Thank God for dumb money!
What would the world be without chumps? Suckers? Bagmen and patsies?
Who would buy a ladies handbag for $1,500? Or blue-jeans for $150? Who would buy an oversized show-off pickup…or a $4 million McMansion?
Who would buy Facebook?
The Facebook IPO seemed to attract dumb money. Billions of it. Investors thought they could buy it at the offer price and get an almost guaranteed “pop.” They thought the fix was in.
They were right. Trouble was, the fixers ‘f’ed up. The fix was broken even before the market opened. Smart insiders were supposed to sell their shares — which they got in the IPO — to the dumb outsiders on the open market. But so many investors had gotten shares at the IPO price, and hoped to get out at a higher price, there wasn’t enough dumb money to take their shares. Everybody lost money…with the stock falling to $28 yesterday.
It made us think more about what a vital role dumb money plays in our economy. More below…
For now, a Wall Street Journal headline yesterday announced that the housing crunch was over. But when we read the details, we discovered that prices were still falling! Housing prices in the US dipped again in the first quarter of this year. Not much…but they were down. And in March, not adjusted for seasonal variations, house prices fell 2.6% from the year before. As “The Big Picture” puts it: “Case Shiller: The housing bear market has not turned.”
The stock market might give you the wrong impression too. House-builder stocks are selling at relatively high prices. Pulte sells for 15 times earnings. Toll is at 33 times earnings. Seems a little odd to us. Housing starts are only about half their level of 10 years ago. Why would investors think these builders deserve growth-stock prices?
We’ll wait for the big discounts. After all, there are some 18 million empty housing units in the US. At present rates of building, new household formation and immigration, it will take decades to work off the inventory.
Business Insider: “Another housing collapse is coming soon.”
As you know, dear reader, we think the whole world economy is going into a slump. Britain is already in recession. Euroland is probably in recession or close to it. That’s the world’s biggest economic region right there. America is sinking too. Japan has been up — largely because of all the post Fukushima rebuilding — but it won’t hold up long if its customers cut back.
American consumers already seem to anticipate a pullback.
“US consumer confidence falls unexpectedly in May,” reports The Financial Times.
“Consumers were less positive…” the FT continued.
Hardly surprising, is it?
A report earlier in the week told us that soldiers returning from service in Iraq or Afghanistan were going on disability at twice the rate of those who did their service in the Gulf War. Why? They can’t find jobs, says the reporter.
They can’t find jobs because the economy is not recovering. And now the stock market, the oil market, the gold market are all catching on. And the bond market too.
“Gold investors rush for the exits,” says The Wall Street Journal.
And here’s Bloomberg on the bond market:
Treasury Yields Tumble to Records…
Treasury 10-year note yields fell to a record low as investors sought refuge from the deteriorating credit conditions of European sovereign borrowers.
The benchmark yield reached 1.6085 percent, less than its previous all-time low of 1.6714 percent on Sept. 23, as Spain struggled to recapitalize its banks and Italian bonds fell as the country sold less than its target at a debt auction. The Federal Reserve announced Sept. 21 that it would buy $400 billion of longer-term Treasuries, funding the purchases with sales of shorter-term notes, in an effort to bolster the US economy and spur jobs growth.
Benchmark 10-year note yields fell 12 basis points to 1.62 percent at 5:02 p.m. New York time after touching the lowest in Fed figures beginning in 1953. The 1.75 percent note due May 2022 added 1 1/8, or $11.25 per $1,000 face amount, to 101 5/32, according to Bloomberg Bond Trader prices. The yield drop was the biggest for the benchmark note since April.
As for stocks…Marc Faber:
“There are more and more stocks that are breaking down — economic sensitive stocks and companies that cater to the high-end,” he said. “That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”
Stock prices…bond yields…housing — all going down. Where are the chumps when you need them?
The trouble with chumps is that they are unreliable. You count on them to buy Facebook, for example. And then, the patsies don’t seem to get the message. They sell!
“Investors bet against Facebook,” reports The Wall Street Journal.
And poor Zuckerberg. The man was knocked off the richest-of-the-rich list. Bloomberg has that story:
Zuckerberg Drops Off Billionaires Index as Facebook Falls
Mark Zuckerberg, Facebook (FB) Inc.’s co- founder and chief executive officer, is no longer one of the world’s 40 richest people.
The 28-year-old’s fortune fell to $14.7 billion yesterday from $16.2 billion on May 25, as shares of the world’s largest social-networking company dropped 9.6 percent. They slipped another 2.3 percent today to $28.19. That extended the stock’s losses to 26 percent from the worst-performing large initial public offering in the past decade and cut Zuckerberg’s net worth to $14.4 billion.
Typically, lottery and IPO winners have dumb money. Sports stars often have dumb money too. Of course, a lot of wealthy people — the ‘patsy rich’ — have money so dumb it should be forcibly sterilized.
When poor people get money it is usually dumb money. They don’t know what to do with it. So, they do dumb things. That’s why they’re poor. They pay more than they should…often for things that aren’t worth buying at all. Fancy cars…fancy houses…fancy restaurants… They think the idea is to get rid of money. Usually, they part company with their loot quickly…and they’re poor again.
People think the rich are different. They think the rich are smart about money. But very often, it ain’t so.
Wall Street is a sophisticated industry. It has developed products that appeal to every taste and every budget. It’s good at separating the poor and middle classes from their money; they put their dough into mutual funds and Facebook shares. They’re even better at separating the rich from their money. Why? The rich have more money to lose.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
2.65 … Need I say more?
Treasury Yield 30 Years (^TYX)
2.65 Down 0.07 (2.54%) 1:51PM EDT
Wallstreet’s feedstock figured it out.
“Soylent Green is us!”
Mr. Bonner, Can I please ask a favor? Can you write an article about ‘dumb money’ that I can share with the teenagers in my life? You have a great way of communicating about smart and dumb money/spending, and I’d like to share the message in a ‘teen digestible’ format. Thanks!
When the uber rich start rorting the merely rich the ponzi scheme must be near its natural end.
What do all the theives on Wall Street do with the money they steal? Has to go somewhere. Maybe that’s where we should be investing; -where the cabal invests theirs.
The cabal is most likely “investing” their money in big mansions in Nantucket, the Caribbean Islands or one of the other fancy tourist spots.
I fear that would be out of reach for us, though.
I told my young son that the queen has been on the throne for sixty years.
He asked why? Is she constipated!
The pompous rule the world but the innocent should.
FB IPO showed the world exactly that investing today is; nothing more than a Ponzi scam with all the bells and whistles of insider trading and government collusion. All those greedy little shiiiittts got burned at their own game. Hehehehe. I’m surprised the CC-UU-NN-TT-SS didn’t run to Uncle Sam for a bail out! Whaaaaa.
“… Or blue-jeans for $150?”
Haha I know I would, I have to admit it. Though I’ve been a proud reader for almost 4 years. Nobody’s perfect
Is a tech-wreck ahead for Silicon Valley in 2013? List of laughs: GE + INTEL + HP + APPLE + MICROSOFT + all of the solar power crap including SUNTEC + all of the ecology crap + all of the global warming crap + all of the over-priced housing + IBM.
Imagine if things are this soft now, the wreck ahead when interest rates go up? Starving Steve won’t be the only one out on the street with the sign, ” WILL WORK FOR FOOD.”
Right now, as I post: house cleaning teams are making $1300/day cleaning foreclosed and vacant homes. Right now as I type: house auctions everywhere.
Pardon me while I laugh: It couldn’t happen to a nicer bunch!
You do remember the Coconut Grove and the Glenn Miller Orchestra playing in the so-called, ["hard times of the 'dirty '30s"]? Remember those silver dollars in your pocket and the dining and dancing in the ballroom of the Coconut Grove as the Glenn Miller Orchestra played? All night: dining and dancing in the so-called, [hard times].
Mark this on your calendar for Nov 5, 2012: a house auction in the ballroom of the Coconut Grove in Santa Cruz, Calif. Bring your cash or certified cheques and your shark fins.
YOU are the market because the banks are going bankrupt with their non-performing mortgages. So YOU set the price of what homes/real estate is worth.
And if things are this delicious now, can you imagine what 2013 is going to be like in the housing market in/around Silicon Valley?
Next up for lay-offs or bankruptcy in Silicon Valley: GE + APPLE + MICROSOFT + INTEL + IBM + SUNTEC + HP + ……… And with the home foreclosures and rising taxes and climbing utility rates + plus upkeep, plus the hikes in interest rates to come + the fear of bankers to lend again …. you tell me what is going to happen next.
More problems even for sharks with cash & certified cheques: a.) the real estate title may be damaged with hidden leans, including leans sold to investors in other parts of the world;
b.) the property may not be viewable, especially if a tenant occupies the house and is squatting on the premise;
c.) the delinquent past owner of the property may be, and often is, squatting on the property;
d.) the delinquent past owner may not allow viewing of the property;
e.) there may be delinquent taxes and utility bills, subdivision fees and condo fees attached to the property as liens;
f.) there will be costs in removing squatters;
g.) squatters may, and probably already have, damaged the property;
h.) plumbing can occasionally be filled with cement;
i.) tenants have tenant’s rights in law;
j.) legal costs can be enormous;
k.) the bank and auction company walk with your cash and certified cheques, and you may end up with nothing of net worth, including title;
l.) a condo complex may go/be bankrupt or in default;
m.) what does the bank care?
All this means that auctioned properties are almost worthless to the public unless due diligence is done and you are lucky.
I spoke at some length to the Coconut Grove auctioneer to-day.
More laughs to-day: 18 Oct, 2012:
ACER earnings down this summer; Motorola ready to fail; Google hit by Motorola; Google bad news announcement at 3:30 EDT; Dell down from this summer…..AMD earnings down this summer.
One could not make this stuff up… Auctions ahead but the banks don’t want to guarantee title….. It’s hilarious!
!No se puede inventarlos! Es divertidisimo. Haran subastas sino los bancos no garantian los titulos a las casas.
On that discussion with the Coconut Grove auctioneer: The bank can and will take your $ but it will not guarantee clear title. It will not guarantee even your possession of the property. It will not cover any fees to clear the title nor to take possession……… This is probably the case in all house auctions, everywhere.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.