Are Storm Clouds Gathering?

My friend Sam Pizzigati’s op-ed, The Cutting Edge of Waste, is well worth reading for the point he intended to make: We’ve reached a juncture where obscenely rich American’s are dumping money into enterprises that don’t even need the money, while we as a society are abandoning investments in our kids’ futures. But it may be even more worthwhile for an entirely unintended reason.

The heart of Sam’s piece is his observation that our ultra-rich are making investments in start-ups before an actual need for capital exists. For example, Sam reports, Slack, a tech start-up whose corporate messaging app potentially could replace email, last month received $160 million for a 5% stake in the company. Yet Slack has no foreseeable use for the $160 million. Sam describes the trend thusly:

The “winners” in America’s contemporary economy are now holding phenomenally more money than they can prudently invest. So they’re not making rational investments. They’re speculating, racing to place mammoth bets on start-ups that may become the “next big thing.”

I find this stunning, but not for the same reason as Sam (although I fully agree with him on that front). What I find so telling about Sam’s description is that with no apparent intention to do so, he described to a tee the condition that inevitably leads to a market crash.  If the description is accurate, a bubble in the equity markets is inflating. Once bubbles inflate, they unavoidably burst. The question about bubbles is never if they will burst, it’s when.

This all reminds me of my favorite triple entendre: “It won’t be long now,” said the monkey, as his tail got caught in the lawn mower.

5 responses to “Are Storm Clouds Gathering?

  1. I can’t help thinking some of this is defensive in nature, an effort to prevent competition from developing.

  2. captain*arizona

    Economic talk should be looked at suspiciously as emotions get in the way. If your worried go to kfnn 1510 and listen to mo ansari he will tell you whats happening and what to do about it if you own stocks. gary kaultbaum is ok when he can keep is emotions and politics out which isn’t often! Also bob brinker on sundays will keep you informed.

  3. This reminds me a lot of the 1980s when, if you were a Techie with an idea, you didn’t have to look for start-up funding. People almost stood in line to throw money at you. That ended in a small recession when so many of them failed, the money was gone and people became more cautious about investing in start-ups again. But it wasn’t that bad of a recession, so why worry more about this one? The ones who will take the beating financially have more money than good sense and it won’t hurt them one iota. So what makes this different?

    You mentioned education being shortchanged and I could not agree more. I am paying for all of my Grandkids to go to private schools because I don’t thin they would get a decent education in the publice schools. Holding back from education is my greatest objection to what Republicans do in this State. We shouldn’t be balancing budgets by cutting back on education.

    • Thanks for the thumbs up for education, Steve. Now would you not vote for the people doing this to our state even though they are Rs?

      • You know, Patricia, sometimes I wish I could, but, unfortunately, education is not the only issue. If it were, Democrats would get my vote.