  But I realized that independence comes with a price, and if you want to have your own life, well, you have to pay.

As I noted in another recent posting, the cost of living has gone up, but in reality, it is not much worse (or perhaps even better) than when I was in my 20's.  When you factor in inflation, the apartment Mark and I lived in back in the 1980's costs about the same today.  And no, wages haven't "stagnated" that much - if at all.   The same jobs Mark and I had in the 1980s pay more today when you factor in inflation.   Again, I think we are being sold a bill of goods by the Russian trolls.  "Everything bad, comrade!  Might as well give up!"  It is right out of Sun Tsu's Art of War.

Again, the easiest way to cut your rent in half is to simply get a roommate or preferably a spouse.   But you can't get a spouse when you live in your Mother's basement.  So the basement lair becomes a dead-end trap.  A young man moves in, sets up his game console, and uses his 100% disposable income for pizza delivery.  He spends all day online becoming a pariah and gets fatter and fatter and more and more slovenly - and then complains that "females" won't date him because they are all whores and materialistic.  The basement is a deadly trap - get out of the house.

On the other hand, if you struggle to become independent and show you can support yourself, well, chicks dig that, because biologically, they have a uterus and deep down need stability and certainty in their lives, if they are ever to reproduce.  It's in our genes, our hormones - this need to survive.  No one wants to data a Momma's boy or an incel.  And incels are not "involuntary" - they moved into that basement willingly!

It is possible to avoid the "bounce-back" kid trap or becoming an incel-in-the-basement.   So why do parents let kids move back in, and why do kids settle for so little in life?  Comfort is the reason.  It is easy to fall into these traps because confrontation is difficult and by the time your kid wants to move back into the basement (with his swords and guns) you might be a little afraid of him as well.  I have read online of parents setting their kid up with an apartment and paying the first years' rent and then moving away leaving no forwarding address.  That is kind of extreme, but it illustrates the dangers involved.  Better to address this early on.  But again, this involves confrontation, and many parents, after one-too-many shouting matches, just give up and let their kids free-range and kick the can down the road another year or two.

For the kids, well, it is again comfort.  Why struggle with rent when you can have all the cool stuff that your buddies all have, and live rent-free?

Comfort is deceiving, though, and what we think of as comfortable is not.  People claim they like pillowy-soft mattresses and then complain, years later, of back problems.  People claim they like "yummy" foods that are best served at an 8-year-old's birthday party (pizza, burgers, cake, ice cream, etc) and then years later complain about obesity-related health problems.  What we think of as comfortable is not.

Doing the hard thing sounds like less fun, but leads to greater happiness down the road.  Yes, it is comfortable to wallow in your own crapulance - we call that "depression."  It takes motivation to get up and do things.

In other words, it pays to get outside of your comfort zone and do the hard things in life, whether it is addressing your kid's life going off the rails (before it is too late) or booting his ass out of the house when he reaches the age of maturity.  As a kid, it means giving up the comfort of being a kid and moving on to the adult world and realizing you have to make it on your own and this is some serious shit.

And not some stupid video game.

How To Make Money On the Internet - And Raise the Ire of the SEC!

When you see someone touting a stock online these days - or tearing one down - chances are, they have an agenda.

On various online discussion groups, people trade "tips 'n tricks" to getting wealthy by buying and selling stocks, bonds, commodities, gold, old cars, comic books, crypto, and any other damn thing you can exchange cash for.   Granted, people have a right to free speech, and thus they have a right to communicate their opinion about the value of a company and whether they think the stock is going to go up or down.  Indeed, a whole industry exists of doing nothing but this - and making money from the ads between the shouting guy's prognostications.

But others are a little more nefarious.  You may recall a few years ago, people were hyping "Gamestop" stock and then "AMC" movie theater stock.  Both companies were in trouble, competing with online alternatives and in-home entertainment.  Neither was a "next big thing!" investment, as they were traditional brick-and-mortar companies with thin margins and a lot of competition. In fact, both were not doing very well.

A group of hedge fund managers bought shorts on the stocks - betting that the shares would go down in value over time, as these legacy companies struggled with new realities, much as Sears did.  And yes, these same hedge fund managers and short-sellers went online (or even on television) and told everyone why they felt the price of the stock was too high.  Usually, these short sellers do disclose their financial interests in these matters, however.  But not always.

Someone came up with a grand idea.  Suppose you could encourage a lot of people to buy and hold shares in these companies?  This would drive the share price up, which would screw the short-sellers, who would have to scramble to find shares to buy to support their short position - further driving up share prices.  It seemed like poetic justice - the "little guy" was getting back at institutional short-sellers, who were manipulating the market and raking in millions, nay billions, for basically doing nothing of value for the economy.

Although, wait for it.  3...2....1.... some economics professor will make a convoluted argument that derivatives traders are actually serving a useful function in the economy by hedging blah, blah, blah, whatever.  Maybe that makes sense in ECON 101, but in real life, it amounts to a small group of people making scandalous amounts of money without getting their hands dirty or even breaking a sweat.  And they can do this as they started out with a big pile of money and have the reach to manipulate markets.

But, whatever.

The point is, the "little guy" seemed to be winning, but no one really asked what was in it for the guy orchestrating this anti-short scheme.  I mean, he got thousands, perhaps millions of "followers" to buy a few shares of these stocks, so the price would go up.   Where do you think his position was on those stocks?  He makes money, while the small investor who bought one share or $500 worth of stock, loses a lot, when the "pump" turns to "dump" and eventually the market realizes there is no "there" there to these stocks in money-losing or near-bankrupt companies.

The same is true, of course, with crypto - you've never seen such hype online about this mythical "virtual investment."  It is the Senifeld of investments - and investment in nothing and about nothing.  But to hear the folks online tell it, the phrase "block chain" - if repeated five times in a row - will summon Bloody Mary, who will in turn take your $500 investment in "crypto" and make you a Billionaire.

To hear them tell it, this thing that has been around for over a decade, will take over "any day now" and become the new default currency of the world and be used in daily transactions to buy everything from a paper clip to a new car - or even your house!  You will get paid in "crypto" and pay your bills in "crypto" and Uncle Sam and the "big banks" can go sit on a tack!  Nah-Nah!

But none of that ever happened.  What happened is a few people who started these schemes, cashed out and made money off the backs of the small investors who bought a few hundred dollars' worth, thinking, "what have I got to lose?"  Answer: a few hundred dollars.

Others have much more to gain - those few hundred multiplied by the millions of chumps, worldwide.

The latest gag is the "run on the bank" meme, and the same folks who pushed GameStop and AMC theater stocks, are now claiming the entire banking system is on the verge of collapse and you should sell your banking stocks or take short positions in them.  The people hyping this idea - what do you think their position is?   Just saying.   Fool you once, shame on you.  Fool you three times - get a life!

"We have nothing to fear, but fear itself!" FDR once said.  He was commenting on the trend at the time of people reacting or over-reacting to the news and fearfully pulling money from banks (before FDIC insurance) causing them to fail.  What's more, farmers and businessmen were pulling back from investing, just as citizens were cutting back on spending, out of fear that things might get worse down the road.  Fear is the least useful emotion, and it is why, when these periodic "market adjustments" come along that they undershoot and overshoot by several months.

For example, the housing market is running on empty right now.  People are still paying top dollar for homes, even as high interest rates make the monthly payments more than the cost of renting.  For example, where we live, houses are selling for an astounding $800,000 when two years ago the same house sold for $500,000 - or less.  At today's interest rates, even with a 20% down payment, you are looking at over $4200 a month just to service the mortgage (and another $200 a month in insurance, plus taxes of close to $400 a month).  You could easily spend five grand a month to "own" such a house.

You could rent it for $3500 a month - or less.   So yea, we are in a bubble.  And from what I am reading, it is the same story in many other markets as well.  So why would people pay so much for a house?  A year ago when rates were in the 3% range, the monthly payment (and purchase price, ironically) would be far less.  At rates back then, the same house at the same price would cost under $3000 a month - you'd make money every month by renting it out.

So, markets are irrational.  People pay $800,000 today because the "comparables" and appraisals based on recent sales say that is what the houses are worth.  And since there are so few on the market, well, demand is high and supply is low, further skewing prices.

And on the flip side, the opposite is true.  We were buying foreclosure sales as late as 1998 - almost a decade after the bubble of 1989.   People react in fear, as I noted before, and demand shrinks and supply increases, particularly when so many foreclosure properties appear on the market at once.

The point is, markets are irrational.  And right now, I think we are in the "over-run" portion of the market, where people are still exuberant and somewhat in denial.   Credit card debts are climbing, but everyone can still make the minimum monthly payments.  Layoffs are starting, but so far, it is the "other guy" losing his job, not you and me.  So we kid ourselves we are not affected by it.

Getting back to bank stocks, the same effect is occurring - or some people would like to see it occur. They want you to react in fear and do something stupid, like cash in your IRA (and pay a 10% tax penalty as well as push you into a higher tax bracket).  People profit when you panic.

Will there be more bank failures? Well there are three so far - and those three specialized in risky markets - silicon valley startups and crypto.  And being "invested" in low-yield treasuries, they lose money if they have to sell those treasuries at a loss to pay back depositors if there is a run on the bank.  These failures were related to very specific circumstances with small, regional banks with very narrow customer bases.

People Profit when you Panic.  And I smell a rat when the same guy who said that Gamestop stock is "going places" is now telling me the international banking system is on the skids.  I mean, he lied before, why would he lie about this?  It's not like he isn't making money at this somehow, right?

Well, they are.  And getting back to the title of this entry, you could make a lot of money by pumping and dumping stocks, by going online and hyping them (or unnecessarily disparaging them) and make money on the upside and the downside.   Problem is, you will likely run afoul of the SEC.

I wrote before about a teenager in New Jersey who did this over a decade ago, before there was even "social media".  He bought a mailing list of millions of e-mail addresses, and then sent out an e-mail blast hyping penny stocks.  He made millions and when the SEC did come knocking with a six-figure fine, he just shrugged and said "let me get my checkbook!"   He and his friends had a good laugh about it the next day in study hall.

So, why don't we all do this?  Well, to be sure, there is risk involved.  You buy a stock to pump it, and if no one takes the bait, well, you are stuck with that stock.  With derivatives, it is even worse.  You "short" a stock and if it goes up instead, you may owe far more than your initial bet that you placed.

But overall, I would not recommend it, as you and I would likely get into legal trouble, or like I said, be just as likely to lose our shorts shirts.

On the other hand, you would be doing yourself - and everyone else - a big favor by not falling victim to these schemes.   When someone tells you to buy or sell a stock, it is certain that they stand to make money from the opposite action (which was the position they took).  There is no profit to be had, being the chump in a pump-and-dump.  So don't be a chump.

Why some of these social media sites even allow people to go online and hype or disparage stocks and other investments is beyond me. Whether it is Facebook, Twitter, Instagram, YouTube, or Reddit r/wallstreetbets, the effect is the same - you can manufacture an online Greek Chorus that will chant in unison, "Buy GME! Short BoA!" or whatever you want to manipulate the plebes into doing.

Hell, you could also get them to join Al Qaeda, BLM, the Nazi Party, Antifa,and become a January 6th insurrectionist all at the same time, as people - a lot of people - think that anonymous messages spread online are from real people like you and me, and not from nefarious actors with a lot of resources at their disposal and a very specific agenda.

Maybe the coming recession will be a wake-up call to people to stop believing every damn meme you read online.  Maybe, but I doubt it.  As the experience of the 1930's illustrates, economic hardship can push people into even more radical agendas.

Oh, well.

UPDATE:  After I wrote this, someone posted online, "How come everyone is telling me to sell my 'meme stocks' but no one is telling me to sell my bank stocks?"

So much to unpack here.  First of all, he doesn't own any bank stocks.  Second, no one is "telling" him to sell his 'meme' stocks because no one fucking cares about losers who waste money on scam investments.

It is like the guy who posts, "My Bitcoin wallet was hacked and I lost $300,000!" and everyone is supposed to be outraged, I guess.  The reality is, no one feels sorry for a greedy pig who "invested" in something sketchy with no backstop or regulation - specifically because they didn't want regulation - and then lose it all.  They specifically asked for this.

But the comment speaks volumes about how social media is used to manipulate weak minds.  They try to create a narrative that the forces of evil are trying to tell you what to do, and hey, Bank of America charged you a $17 bounce fee!  So why not get even with them by investing in Crypto?  That will show 'em!

You can see how it creates this us-versus-them mentality and how it fosters this pariah mentality as well.  People now identify with a nebulous online group of "friends" without even knowing who any of them are, if in fact many are just bot accounts or professional trolls.

It's kind of sad, really.  But this is how people end up as anti-vaxxers or conspiracy theorists or brides of ISIS....

Buying a Share of Fine Art? Nah!

People have tried to monetize every damn thing, which tells me the market is overworked.

Psst! - want to buy a chunk of art?

NFTs were just another sign of the end times - another way to "invest in nothing" other than an ugly JPEG of a monkey that, as it turns out, you don't even own.  You bought the right to..... nothing.

That was bad enough.  Another scheme we are seeing hyped online (as an advert in YouTube channels) is a scheme to invest in "fine art."   You've no doubt heard about those auctions where rich bastards buy and sell famous paintings for millions of dollars.  They're making money hand over fist!   Well, as we shall see, not exactly.  And the art world is full of fraud, and I'm not just talking about forgeries, either.

Some brilliant guy came up with the idea of allowing us "little people" to buy a share of a famous painting, such that, we too, can play with the big boys and make mucho moola in the world of art.

There are a number of problems with this idea.  To begin with, the only people who are guaranteed to make money from this are the people who run the scheme - who no doubt collect fees on each end of the transaction.  But you and me?  A famous painting can sell for millions at one auction and then sell for far less a few months later at another auction.  Increasing prices are not always assured.

Adding to the problem are shill buyers.  A painting goes up for auction and the owner hires a shill to bid up the price to "prove" that the painting is "worth" that much.  You can do this a number of times, and the "value" of the painting goes up accordingly.  It is only when you really have to sell it to a real buyer and not one of your friendly shills, that the real price is determined.

So you and I, knowing nothing about the art world, art, art auctions, and the rest of it, buy a "share" in some painting by an artist we never heard of (but the company selling shares tells us is "going places") and it is valuable because it sold at auction a year or so back for a million plus.  But was that a real auction or just some shill bidding?  We have no way of knowing.

Not only that, but what happens to the painting?  It goes into a vault, and is no longer art, but a talisman of art.  The point of art is to look at it, enjoy it, and cherish it.  You can't do that when you own a "share" of a painting as an "investment" - it reduces art to a commercial transaction, nothing more.  The art is no more than a gold bar, or a token for a crypto coin - worth whatever someone else is willing to pay for it later on - nothing more. You have to hope the greater chump appears to buy it down the road.  A chump shortage could be a disaster!

In a way, buying a share of a painting you never see - that no one ever sees except on the auction easel - is akin to buying an NFT.  You are buying a pig in a poke.  And in terms of liquidity, you have to hope some other chump is around to pony up cash to buy your share in a painting later on, if you discover you need to cash out for practical reasons.

The value of art is purely speculative - like NFTs.  It can be worth millions one day and worth hundreds the next.  There are no guarantees, and there is no way for the "investment" to "earn" money (e.g., by renting out the painting) or pay dividends.  It is pure speculation that someone else will pay more later on.

Some folks claim it is even worse than that - that the company selling you the shares might not even own the painting in question.  I have no data on that, other than to say that it seems like a virgin industry without a lot of regulation.  It would be fraud, of course, to sell shares in a painting you don't own, but then again, whadda ya gonna do?  Sue them?  They may be headquartered overseas.  You would have to hire a lawyer to get your money back  - if it could even be found.  And no, the FDIC doesn't insure these things.

One site claims they have sold some paintings and made 17% rate of return.  Annualized?  Or overall?  Because 17% over three to five years isn't all that great.  Even in one year, not all that great, considering the risks involved.  The company takes a 20% cut of the profits, though.  Like I said, the only one guaranteed to make money on this is the company selling shares.

No, there is nothing to be gained here, I think.   It is just another scheme to separate the great unwashed masses from the few shekels they managed to keep from slipping through their fingers.

Not recommended!  Just another sign of the end times.

House Trap, Mouse Trap, Part II

People are going to discover, yet again, the fallacy behind the monthly payment mentality.

I started this blog over a decade ago after a major real estate meltdown cratered the economy.  It may seem like ancient history - particularly to someone of college-age for whom those events took place while they were still in Cub Scouts - but it wasn't that long ago.  The problem back then - and in 1989 in the previous iteration - is the same problem we are having today.  People buy houses based on monthly payment and don't think too hard about the overall cost or sales price.  You can lose tens of thousands of dollars this way - and end up insolvent as well.

In the run-up to the 1989 meltdown and the 2009 meltdown, housing prices jumped by 20% a year, which is unrealistic.  Even with inflation raging at 9% last year, a 20% increase in housing prices makes no sense.  And indeed, last year, we started to see the deflation of prices in housing, as the average price dropped, nationwide, from $400,000 at the beginning of the year, to $360,000 by the end.  That's a ten percent drop.

The problem this time around is interest rates. As I have noted before, there is a see-saw in housing prices, as monthly costs and interest rates determine what most homeowners can "afford" to pay, based on prevailing interest rates.  But other things can affect prices, too, such as property taxes, insurance, and condo fees and special assessments.  Most people think of these things as "trivial" expenses, but in some markets, property taxes on even a modest house can be $10,000 or more.  Hurricane and flood insurance can top that, near the beach.  And condo fees can add up to thousands a year - with tens of thousands in assessments.

Since most middle-class people don't have cash to pay for a house, they have to borrow.  And the amount they can afford to borrow is based on monthly payment, which in turn is based on their income.  One reason I went to law school and got a higher paying job was so that we could afford a house.  Funny how that works, eh?  But if we assume the buyer can "afford" $2000 a month in monthly payments, well, that buys a hella lot less house at 7% than at 3%!

In fact, you can calculate it quite easily.  For example, a median-income home mortgaged for $400,000 at 3% would cost $1686 per month.   At 7% interest, $1686 a month only supports a mortgage of $254,000.  You can see how interest rates really affect home prices.  You can also see how much further home prices have yet to fall as rates go up.  The bloodbath is just starting.

But what about the other half of the equation?  Suppose you already own a home and want to downsize in old age or move up as your family gets larger?  If you bought a few years ago and are sitting on a 3% mortgage, you might not want to give that up - rates may never be that low again in your lifetime.  We saw this in the late 1970's when rates shot up to double-digits.  I had an older friend back then who had a "traditional" 6% mortgage and his bank wrote him a nice letter asking if he would like to just pay off the remaining balance in one lump sum?  The bank was sitting on a 6% asset in an era of 14% mortgages.

You can end up trapped in a home, as a reader once suggested many years ago.  And in part, I feel that way, even though I am debt-free at this point.  If I were to sell right now (presuming the crazy prices were still in effect) I would have to pay the same amount for a house elsewhere.  But property taxes in other jurisdictions, such as Florida, are outrageous for newcomers (and let's face it - who wants to live in Florida anymore?).  Insurance is also a five-figure proposition in many places, which is why we sold an inherited house on Ft. Myers beach - even if we owned the place outright, we would have to rent it out most of the year just to cover the insurance and taxes!

So we stay put - trapped in our house, so to speak.  But it is a nice trap, to be sure.

Others are trapped by the rise in interest rates, as a recent Fortune article points out.  If you bought a two-bedroom home in the suburbs and now have another baby on the way, you might feel a bit trapped if you want to move up - or just move away for a new job.  If you have a 3% mortgage, the prospect of buying another house may seem daunting - at 7% everything is far more costly to buy, even as prices drop.  The problem is, prices haven't dropped enough yet.

But that's where it gets sticky.  The 3% mortgage may be "affordable" but if prices drop 20-30% you may be "upside-down" on your house, and unable to sell it, should you decide to move up or move on.  You are no longer trapped in a comfy trap of low monthly payment and low interest rates, but the prison of an underwater mortgage.

Coming soon to a neighborhood near you!

Of course, this raises the question, why haven't prices adjusted already?  And the answer is the same as we say in 1989 and 2009.  Prices tend to undershoot and overshoot before there are corrections.   We saw people paying top prices during those previous meltdowns, even as all the signs of a bubble were present - houses staying on the market longer and longer, price adjustments, incentives, etc.  These things tend to collapse in an avalanche all at once.

And similarly, prices may stay low, even after conditions improve.  I noted before we were buying foreclosure properties as late as 1998 - nearly a decade after the 1989 debacle.  When I mentioned to my friends we were investing in real estate, they all cried, "Don't do that!  I lost my shirt in real estate back in 1989!  You need to get in on the ground floor of this 'dot com' thing, it's going places!"  But within a few years, they saw I was making money and doing OK and they all jumped back into real estate, paying top dollar for rental properties with a negative cash-flow, expecting prices to double in a matter of a year or two.

Come to think of it, I have a lot of brain-dead friends, eh?

Prices are determined by supply and demand, and that in turn is driven largely by emotion, which makes pricing irrational at times - too high one month, too low the next.  We see this today with "inflation" in food prices.  Everybody complains about it, but they don't change their shopping habits until their credit cards are maxxed out.  Worse yet, people go out and spend more without thinking of the consequences.  People - middle-class people - are spending $20 to have a McMuffin delivered to their door, and putting it all on a charge-card.  It makes no freaking sense.  And eventually, the fad will die off as people run out of money.

So we have a weird situation right now.  The cost of housing is staggering - price are high and interest rates are high.  Since prices are high, property taxes and insurance goes up as well.  But people aren't making twice as much money as before, so how can anyone afford it?   Since so many people are "sitting" on an "affordable" 3% mortgage, they have no inclination to sell, which means a tight housing market, which in turn keeps prices high (demand is still great, but supply is limited).

Eventually, something has to give - the bubble bursts.   A coder for a "tech" company that offers an "app" to deliver your fast-food is laid off, as the company never made any money and the fad is fading quickly.  He looks for a job, but can't find one, locally - every other "tech" company is laying off as well.  So he has to move - and the only job he can find is working as an IT tech for a law firm in Chicago - for a lot less money.   Problem is, a plethora of other people in his area are in the same boat - and upside-down on their houses as well.  Bring on the short sales!  Foreclosures!  Bankruptcy!  No one ever saw this coming!   Why can't a company just keep losing money forever and ever?

But that hasn't happened - yet.  Our poor coder friend will hold out, collecting unemployment (which will hardly cover his credit card bills) and using up his meager savings, convinced that Apple is going to call any day now and set up that interview.  It takes a while for people to realize that their "dream job" was more of a mirage - an aberration, not a normality.  Getting paid hundreds of thousands of dollars a year to code HTML makes no sense at all.

And a lot of those people will wished they save more of that money instead of blowing it on stupid shit like McMuffin delivery.  I say this from experience - we had a lot of fun, to be sure, but fun doesn't have to involve setting piles of money on fire.  No, it really doesn't.

That is the sad part, of course.  A lot of "little people" will lose it all, or just lose a lot, in these economic cycles.  Some folks make a pile at the same time.   The worst is the fellow who held out for years, thinking, "The housing market is crazy! I'm not paying these prices!" until he finally gives in, just as the bubble is about to burst, and over-pays for a house, using some tricky hand-grenade mortgage - and ends up in default.  The real estate agent told him to "buy now before he is priced out of the market forever!"   But in a year or two the same house is for sale for less than half of what he paid for it.

I saw this happen before - twice - in my lifetime.  It will happen again, not exactly the same way, but in a similar way.   There are signs - real estate going up in value by 20% a year.   Labor shortages.  Radical changes in interest rates.  Inflation.  If it wasn't for the pandemic, maybe we would have been through this already and it wouldn't have been so bad.  But the government set piles of money on fire during the Trump administration.  Trump famously said that the government should borrow yet more money, as interest rates were so low.  Well, rates have gone up, and the government is now further in debt.

The government is in the same position as the unlucky homeowner.

The good news is, we will survive this.  It doesn't mean an end of capitalism (sorry, lefties!) or that fascism is the answer (sorry righties!).   People will pick themselves up, dust themselves off, and start over again, vowing never, ever, ever to make those same mistakes yet again.

Well, at least not for another decade or so!  Every generation, it seems, has to learn this harsh lesson.