Toward Ecosophy

There's an old Wall Street legend that came to mind today...

"In 1929, at the height of an economic boom in America, Joseph Kennedy Sr. (father of JFK) was working as a stockbroker on Wall Street. As the story goes, Joseph was walking around when he decided to sit down for a shoeshine. While polishing his shoes, the young worker gave Joseph some of his favorite stock picks. When Joseph heard the shoeshine boy giving out stock tips, he figured the party was about to end, and it was time to get out of the market. Joseph proceeded to exit his positions in the market and bought short positions that bet on the market going down. Shortly after that, the stock market entered a free fall." (Source)

The reason this came to mind is that I get therapeutic massage regularly these days, and my massage therapist mentioned today that she is getting into real estate investing. She's an extremely capable massage therapist -- but then I'm sure the shoeshine boy who did old Joe Kennedy's shoes was good at his trade, too. The rule remains the same: when people who have no previous background in investing start piling into some investment vehicle, a speculative bubble is in full swing, and will collapse catastrophically in the not too distant future.

I watched this same thing happen in real estate about a year before the 2008 real estate bust hit. When that arrived, everyone I knew who'd gone piling into real estate ended up in the bankruptcy courts. I also watched it in the stock market about a year and a half before the 2000-2001 internet bust hit, and a lot of people who'd put everything they had into interrnet stocks lost it all.

So, dear readers, if you find you're suddenly thinking about putting a lot of money into real estate investment, may I offer a piece of advice? You'd be better off shredding it all and flushing it down the toilet. Don't let yourself get suckered, because the market will sucker punch you.

Oh, and while you're at it, get ready for a whopping economic crisis, possibly as soon as this fall. The Dow Jones just hit an all time record, btw, and speculative investments are soaring while the productive economy lurches further and further into dysfunction. We're probably going to be in for a world of hurt within a year or so. Brace yourselves...

It's been a while since I paid close attention to the market for financial gimmickry -- yeah, I know, I've been slacking, spending too much time watching pandemics and wars -- so I missed the opening rounds of a familiar story.  People outside the realm of high finance ("high," in this case, meaning something not too far from "stoned out of their gourds") doubtless haven't heard of collateralized loan obligations, aka CLOs, but there's a fairly good chance that all of us will hear a great deal about them sometime in the next couple of years or so. 

Do you remember mortgage-backed securities (MBS), the investment vehicles that blew up so fetchingly in the 2008-2009 real estate crash?  If you missed that, or were too busy running for cover to take notes on the massive lumps of financial junk that were crashing into the street all around you, a MBS was a collection of residential mortgages packaged up as a "security" and traded on financial markets. The ratings agencies obligingly slapped investment-grade labels on them, and they played a very large role in inflating the speculative bubble that peaked in 2008...and then crashing it, and the world economy, in the unraveling that followed. 

CLOs are exactly the same, except that they're manufactured from commercial debt. The merry pranksters manufacturing them insist just as enthusiastically that they're rock-solid, the ratings agencies obligingly slap absurdly high ratings on them...and as far as I can tell they're at least as far into toxic-waste territory as the average housing-bubble MBS is. Oh, and the market in CLOs, which was next to nothing a decade ago, has ballooned since then to somewhere well north of US$1 trillion, with almost half of that added in the last two years. 

So we've got two of the Biblical horsemen, war and pestilence, already trotting along merrily together, and a third, famine, saddling up as we speak -- 30% of the world's wheat crop comes from Russia and Ukraine, you know, and so the price of wheat (and a number of other agricultural commodities) has doubled in the last few weeks and promises to go higher. I don't know where economic crisis fits into the Biblical scheme, but here he comes, ambling up on his pony to join the fun; no doubt the hooves are going "CLOp, CLOp, CLOp."  ;-)

Back when I was living in Ashland, Oregon, and the housing market was going stark staring nuts, I studied t'ai chi with a very capable teacher named Gene Burnett. Gene is also a singer-songwriter, and his most famous song seems highly appropriate just now. Please note that it's breathtakingly NSFW, and not just because the title is "Jump You F***ers"...

Once again I'm on the Hermitix podcast with host James Ellis, but this time we're talking about something a little different:  the economic ideas in my book The Wealth of Nature: Economics as if Survival Mattered, which is currently out of print but will be reprinted sometime soon (fingers crossed!) in a new edition from Founders House. 

If you've followed my previous podcasts with James you know that it's a lively conversation covering a lot of ground. This time we talk about the incompetence of modern economic thought when that deals with nature, the difference between money and wealth, and a great deal more. Check it out here on Anchor.fm and here on YouTube.