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:
Act rationally in an irrational world.
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:
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.
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.
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....
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.