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.