Another Wall Street Handout
I guess, technically, you have to call it nepotism. A couple weeks ago, my son's mom put out the word on Facebook that the boy — I mean young man — was looking for a summer job before he makes that 40-mile trek to the University of Maryland's A. James Clark School of Engineering. Google says it's the twentieth-best engineering school in the country. Sounds good to me.
He's going to do something bio-y. Last year, his team at the Baltimore Underground Science Space (BUGSS) took home Best Presentation from a High School Team at the iGEM Jamboree in Boston for their attempts to turn snake venom into a clotting agent.
I know he's fascinated by that stuff, and it would seem there aren't many fields that have more opportunity these days. But I can also tell you that 10 years ago, in the wake of the financial crisis, all my kids heard from their parents was STEM STEM STEM...
That stark glimpse into the economic abyss scared the bejeezus out of me and millions of other parents. It felt like the free-wheeling America, where you could make your way, was gone. Industrial robots had packed up millions of jobs and mailed them overseas. Desperation further eroded worker benefits and the last private pensions disappeared. The "gig economy" sounds really neato, much better than, "You're lucky to have a job at all"...
I can only imagine how the bombshell like the one I dropped on my parents would've gone over: "I think I have a really bright future as a bass player in punk rock bands. If that falls through, I can always be a ski bum."
The Great Depression left its mark, so did the Great Recession. We'll see what the Great Pandemic gets us....
In any event, two hours after that Facebook post, my son had an $11-an-hour job working at a boutique pet supply store.
My ex-wife owns a hair salon; she's got her finger on the pulse of the small business world here in Baltimore. Plus, the owner was our two-doors-down neighbor at the first apartment we rented after I moved to Baltimore. Sure, there's a couple dingbat dogs in his household, but that's not why he got that job...
Another Wall Street Handout
My son came over last night to return my car and to set up his own 529 college savings plan. Proud doesn't do it justice; I'm downright giddy. Honestly, I kinda wish he had a little more devil-may-care in him because I feel like his generation has a little too much Jack Torrance "all work and no play" in them. But I don't tell him that.
The 529 is a great thing. It's an IRA; so you can avoid taxes. But just like a company-sponsored 401(k), it's also a handout to the Wall Street fund sales machine. At least in Maryland, you can't buy individual stocks in a 529. You have to buy funds and throw a percent or so every year on the "oh we are so lucky to have your wisdom and S&P 500 index funds" altar.
Go ahead, try to find out how much money Americans have in their retirement accounts. It's not an easy number to find — probably because the $120 billion or so that Wall Street collects every year from replicating the S&P 500 and then "managing" it for you isn't a very good look.
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Not to mention that a company like Fidelity, for instance, puts a lot of its corporate cash in its funds and then benefits from the consistent buying pressure of our 401(k) contributions. Would we be surprised to learn that Fidelity doesn't replicate the S&P 500 with its money? That it concentrates its money in the good ones like Apple while it "diversifies" your money so you're "safe?"
I venture to guess that not much Wall Street does would surprise us at this point.
So last night, I had a great talk with my son about how there are plenty of individual stocks I'd buy (am buying) at the moment... Like this one. But an S&P 500 index fund right now? Gotta say that .000002% from the money market fund looks pretty good...
Negative Rates, Negative IQ
Maybe I pay too much attention and have this irritating habit of remembering things. But we have already learned what happens when you take risk off the table by lowering rates and attacking bond yields with QE.
For one, banks don't lend as much. They can make their spreads by playing ball with the Fed. Why take on the dodgy American consumer when Bernanke-Powell-Yellen will line your pockets with money they pull out of thin air?
Why would companies invest in new equipment or higher wages or day care facilities so parents can work 80-hour weeks when they can borrow for nothing, buy back their own stock, and pull that "EPS is rising while revenue is falling" rabbit out of the hat?
Now we've started to hear that negative interest rates may be coming to the U.S. The market is celebrating like that's a good thing. And it might be... if you're a big Wall Street investment house or a mega-bank and want to get paid to take more free money.
The Great Pandemic economy might coincide with the coronavirus, but it will actually be caused by the Goldman Sachs-to-Treasury Secretary nepotism. The Fed and Treasury aren't even pretending it's a bailout this time around. It's yet another Wall Street handout.
We've come a long way in 10 years. Too bad it's the wrong direction...
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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