There were a lot of adverts on the London underground recently saying "If you're seeing bitcoin on the Underground, it's time to buy", which I thought was was quite strange because it was pretty much the exact opposite of the aphorism "When the Shoeshine Boys Talked Stocks It Was a Great Sell Signal". (The adverts have been banned now though, because the Advertising Standards Authority said they were misleading and left out important risk warnings.)
There's a gas station in town that recently changed ownership. Now instead of being a 76 station it's called a 777 station with a logo that looks like a slot machine. Over the garage is a large banner that reads "Buy Bitcoin here!". When I saw that a few months ago it seemed ominous.
There have been several gas stations around where I live with big vinyl signs, last year and before, advertising they take Bitcoin. I think it’s ideological.
That's mostly true, but at least it's in London. London is a financial hub. When you see bitcoin ads replacing John Deere ads at the Des Moines airport, that's how you really know.
Though I agree with the general attitude, when everyone has heard about it, it's already too late. However, this article also strikes me with a bit of snobbery that only the financial experts should know about financial markets.
I prefer the Peter Lynch approach of investing in what you know (or think you know) rather than just on the news of what you hear. This is something available to everyone. Think about what YOU like, what future you see, and invest in things that are creating that future. If you're wrong, you maybe lost money but supported something you believe in. But if you're right!!!
I think of this with the argument of beanie babies vs crypto. Did anybody really thing "beanie babies are going to change the world because..."
>that only the financial experts should know about financial markets
I didn't get that at all. I got "only people who understand the risks from being in the market should be in the market" and "if there's a ton of uninformed money in the market, things are probably overvalued".
Yeah I'll keep putting my savings into the thing the Gov't will do whatever it can to keep going up >+10% every year as there is no alternative (TINA).
> Roosevelt confiscated gold held in banks (in exchange for dollars) and subsequently diluted the dollar, but it was still pegged to gold.
I mean, legally pegged to gold was meaningless since holding just 2-kg of gold was illegal IIRC. EDIT: Just reread the executive order: 5-oz was the cutoff point.
IMO, Nixon's actions just "admitted" that the price of gold was no longer pegged to the dollar. But making gold "hoarding" illegal was really the pragmatic step that decoupled gold from the dollar.
The (black) market price of gold vs dollar went haywire after Roosevelt's executive order. And in many respects: the market price (even black-market prices) are more important than what the law actually states.
Not just the gold held in banks. Roosevelt made it illegal for American citizens to own more than a trivial amount of gold (with a few exceptions like jewelers and coin collectors).
Afterwards, as you said, dollars could be redeemed for gold at the new price, but only by foreigners.
Yes, but he didn't send federal agents around to people's houses to confiscate any gold they might have. Prior to that executive order, presumably, most Americans kept their gold in bank deposit boxes.
In my opinion that executive order should have been overturned as unconstitutional. But Roosevelt owned the courts.
Not quite: Yes, there was the Gold Standard. But the government set the price of gold. Meaning the government still controlled the amount of money, because they controlled the price of gold.
Today most workers are expected to invest in the stock market as a matter of prudent retirement planning. Interest bearing savings accounts barely keep pace with the government's own inflation statistics.
Yeah, I'd be happy to find out there's another option, but at the moment I'm not aware of one. Real estate possibly, but it comes with a ton of maintenance and taxation obligations that aren't in most retirement plans, and it's all so grossly overpriced it feels like its future is even harder to predict than the market.
My line of logic is that there are two types of investments. The first type is where you buy something that you hope to be able to sell for more down the road. So things like gold and bitcoin come to mind. You buy an ounce of gold today, and it doesn't grow to two ounces several years from now.
The other investment is where you buy an asset that gives you an annual return without having to sell off pieces of that asset. So dividend paying stocks, and real estate if you have something on it (farm, building, etc) that gives you a return. The base asset itself can also go up in price if the annual returns are expected to go up over time also.
Then there are assets that are in the second category, but you also have to put work into in order to get that return. So things like owning your own business. Real estate can also require some amount of your own sweat, or you can hire that out (which eats into your profits). Or you can buy wood-working equipment, learn to make quality furniture, then convert raw lumber into more expensive finished products. But again you have the upfront investment, consumables, and effort.
And the class of dividend-paying assets that you don't have to put any work in have a risk that they quit laying golden eggs at some point (i.e., the goose could catch a virus and die). So in reality, I never know what to invest in that doesn't require constant work, and doesn't require me to break off pieces of it to sell in order to extract value.
And this is why ETF's and index funds have become so pervasive. You can buy a high dividend ETF, set it up to DRIP, and then you have a share in a hundred geese, all of which can somehow combine together to give you another goose on a regular basis.
Interest-bearing savings accounts are never more than inflation. If they did beat inflation for zero risk, then the money supply would increase, and inflation would rise to match.
You can think of zero-risk saving accounts as the lowest common denominator of investing[1]. Everything else is more risky, and thus has to offer you a premium to borrow your money.
Your savings account is really the bank borrowing your money, and loaning it out to somebody else -- at a rate higher than inflation. They profit from being the middle man in that arrangement, and taking the risk that the loan won't be paid back.
The best rates on savings are usually around half of inflation, though you will have to look around for those best rates.
[1] Checking accounts are even lower, since the bank knows you could pull your money at any instant, and so it offers even lower rates.
Wait, what? Until the 2000s, savings accounts definitely paid more than inflation, at least pre-tax. I remember getting 6% for much of the 90s.
Sadly, this is showing to be really hard to google. The best I could find was 6-month CDs, which track it pretty closely[1] and this article [2] which supports my memory but is vague about which interest rate it's talking about.
Edit: Money market yields are also a good proxy, which I found here [3]
Edit2: Adding inflation link [4]. Example data points for (money market, inflation) from [3] and [4]:
I don't remember ever getting interest rates quite that high. I got 5% at times, but the numbers you cite are all well above that.
I do think I overstated the case, though. The connection is clearer between interest and mortgage rates. Inflation rates should roughly track mortgage rates, which were often over 10% during the time period you're tracking, until everything crashed after the dotcom boom.
I'm not sure what was keeping inflation comparatively low at that time. It shouldn't have been so much lower than the mortgage rates.
I don't see what that should follow at all. Depending on the supply and demand for loanable funds, investors may demand a high or a low risk-free interest rate, and there's no a priori reason it would only reach equilibrium at the rate of inflation. Certainly some investors are going to want to be compensated even in real terms for deferring consumption.
Historically inflation was much lower and interest rates much higher, especially if you look back to the middle ages:
Oh yeah for a short time in ~2006 money markets were around 5%. Again, hard to find historical charts that give the relevant info, but this one confirms it for 2006:
In the 80s I got 5% on savings, but inflation was more like 10%.
We've had inflation <2% for a long time, and savings rates have fallen to practically nothing. If inflation rises, you'd expect banks to have to raise rates to attract your money. (Otherwise, you'd spend it now, since it will be worth less in the future.)
Inflation has risen a bit in the last few months, though nowhere near the 10% rate we saw in the 80s. As for whether that will continue... I suspect not, but it's really hard to make predictions, especially about the future.
Yes. All of the money pumped into the economy has gone into assets. It's not causing consumer inflation, though it's gradually creeping into the housing side of things. Mostly, it caused a big bubble in stocks, and from there spills out into other assets.
I think my belief is closer to: they should exist if people want them to, but the returns (taking into account inflation, taxation, etc) should be negative or very close to zero.
I don't understand. How would you feel if an investor hired someone to manually replicate and maintain a portfolio equivalent S&P 500? Because that's what an ETF that replicated the S&P 500 is doing, complete with management fees, it just works out be cheaper due to volume.
Exactly the same. I don't feel like investing in companies that are popular with other people (which is what the S&P 500 is) contributes anything to society, so I don't think it should be rewarded.
My local supermarket has a CoinStar machine that advertises
"buy bitcoin here!"
Hard to say where things are going to go from here. Public awareness is now about as saturated as it's every going to get for a financial "product" like this. The only things I see significantly moving the needle on BTC price at this point are pieces of news about potential regulation and things like Musk Tweets.
Public rumour is a lagging indicator. It's not predictive of any impeding reversal. It's better to look straight at the numbers to gauge when momentum's bled out completely. You know, actual analyst stuff. Trading "folk wisdom" is trash and frankly mostly wrong, especially considering far too little time has elapsed since the birth of the markets to form any truly tested received knowledge.
On the other hand, "the market can remain irrational longer than you can remain solvent".
I think I'm limited to my experience. I graduated into the 2008 crash. But since then, the housing market has gotten crazier every month, the stock market has too. I know it will crash some time. But back in 2010 my boss was renting because he was sure it was all about to fold. I've make 100k in equity in the since I bought.
Maybe Irrational doesn't mean wrong if enough other people are irrational too...
Real estate is a bit different than a company whose underlying assets and future revenue expectations are 50x out of sync with stock prices.
Or, I should say that we haven't seen real estate values be that extremely overvalued. Generally speaking, if you can hold on to it, in the long term, you're fine. If you owned a $500,000 home in 2008 and it dropped to $300,000 it was meaningless unless you needed to sell your home or couldn't make the payments. You may be up $100k now, and -$100k a year from now, but if you can hold on to the property and bring in enough revenue to cover expenses like property taxes & maintenance, you'll be okay. But it could take 5 or 10 years to claw back up.
The problem is that the more irrational people there are, the bigger the collapse, when it comes, the more likely you'll be to not be able to hold on to your assets (market collapse == job market collapse == liquidating assets at a loss just to survive, or satisfy bankruptcy courts)
So that was written 4 years before the dot-com bubble, so the crypto bubble will pop in another... 2 years? Or will it be sooner since we live in the age of information?
"Economists have predicted 50 of the last 2 recessions."
I can state with certainty there will be a correction at some point in the future. What I can't tell you is when. Timing is everything in the market even more important than direction.
NASDAQ was 1100 when this was written, which means if you'd done the (implied) opposite and instead bought, then even in the bottom of the coming crash, you were still up ~10%. And of course, if you'd held then you'd have pocketed 1000% in the pandemic.
When you buy an index fund, your investment gets weighted across many companies.
If some are delisted, the fund loses the money allocated to them, but not its whole portfolio. Then new companies are added to the index, and the fund's remaining assets get re-allocated to match the rules of the fund's underlying index.
I remember walking through the parking lot of a grocery store in about '97 and two guys who were out sweeping the sidewalk were discussing the merits of SCSI drives in the servers they were building apparently for an ISP they were setting up.
This is such a funny story. Yeah, those guys were getting into something immediately preceding a short term crash.
But they were right. If they kept at it and ignored the people telling them that the internet was a scam, there is a good chance that they’re very wealthy now.
The last Bitcoin bubble popped six months after a taxi driver was telling me about how he just bought some crypto. It reminded me of the shoeshine boy anecdote.
There have been runs on 5 or 6 banks since 2020, and a bunch of property developers are in default.
The CCP threatened to audit large companies, and when they picked 16 to start with, at least one immediately admitted to being insolvent before the audit even started.
Had Trump's trade and capital restrictions continued, esp. on chips, there would have been a full-on crash. The US can do that any time it wants to, as they did with the USSR.
(BRI is financed from US capital markets. While the US was distracted with Middle East wats, China borrowed money from the US and expanded BRI to over 100 countries.)
I Am Not A Banker, but I'd think the modern equivalent is all the Reddit stuff. The meme stocks, diamond hands, to the moon, "I just like the stock", etc. Then again, people supposedly made some money on Gamestop and AMC. Like I said, I Am Not A Banker.
Not really because a lot of those are professionals manipulating the market. The archetype of a shoe-shine boy is the least knowledgeable person possible. Sure some of the meme stocks voices fall into this bucket, but which ones?
I am not a banker either but, "a lot of those are professionals manipulating the market" isn't how I would characterize it. More like, a few of those are professionals, and the rest are more along the lines of newspaper boys. So many of my friends have huge sums of their savings in stonks and crypto are proudly ignorant of how any of these things work. So far their antics have worked out very well for them and they've received very aggressive returns, but I am honestly worried for them. Their success has reinforced a dangerous mixture of risk taking + ignorance.
How long can that be sustained? I am sure the few professionals on reddit are up at night sweating about this stuff and have escape hatches, but I am not so sure about the rest.
It is dangerous when the value of your stocks goes up. You start feeling good not about the stock, but about yourself. You start thinking you made that money .. why? Because you are a smart guy. Even if you rationally know that you were just lucky, it gives you the confidence that you know what you are doing.
It is just human psychology, when you succeed you think it is because of how great you are. And similarly when your stocks fall you don't feel so good about yourself any more. I see this in myself as markets go up and down. I assume it is the same for most people.
Most of them. "Ape strong" is a meme and I'd bet the people following it are going to be bagholders if they aren't already because they think a short squeeze is coming.
But a short squeeze is always coming, will it ever arrive? And if it does would they know? Or will they just keep saying it's coming?
And after GME, institutional investors have changed their models to guard against that type of squeeze, so they squeeze is already less likely. I can't imagine there's many institutional investors left in GME that aren't trying to sell off at a slow enough trickle to avoid a cliff.
It's when a major fund(s), bank(s) or lender(s) blows up and is followed up a successive string of failures until the "big one".
Every financial crisis or recession from the last 30 years or so has had a string of failures leading up a crash.
Late 1980s S&L Crash - You had a string of larger S&Ls failing (and a ton of smaller ones). This was a contributing factor in the 1990 recession. Note that S&Ls started failing in the mid 1980s.
2000 Crash - Long Term Capital Management blew up in 1998 and had to be rescued due to fears of contagion. Note the market hit all time highs after this fund failed.
2008 Crash - In early 2007 - New Century blows up ... starting a cascading series of failures. The S&P hits new highs throughout 2007 after New Century, until it finally starts to crash in late 2007 leading into the 2008 recession.
And now we have Archegos, which failed earlier this year and new highs in the stock market this week.
I am watching for more failures. One of the major contributing factors to Archegos' failure was WAY too much leverage. There is a ton of money sloshing around the system right now, and margin debt has hitting all time highs.
Crypto is also going blow up and take a lot of retail with it. If you get a stock crash and folks get margin called you could see a lot of crypto selling to cover that margin.
Uber drivers I think. TikTokers are a global phenomenon and some will know what they're doing on any subject. I doubt a lot of successful traders drive Uber.
Uber passengers. In 2014 (as an Uber driver) I told my passenger (who was a financeBro into stocks) to buy GoPro at 40, since it would go to at least 60. It went to 90. He told me to buy Prana biotech, which collapsed from ~50 to 11 and now doesn't exist.
The idea is the most unlikely people are talking stocks. With Uber passengers it depends on the passenger, if your passenger is a finance bro is doesn't fit the shoe shine boy analogy.
