Juggling Dynamite

Danielle was a guest with Kerry Lutz on The Financial Survival Network talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here.

Initial public offerings (IPOs) are done to enable startup founders and early private investors to cash out by transferring part of their company to outsiders. To get the best buck for their offering, IPOs are generally released into high markets where rich multiples bring top payouts to sellers and underwriters at investment banks.  For these reasons, IPO shares typically plunge in price soon after they are purchased, and prove poorly-timed investments for the public.

In 2017 IPO offerings in cryptocurrencies were the latest rage.  As we explained in our client letter in November 2017 (available here), with no income yield or reasonable capital preservation prospects, initial coin offerings were never ‘investment opportunities,’ but always pure gambling.

Worse than acknowledged gambling activities like cards, craps, or the race track, gambling in security markets generally inflicts broader harm because participants don’t understand they are gambling, but believe they are ‘investing,’ and so wager large amounts.

Ben Graham explains in his seminal book Security Analysis (1934):

“Trouble arises from misuse of the term ‘investment’ to cover the crassest and most unrestrained speculation.   The difficulty could be cured by re-adopting the old time, clean-cut distinctions between speculationand investment.”

In The Intelligent Investor (1949), he returns to this definition:

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

This recent Beyond The Valley podcast investigates how one of the many cryptocurrency scams in the past couple of years bilked so-called ‘investors.’  Classic lessons to learn here.

This is an important discussion that is taking place all over the world today.  In the decade of central bank supported financial engineering since the 2008 crisis, the number of billionaires has nearly doubled while wages have stagnated and deficits compounded for the rest.  Thinking people are understanding that corporatocracy has become the dominant economic and political system on earth at great cost to everything else. Change is inevitable because the current system is not only destructive and unsustainable, but indefensible.

Anand Giridharadas, fellow at Aspen Institute and author of the book “Winners Take All,” examines populism and the history of a “winners take all” global structure and explains why Davos should be cancelled this year.  Here is a direct video link.

See some stats on wealth concentration in the latest Oxfam report here,  The world’s 26 richest people own as much as the poorest 50%, says Oxfam:

“…the wealth of more than 2,200 billionaires across the globe had increased by $900bn in 2018 – or $2.5bn a day. The 12% increase in the wealth of the very richest contrasted with a fall of 11% in the wealth of the poorest half of the world’s population.

As a result, the report concluded, the number of billionaires owning as much wealth as half the world’s population fell from 43 in 2017 to 26 last year. In 2016 the number was 61…

In the 10 years since the financial crisis, the number of billionaires has nearly doubled.

Between 2017 and 2018 a new billionaire was created every two days.

The world’s richest man, Jeff Bezos, the owner of Amazon, saw his fortune increase to $112bn. Just 1% of his fortune is equivalent to the whole health budget for Ethiopia, a country of 105 million people.

The poorest 10% of Britons are paying a higher effective tax rate than the richest 10% (49% compared with 34%) once taxes on consumption such as VAT are taken into account.