YOUGHAL, IRELAND – You’ve heard, of course, of the “greater fool” theory, the strategy in which a buyer pays a foolish price for something, betting that someone else will pay even more.
Well, on Monday, it looked like the greatest fool of all had finally shown up at an auction house. Bloomberg’s Matt Levine is on the story:
On Monday, Sotheby’s announced it had brokered a $1.8 million sale of Kanye West’s Nike Air Yeezy 1 sneakers, making them the most expensive pair of (known) shoes to sell, ever.
But the sneakers weren’t purchased by a footwear-loving collector. Instead, they were acquired by the company Rares, which plans to fractionalize pieces of the shoes as an investment.
That’s right. “Investors” are expected to buy shares in the shoes… hoping to sell them to other “investors” at even more lunatic prices.
Weird and Wacky
Question: What’s the return on investment on a pair of used kicks?
Answer: No less than on the 40% of the companies traded on the Russell 2000 that are losing money.
So why not? If companies that don’t make money are valuable… why not a pair of shoes?
And why not a thing that is no thing at all… an asset that neither toils to make money nor spins in the light of day for the amusement of onlookers?
That’s right, whenever you think the greater fool theory has run its race, along comes an even bigger dumbkopf sprinting ahead.
The crypto Dogecoin more than doubled over the last week. A year ago, it was worth only $315 million. Now, it has a market value of $80 billion.
Even wackier – this weekend, it could go much higher. Tesla CEO Elon Musk will be the host of Saturday Night Live. If he mentions the dodgy coin, it will probably soar (there are a lot of people betting on it).
Sic transit bubble mundi.
Investors are becoming unhinged.
The Federal Reserve’s money-printing (over $7 trillion so far this century… now increasing at about $4 billion per DAY) and its negative real interest rates (for most of the last 11 years) are turning them into active shooters, senselessly killing decent wealth and honest capital.
And now, the Fed itself is trapped in the theatre… hiding between the seats. Here’s CNBC:
Rising asset prices are posing increasing threats to the financial system, the Federal Reserve warned in a report Thursday.
Fed Governor Lael Brainard said the situation bears watching and points up the importance of making sure the system has proper safeguards.
“Asset prices may be vulnerable to significant declines should risk appetite fall,” the central bank said.
The Fed has created a bubble – with perhaps $30-$50 trillion in bad, or merely overpriced, “investments.” The bubble threatens to pop.
But the Fed dasn’t raise interest rates – or it will bring itself under fire and trigger the very disaster it has sworn to avoid.
The only way to keep the bubble world from popping now is to blow in more air. Then, the bubble gets bigger… and investors become even more deranged.
Any dope – even a Federal Reserve governor – can see that this will end badly. But the damage will be much deeper and longer-lasting than most people realize.
Not Real Investing
“Investing” in a pair of sneakers is not the same as building a factory. The investment promoter won’t learn to make precision tools or to finish concrete. No one will ever punch a time clock and go to work in the sneakers.
And the “investors” who spend their time studying the “investment” will not be figuring out how to add real wealth by providing more goods and services; they will be subtracting wealth, by allocating scarce capital to dead-end projects.
Like it or not, while the Fed’s funny money may be unlimited, the things needed to produce real wealth are not.
Time, attention, energy, organization, skill, savings, innovation, intelligence, raw materials, space – if you “invest” them in building pyramids, you get pyramids.
Put them to work producing fractionalized sneaker assets… and that’s what you get.
Catastrophic Correction Coming
And for all the research and theorizing about the rise and fall of civilizations, the basic template is very simple: The more resources (including people and time) that are misspent… the poorer people get.
This week, we’ve been wondering how the bad investments – caused by the Fed’s numbskull policies – eventually get corrected.
“Catastrophically,” is the answer.
The elite control the government. The elite benefit from policies that encourage bad investments (because they transfer wealth to the few at the expense of the many). The bad investments continue.
In the private sector, at least, the fools are wasting their own money. And the whole show could be corrected quickly – in minutes, after Mr. Market calls the cops.
But over in the public sector, it’s the deciders themselves who are on the rampage.
Just yesterday came word that Alexandria Ocasio-Cortez (AOC) wants to create a $10 billion taxpayer-funded “Climate Corp.” She says she would recruit some 1.5 million civilian soldiers to battle with Planet Earth. Our planet is heating up, she claims; the new climate warriors will stop it.
Everything Ms. AOC wants to do is already being done by dozens of federal programs. But why not another one?
If started, the Climate Corp – like the Peace Corps (still in business after more than a half-century of improving the world… with a $410 million budget and not a single volunteer in the field!) – will be with us forever…
And as long as the money-printing continues, so will the bad “investments.”
We’ll count the bodies later.
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