15 ms·

Hallmark of an Economic Ponzi Scheme

216 points by yuhong 8y ago

yuhong 8y ago
"When U.S. corporate profits are unusually high, it’s typically an indication that households and the government are cutting their savings and going into debt." Pretty much one of the reasons why I dislike the current economy and what I mean by treating people as "consumers" to be extracted from. This has been a problem since the 1970s.
- yuhong 8y ago
  BTW, the way the current economy works is also why revenue of for example Sun and Novell declined quickly. I have an entire paragraph about that in the essay.
  - datahack 8y ago
    I really, really enjoyed that. What else have you written?
    - yuhong 8y ago
      Link to the essay for those who are unfamiliar: http://yuhongbao.blogspot.com/2018/04/google-doubleclick-mozilla-essay-final.html http://yuhongbao.blogspot.com/2018/04/google-doubleclick-moz...
- gowld 8y ago
  When have businesses not treated people as consumers?
  - yuhong 8y ago
    I mean treating people as consumers to extract more and more money from. Note that I am just saying that the current economy encourages such a culture too.
    - sonnyblarney 8y ago
      Consumer culture was created really at the dawn of the 20th century. The elites realized that in order to keep 'growth' going they had to get people to continuously 'buy stuff'. Hence consumer culture has been systematically promoted since then. I once visited a friend in London, his family had a really nice property, worth millions for sure. And then in this kitchen some really funny ancient oven and toaster stuff. It still worked fine. So why replace it? North Americans just keeping buying new, we're the epiphany of that culture. But at some point in your career you might connect the dots and realize you need people to 'buy buy buy' in order for your sales to remain healthy and for you to keep your job so you can support your family etc. etc.. It's a weird vicious/virtuous circle and I don't thin UBI etc. will solve it. There are innumerable actual innovations and advancements that come out of the rat race :).
      - yuhong 8y ago
        Note that what I mean is that it is not just to buy stuff, but also to extract as much profit as possible. And commodities where that isn't possible tends to be outsourced to other countries like China, making our trade deficit worse.
      - JumpCrisscross 8y ago
        > Consumer culture was created really at the dawn of the 20th century. The elites realized that in order to keep 'growth' going they had to get people to continuously 'buy stuff' This reverses cause and effect. For most of human history, real productive capacity didn't change from generation to generation. Elites fought to sit on more stuff; there was no point bringing peasants into the mix. The industrial revolution (and the Black Plague, in Europe) changed that dynamic. Real economic growth became a thing. And workers needed to be competed for. That gave them bargaining power in the economy, which they converted into re-tooling it away from solely making toys for the elites and towards producing goods and services for the masses. It's always comforting to imagine some disembodied "elites" calling the shots and making a plan. In reality, our systems are more chaotic.
      - amake 8y ago
        > we're the epiphany of that culture *epitome
Animats 8y ago
“the extreme brevity of the financial memory.” Yes. It's only been since 2008 since the US economy tanked, it took five years to dig out of that one, and real wages never fully came back. That wasn't long ago. It's about time for Silicon Valley to tank. There's nothing big in the pipeline comparable to the Internet or smartphones. Laptops, notebooks, tablets, and phones have all passed peak sales. The businesses that assume endless growth are maxing out. The next big thing may be solar, wind, and storage taking over the energy industry, which is a good thing. That's a slow, capital-intensive, heavy-industry infrastructure upgrade, driven by manufacturing cost reduction. It's going to happen, but it's not a go-go business.
- yuhong 8y ago
  My favorite is Google, Larry/Sergey, and the ad bubble. It is so complex I even wrote an entire essay about it.
  - deleted 8y ago
    [deleted]
- kurthr 8y ago
  Don't forget the acknowledged end of Moore's Law... which may well lead to reduced investment (due to lower perceived ROI), which is a self-fulfilling prophecy. I'd also say that the mobile and Internet Ad spending may peak by 2020...or not. OTOH, Big Deep Artificial Learning Data Intelligence.
  - axiom92 8y ago
    Well, what about Deep Real-time Machine Learning at scale in the Cloud on Big Data powered by Blockchains™?
    - grosjona 8y ago
      That actually sounds like a really good idea if it's possible. It would be a blockchain-based neural network which people can sell training data to (in exchange for the underlying cryptocurrency) and which other people can use via an API to do pattern recognition on their own user data (by paying in the same cryptocurrency). It would be a decentralized, autonomous AI.
thinkcomp 8y ago
I find the economic analysis here extremely compelling, but it's worth noting that at least one of the Hussman funds has had pretty awful returns historically: https://finance.yahoo.com/quote/HSGFX?p=HSGFX https://finance.yahoo.com/quote/HSGFX?p=HSGFX What I take away from this is that understanding macroeconomic trends is different than being a successful investor.
- a008t 8y ago
  How are they even still in business?
  - exHFGuy 8y ago
    You should question his economic analysis also. Ask yourself, "if his understanding of markets and economics is correct, how come he is consistently wrong, over and over, in his investment decisions?" This guy has been weaving stories about economics for years and years and been consistently wrong for years and years. His understanding of how economics and markets work is simply incorrect (even if it sounds compelling).
    - cryoshon 8y ago
      it's an interesting perspective that provides a dissenting opinion. it doesn't really need to be correct to stimulate thought and lead you to a better disposition in your own investments. notably, he makes no specific suggestions on what kind of stuff people should buy or what they should do to take advantage of both the upside (the bubble) and the downside (the crash). it might be because there is some law stopping him from giving that advice, i'm not sure.
    - alphacatcher 8y ago
      Being a big shorter isn't for the weary.... Most will accumulate large losses until they go bankrupt or the freak black swan happens and they make 1000x% for the trouble (erasing the accumulated losses very quickly, if smartly positioned). On the otherside, Bullish banks/etc will make small profits consistently for long periods of time on bullish bets but when the black swan happens, will lose everything they made over the years and more, to the shorters (in 2008 banks had record profits until they lost more money than banks ever made in the history of modern banking). Gabish?
Kyragem 8y ago
I believe the market will have to crash just don’t know when exactly.
KasianFranks 8y ago
Flight to quality will go into crypto and for many of the reasons mentioned in the write-up.
- rwmj 8y ago
  I can't tell if this is satire or not.
grosjona 8y ago
I think it's related to the interest rate. If the interest rate is 0% then it means that money is worthless (because in that case debt behaves exactly the same as actual money)... If money is worthless then assets which produce money (profit) are also worthless... So what is actually valuable in a world where money is worthless? Human attention (brand awareness)! Because brand awareness is probably the only asset that won't be affected by a rise in interest rates. So brand awareness is the key to getting a good share of tomorrow-money (which, unlike today-money, might actually have value). So that's why advertising is so valuable now.
- JumpCrisscross 8y ago
  > If the interest rate is 0% then it means that money is worthless (because in that case debt behaves exactly the same as actual money) Zero or even negative interest rates don't mean money is worthless. Money money, as in cash, always yields zero. And even in a zero or negative rate environment, there are still assets (including debt) which have a positive yield. The point of lowering interest rates is to drive capital to those riskier ventures.
  - chii 8y ago
    > zero or negative rate i don't understand how this is even possible.
    - JumpCrisscross 8y ago
      > i don't understand how this is even possible $1 loaned for one year at 10% means, after 1 year, you get $1 back plus 10¢ of interest. $1 loaned for one year at -10% means, after 1 year, you get back $90. This is reality in multiple economies [1]. Traditionally, monetary policy hit a zero bound with rates. Why would one deposit money at -10% when one can hold cash at 0%? But modern finance sometimes means it's better to hold bonds yielding -1% than it is to withdraw physical cash. (For example, to use as collateral.) The ultimate goal of these policies is to make holding cash so uncomfortable that investors have to deploy the capital. [1] https://www.bbc.com/news/business-32284393 https://www.bbc.com/news/business-32284393
lkrubner 8y ago
The thesis statement of this essay is buried fairly far into the essay, but it seems this paragraph is the heart of their argument: "The lesson to be learned from quantitative easing, zero-interest rate policy, and the bubble advance of recent years is simple: one must accept that there is no limit at all to the myopic speculation and self-interested amnesia of Wall Street. Bubbles and crashes will repeat again and again, and nothing will be learned from them. However, that does not mean abandoning the information from valuations or market internals. It means refraining from a negative market outlook, even amid extreme valuations and reckless speculation, until dispersion and divergences emerge in market internals (signaling a shift in investor psychology from speculation to risk-aversion). A neutral outlook is fine if conditions are sufficiently overextended, but defer a negative market outlook until market internals deteriorate." Basically, this can be read as a complaint about how distorted the financial markets become when we rely on the Fed to protect us from recessions. If Congress would do its job, and provide sufficiently large deficits to absorb the productive capacity of the modern economy, then there would be no need for the Fed to engage in such extreme behaviors, and we would not see this kind of distortion in the financial markets.
- cowpig 8y ago
  > Basically, this can be read as a complaint about how distorted the financial markets become when we rely on the Fed to protect us from recessions. I'm not sure how you get that from the quoted passage, nor from the article.
- chapium 8y ago
  “If congress would do its job...” is an interesting point. Congress have all sorts of incentives to consider “their” job is to stay elected by keeping special interests and local constituents happy. Perhaps we should have a few members of congress who are elected by the whole country and answer to the interests of the nation as a whole.
  - murph-almighty 8y ago
    Different branch, but isn't that effectively the President/Vice-President? Especially when you consider the VP is the head of the Senate.
koliber 8y ago
It tires me when I hear people ranting that some government backed & sanctioned economic institution is an illegal ponzi scheme. Why? Because they are a ponzi scheme, and they are legal by the virtue of being run by the government. There are different laws that govern what an individual or a corporation can do, and what a government can do. We give the government a limited right to do lots of things (in certain circumstances) which we don't let individuals and corporations do: - kill people (military, capital punishment) - kidnap people (police arrests) - imprison people (jail, prison) - run protection rackets/extortion (taxation) - gambling (state lotteries) - run ponzi schemes (social security system, fractional reserve banking) We agree to all of this as a society. Therefore, it is not illegal. We should always keep an eye on the extent to which those special rights are exercised by the government. We should actively discuss and modify laws that govern these special rights we grant to the government, so that they reflect the will of the people. However, just yelling "Ponzi scheme! Illegal!" is ignorant. It's as if someone stood up all of a sudden and yelled "The government is killing people in wars! That's illegal". Of course they are, and to a large extent it is legal, because we have implicitly granted the government that right as society.
- dwater 8y ago
  That does not seem relevant to this article, because it does not call the system illegal. It calls it "effectively a Ponzi scheme", and then goes on to offer evidence to support that claim. A Ponzi scheme is "an investment system where the investment profits are paid with the money from other investors, and those who experience profit believe the profits come from non-investors such as business activities, or the earnings and growth of a company." (Wikipedia) The author makes a clear attempt at analogy: "Debt-financed prosperity is typically abetted by central banks that encourage consumers and speculators to borrow (the demand side of Ponzi finance) and also encourage yield-seeking demand among investors for newly-issued debt securities that offer a “pickup” in yield (the supply side of Ponzi finance)."
  - koliber 8y ago
    I think you're right. This was more of a pent up reaction triggered by the article, even though the article is not making that point directly. It seems I am coming across the naive view a lot lately. Thanks for listening to me rant.
erikb 8y ago
I don't know. I stopped believing in that the average citizen is really doing his job of self preservation. We always expect others to keep us save and then hastily put all our value (work time, energy, money) into lies that tell us that everything is fine and even better in the future. Blaming Wallstreet is part of that. Sure, they are selfish sharks. But that shouldn't overshadow that they have masses of customers who buy the junk from them without ever checking if everything is really as good as it looks on the cover. Nowadays I'm worried more about what I as a person can actually do to circumvent that. And sadly the only reliable thing I can see is becoming part of the sharks and selling junk, thereby drastically increasing my private cash budget. Everything else, like raw resources, real estate, stocks, start-ups are all so overvalued with the b.s. that it's not really worth to put money in because of so many people continuing to buy despite knowing that the stuff they buy is overvalued by a margin. That really makes one sad, you know...
- frockington 8y ago
  The macro commodities picture is looking pretty solid, I've been looking at getting into raw materials. If anything they seem undervalued
  - erikb 8y ago
    Are you buying directly or derivates? With derivates nowadays you might run the risk that they are not backed by anything. This needs to be considered in the evaluation.
- hedvig 8y ago
  Or, you know, we could be moral beings and create solid protections from the sharks among us. Even if those protections mean there's a ceiling on profits, or even if it feels like you have a gun to your head as one of the "enlightened and responsible" beings.
SagelyGuru 8y ago
The problem is not with memory but with the fact that it is just too easy, too tempting and too profitable to run Ponzi schemes, especially one as big as this. Plus, as any banker would tell you, he who does not steal is robbing his own family.
caffeine5150 8y ago
A buddy of mine is a wealth manager. His opinion is that this guy obtained significant ears because he predicted and profited off the '08 crisis, but that overall he's a a bit of a "clown". As linked below, his main fund has a 10% performance of -6.45% and he's basically always bearish.
- Confusion 8y ago
  Is your buddy one of the very few beating the market or is he one of the many with clients who would be better of just tracking the S&P 500? Because if the latter, he is just as much of a clown, just one whose strategies by accident happen to be less bad for their clients. The number of ‘wealth managers’ who add value for their clients (which can also be done by reducing risk in exchange for lower yields or in several other ways) is very small and the remainder are leeches.
caffeine5150 8y ago
A negative take on one of Hussman's funds: http://thereformedbroker.com/2017/09/05/when-the-hedge-is-worse-than-the-thing-being-hedged/ http://thereformedbroker.com/2017/09/05/when-the-hedge-is-wo...
skybrian 8y ago
It seems like if corporations are very unequal, we should be suspicious of averages. Taking an average for corporations that includes Apple and Alphabet is sort of like taking average wealth for a small number of people that includes Bill Gates. So, I'm not sure how seriously to take this? A company with very high, durable profit margins doing a stock buyback or taking on debt at low interest rates doesn't seem like much of a problem either now or in a recession? Other companies may be in a much more risky position. It seems important to analyze them in separate groups.
korethr 8y ago
I read this lat night. As I read it, I found myself wondering, "Okay, what am I supposed to do with this info? How am I supposed to act upon this guy's bearish outlook and pretty charts?" Somewhere in article, the point is made that one's paper wealth will be hit hard by the coming crash. My thought there is, "So what?". My present investments in securities are long term; I'm not planning on having to touch them for a few decades. In that time period, if the economy stays crashed for so hard so long that they make no gains over those decades, I'm very likely to have more pressing immediate problems that I won't have the time or energy to care about my securities investments. I remember looking at graphs of the stock market and realizing that, while the 2008/2009 downturn would have been a terrifying time to begin investing, if I had begun investing then, and ridden out the cycle. I would have come out ahead. If today's market conditions are the boom of another boom/bust cycle, why would that not still be true?

216 points by yuhong 8y ago

"When U.S. corporate profits are unusually high, it’s typically an indication that households and the government are cutting their savings and going into debt." Pretty much one of the reasons why I dislike the current economy and what I mean by treating people as "consumers" to be extracted from. This has been a problem since the 1970s.

yuhong 8y ago
BTW, the way the current economy works is also why revenue of for example Sun and Novell declined quickly. I have an entire paragraph about that in the essay.
- datahack 8y ago
  I really, really enjoyed that. What else have you written?
  - yuhong 8y ago
    Link to the essay for those who are unfamiliar: http://yuhongbao.blogspot.com/2018/04/google-doubleclick-mozilla-essay-final.html http://yuhongbao.blogspot.com/2018/04/google-doubleclick-moz...
gowld 8y ago
When have businesses not treated people as consumers?
- yuhong 8y ago
  I mean treating people as consumers to extract more and more money from. Note that I am just saying that the current economy encourages such a culture too.
  - sonnyblarney 8y ago
    Consumer culture was created really at the dawn of the 20th century. The elites realized that in order to keep 'growth' going they had to get people to continuously 'buy stuff'. Hence consumer culture has been systematically promoted since then. I once visited a friend in London, his family had a really nice property, worth millions for sure. And then in this kitchen some really funny ancient oven and toaster stuff. It still worked fine. So why replace it? North Americans just keeping buying new, we're the epiphany of that culture. But at some point in your career you might connect the dots and realize you need people to 'buy buy buy' in order for your sales to remain healthy and for you to keep your job so you can support your family etc. etc.. It's a weird vicious/virtuous circle and I don't thin UBI etc. will solve it. There are innumerable actual innovations and advancements that come out of the rat race :).
    - yuhong 8y ago
      Note that what I mean is that it is not just to buy stuff, but also to extract as much profit as possible. And commodities where that isn't possible tends to be outsourced to other countries like China, making our trade deficit worse.
    - JumpCrisscross 8y ago
      > Consumer culture was created really at the dawn of the 20th century. The elites realized that in order to keep 'growth' going they had to get people to continuously 'buy stuff' This reverses cause and effect. For most of human history, real productive capacity didn't change from generation to generation. Elites fought to sit on more stuff; there was no point bringing peasants into the mix. The industrial revolution (and the Black Plague, in Europe) changed that dynamic. Real economic growth became a thing. And workers needed to be competed for. That gave them bargaining power in the economy, which they converted into re-tooling it away from solely making toys for the elites and towards producing goods and services for the masses. It's always comforting to imagine some disembodied "elites" calling the shots and making a plan. In reality, our systems are more chaotic.
    - amake 8y ago
      > we're the epiphany of that culture *epitome

Animats 8y ago

“the extreme brevity of the financial memory.” Yes. It's only been since 2008 since the US economy tanked, it took five years to dig out of that one, and real wages never fully came back. That wasn't long ago. It's about time for Silicon Valley to tank. There's nothing big in the pipeline comparable to the Internet or smartphones. Laptops, notebooks, tablets, and phones have all passed peak sales. The businesses that assume endless growth are maxing out. The next big thing may be solar, wind, and storage taking over the energy industry, which is a good thing. That's a slow, capital-intensive, heavy-industry infrastructure upgrade, driven by manufacturing cost reduction. It's going to happen, but it's not a go-go business.

yuhong 8y ago
My favorite is Google, Larry/Sergey, and the ad bubble. It is so complex I even wrote an entire essay about it.
- deleted 8y ago
  [deleted]
kurthr 8y ago
Don't forget the acknowledged end of Moore's Law... which may well lead to reduced investment (due to lower perceived ROI), which is a self-fulfilling prophecy. I'd also say that the mobile and Internet Ad spending may peak by 2020...or not. OTOH, Big Deep Artificial Learning Data Intelligence.
- axiom92 8y ago
  Well, what about Deep Real-time Machine Learning at scale in the Cloud on Big Data powered by Blockchains™?
  - grosjona 8y ago
    That actually sounds like a really good idea if it's possible. It would be a blockchain-based neural network which people can sell training data to (in exchange for the underlying cryptocurrency) and which other people can use via an API to do pattern recognition on their own user data (by paying in the same cryptocurrency). It would be a decentralized, autonomous AI.

thinkcomp 8y ago

I find the economic analysis here extremely compelling, but it's worth noting that at least one of the Hussman funds has had pretty awful returns historically: https://finance.yahoo.com/quote/HSGFX?p=HSGFX https://finance.yahoo.com/quote/HSGFX?p=HSGFX What I take away from this is that understanding macroeconomic trends is different than being a successful investor.

a008t 8y ago
How are they even still in business?
- exHFGuy 8y ago
  You should question his economic analysis also. Ask yourself, "if his understanding of markets and economics is correct, how come he is consistently wrong, over and over, in his investment decisions?" This guy has been weaving stories about economics for years and years and been consistently wrong for years and years. His understanding of how economics and markets work is simply incorrect (even if it sounds compelling).
  - cryoshon 8y ago
    it's an interesting perspective that provides a dissenting opinion. it doesn't really need to be correct to stimulate thought and lead you to a better disposition in your own investments. notably, he makes no specific suggestions on what kind of stuff people should buy or what they should do to take advantage of both the upside (the bubble) and the downside (the crash). it might be because there is some law stopping him from giving that advice, i'm not sure.
  - alphacatcher 8y ago
    Being a big shorter isn't for the weary.... Most will accumulate large losses until they go bankrupt or the freak black swan happens and they make 1000x% for the trouble (erasing the accumulated losses very quickly, if smartly positioned). On the otherside, Bullish banks/etc will make small profits consistently for long periods of time on bullish bets but when the black swan happens, will lose everything they made over the years and more, to the shorters (in 2008 banks had record profits until they lost more money than banks ever made in the history of modern banking). Gabish?

Kyragem 8y ago

I believe the market will have to crash just don’t know when exactly.

KasianFranks 8y ago

Flight to quality will go into crypto and for many of the reasons mentioned in the write-up.

rwmj 8y ago
I can't tell if this is satire or not.

grosjona 8y ago

I think it's related to the interest rate. If the interest rate is 0% then it means that money is worthless (because in that case debt behaves exactly the same as actual money)... If money is worthless then assets which produce money (profit) are also worthless... So what is actually valuable in a world where money is worthless? Human attention (brand awareness)! Because brand awareness is probably the only asset that won't be affected by a rise in interest rates. So brand awareness is the key to getting a good share of tomorrow-money (which, unlike today-money, might actually have value). So that's why advertising is so valuable now.

JumpCrisscross 8y ago
> If the interest rate is 0% then it means that money is worthless (because in that case debt behaves exactly the same as actual money) Zero or even negative interest rates don't mean money is worthless. Money money, as in cash, always yields zero. And even in a zero or negative rate environment, there are still assets (including debt) which have a positive yield. The point of lowering interest rates is to drive capital to those riskier ventures.
- chii 8y ago
  > zero or negative rate i don't understand how this is even possible.
  - JumpCrisscross 8y ago
    > i don't understand how this is even possible $1 loaned for one year at 10% means, after 1 year, you get $1 back plus 10¢ of interest. $1 loaned for one year at -10% means, after 1 year, you get back $90. This is reality in multiple economies [1]. Traditionally, monetary policy hit a zero bound with rates. Why would one deposit money at -10% when one can hold cash at 0%? But modern finance sometimes means it's better to hold bonds yielding -1% than it is to withdraw physical cash. (For example, to use as collateral.) The ultimate goal of these policies is to make holding cash so uncomfortable that investors have to deploy the capital. [1] https://www.bbc.com/news/business-32284393 https://www.bbc.com/news/business-32284393

lkrubner 8y ago

The thesis statement of this essay is buried fairly far into the essay, but it seems this paragraph is the heart of their argument: "The lesson to be learned from quantitative easing, zero-interest rate policy, and the bubble advance of recent years is simple: one must accept that there is no limit at all to the myopic speculation and self-interested amnesia of Wall Street. Bubbles and crashes will repeat again and again, and nothing will be learned from them. However, that does not mean abandoning the information from valuations or market internals. It means refraining from a negative market outlook, even amid extreme valuations and reckless speculation, until dispersion and divergences emerge in market internals (signaling a shift in investor psychology from speculation to risk-aversion). A neutral outlook is fine if conditions are sufficiently overextended, but defer a negative market outlook until market internals deteriorate." Basically, this can be read as a complaint about how distorted the financial markets become when we rely on the Fed to protect us from recessions. If Congress would do its job, and provide sufficiently large deficits to absorb the productive capacity of the modern economy, then there would be no need for the Fed to engage in such extreme behaviors, and we would not see this kind of distortion in the financial markets.

cowpig 8y ago
> Basically, this can be read as a complaint about how distorted the financial markets become when we rely on the Fed to protect us from recessions. I'm not sure how you get that from the quoted passage, nor from the article.
chapium 8y ago
“If congress would do its job...” is an interesting point. Congress have all sorts of incentives to consider “their” job is to stay elected by keeping special interests and local constituents happy. Perhaps we should have a few members of congress who are elected by the whole country and answer to the interests of the nation as a whole.
- murph-almighty 8y ago
  Different branch, but isn't that effectively the President/Vice-President? Especially when you consider the VP is the head of the Senate.

koliber 8y ago

It tires me when I hear people ranting that some government backed & sanctioned economic institution is an illegal ponzi scheme. Why? Because they are a ponzi scheme, and they are legal by the virtue of being run by the government. There are different laws that govern what an individual or a corporation can do, and what a government can do. We give the government a limited right to do lots of things (in certain circumstances) which we don't let individuals and corporations do: - kill people (military, capital punishment) - kidnap people (police arrests) - imprison people (jail, prison) - run protection rackets/extortion (taxation) - gambling (state lotteries) - run ponzi schemes (social security system, fractional reserve banking) We agree to all of this as a society. Therefore, it is not illegal. We should always keep an eye on the extent to which those special rights are exercised by the government. We should actively discuss and modify laws that govern these special rights we grant to the government, so that they reflect the will of the people. However, just yelling "Ponzi scheme! Illegal!" is ignorant. It's as if someone stood up all of a sudden and yelled "The government is killing people in wars! That's illegal". Of course they are, and to a large extent it is legal, because we have implicitly granted the government that right as society.

dwater 8y ago
That does not seem relevant to this article, because it does not call the system illegal. It calls it "effectively a Ponzi scheme", and then goes on to offer evidence to support that claim. A Ponzi scheme is "an investment system where the investment profits are paid with the money from other investors, and those who experience profit believe the profits come from non-investors such as business activities, or the earnings and growth of a company." (Wikipedia) The author makes a clear attempt at analogy: "Debt-financed prosperity is typically abetted by central banks that encourage consumers and speculators to borrow (the demand side of Ponzi finance) and also encourage yield-seeking demand among investors for newly-issued debt securities that offer a “pickup” in yield (the supply side of Ponzi finance)."
- koliber 8y ago
  I think you're right. This was more of a pent up reaction triggered by the article, even though the article is not making that point directly. It seems I am coming across the naive view a lot lately. Thanks for listening to me rant.

erikb 8y ago

I don't know. I stopped believing in that the average citizen is really doing his job of self preservation. We always expect others to keep us save and then hastily put all our value (work time, energy, money) into lies that tell us that everything is fine and even better in the future. Blaming Wallstreet is part of that. Sure, they are selfish sharks. But that shouldn't overshadow that they have masses of customers who buy the junk from them without ever checking if everything is really as good as it looks on the cover. Nowadays I'm worried more about what I as a person can actually do to circumvent that. And sadly the only reliable thing I can see is becoming part of the sharks and selling junk, thereby drastically increasing my private cash budget. Everything else, like raw resources, real estate, stocks, start-ups are all so overvalued with the b.s. that it's not really worth to put money in because of so many people continuing to buy despite knowing that the stuff they buy is overvalued by a margin. That really makes one sad, you know...

frockington 8y ago
The macro commodities picture is looking pretty solid, I've been looking at getting into raw materials. If anything they seem undervalued
- erikb 8y ago
  Are you buying directly or derivates? With derivates nowadays you might run the risk that they are not backed by anything. This needs to be considered in the evaluation.
hedvig 8y ago
Or, you know, we could be moral beings and create solid protections from the sharks among us. Even if those protections mean there's a ceiling on profits, or even if it feels like you have a gun to your head as one of the "enlightened and responsible" beings.

SagelyGuru 8y ago

The problem is not with memory but with the fact that it is just too easy, too tempting and too profitable to run Ponzi schemes, especially one as big as this. Plus, as any banker would tell you, he who does not steal is robbing his own family.

caffeine5150 8y ago

A buddy of mine is a wealth manager. His opinion is that this guy obtained significant ears because he predicted and profited off the '08 crisis, but that overall he's a a bit of a "clown". As linked below, his main fund has a 10% performance of -6.45% and he's basically always bearish.

Confusion 8y ago
Is your buddy one of the very few beating the market or is he one of the many with clients who would be better of just tracking the S&P 500? Because if the latter, he is just as much of a clown, just one whose strategies by accident happen to be less bad for their clients. The number of ‘wealth managers’ who add value for their clients (which can also be done by reducing risk in exchange for lower yields or in several other ways) is very small and the remainder are leeches.

caffeine5150 8y ago

A negative take on one of Hussman's funds: http://thereformedbroker.com/2017/09/05/when-the-hedge-is-worse-than-the-thing-being-hedged/ http://thereformedbroker.com/2017/09/05/when-the-hedge-is-wo...

skybrian 8y ago

It seems like if corporations are very unequal, we should be suspicious of averages. Taking an average for corporations that includes Apple and Alphabet is sort of like taking average wealth for a small number of people that includes Bill Gates. So, I'm not sure how seriously to take this? A company with very high, durable profit margins doing a stock buyback or taking on debt at low interest rates doesn't seem like much of a problem either now or in a recession? Other companies may be in a much more risky position. It seems important to analyze them in separate groups.

korethr 8y ago

I read this lat night. As I read it, I found myself wondering, "Okay, what am I supposed to do with this info? How am I supposed to act upon this guy's bearish outlook and pretty charts?" Somewhere in article, the point is made that one's paper wealth will be hit hard by the coming crash. My thought there is, "So what?". My present investments in securities are long term; I'm not planning on having to touch them for a few decades. In that time period, if the economy stays crashed for so hard so long that they make no gains over those decades, I'm very likely to have more pressing immediate problems that I won't have the time or energy to care about my securities investments. I remember looking at graphs of the stock market and realizing that, while the 2008/2009 downturn would have been a terrifying time to begin investing, if I had begun investing then, and ridden out the cycle. I would have come out ahead. If today's market conditions are the boom of another boom/bust cycle, why would that not still be true?