Welcome to our Friday mailbag edition!
Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.
Up first, a question from reader David K., who is dipping a toe in U.S. stocks for the first time…
I am a novice when it comes to American stocks. However, through reading your materials (I subscribed to one of your services) I am gaining some confidence. I feel it’s now ripe for me to start investing.
My challenge is that I only know of brokerage firms for trading. My belief is that I need a brokerage firm where I can buy the stocks as a shareholder and hence be able to hold for long and even share in the profits. Any recommendations?
– David K.
Hi David, thank you for your email and candor with regard to where you are in the investing process.
I am thrilled that the research and information that my team and I are providing are offering you more confidence.
I truly believe that the more you know, the better the decisions you can make. That’s true in finance as well as in life.
Now, you can certainly invest in stocks with an online brokerage company. For every full share you buy, you do become a shareholder in that company.
It’s not the same if you invest in, say, a mutual fund, or something called an exchange-traded fund (ETF).
In that case, you are investing in a basket of stocks. And the brokerage that manages that ETF or fund, for example Vanguard or Blackrock, has the shareholder rights of companies in that fund.
The other general rule of thumb to follow for anyone starting out is to go small and buy what makes sense to you. You can always add to that investment or other ones as your confidence grows.
Best of luck to you!
Moving on, reader Al W. is a little skeptical of my work since I left Wall Street 20 years ago…
Just curious, Nomi. All this “exposing” you’ve done of Wall Street and its ilk, what’s changed? Has the corruption lessened as a result of your “investigative reporting”?
– Al W.
Hi Al, thank you for writing in.
When I worked on Wall Street, I worked for companies and leaders that intermittently found themselves in the crosshairs of various scandals or investigations.
The largest was the Government Accountability Office (GAO) investigation into Wall Street in the wake of the financial crisis.
And the most prominent leader was Hank Paulson. He was the CEO of Goldman Sachs when I worked there, and he later became the Treasury Secretary of the United States.
I have written seven books exposing Wall Street corruption.
I’ve discussed how to protect Main Street from Wall Street before the Fed, IMF, World Bank, Senate Budget Committee, and hundreds of government officials over the decades.
Can I stop corruption? No. Can I stop greed? No. Can I write and warn about crises before they happen, as I did with the financial crisis? Yes. Can I make everyone listen? No.
Can what I say or write make a difference in which regulations are passed to ensure less risk to Main Street in the future?
Well, I believe that when a former presidential candidate interviewed me on national television about what I recommended after the financial crisis hit, for instance, it did make a difference.
Vermont Senator Bernie Sanders interviews Nomi on C-Span after the financial crisis
And what I can keep doing is being a voice to counter the corruption. And if I am able to change one tiny law that makes a difference… or educate one individual on how to take charge of their own money… then I will.
And, if I see clouds in the financial or economic sky, so to speak, I’ll let you know. On the flip side, if I see the sun breaking through, I’ll let you know that, too.
Next, readers Lorraine S. and Richard S. want more details on the housing crisis I warned about last month…
I attended your recent presentation on the mortgage crisis. Can you comment on the impact of such an event on the world economy?
– Lorraine S.
Hi Lorraine, thank you for viewing my presentation and for your question.
Mortgage-related crises tend to have more of an impact on the economies where there is more of a housing boom to begin with.
The United States, the United Kingdom, and Australia are good examples.
These are now facing headwinds because of rising rates. Higher rates make it harder for average borrowers to get mortgages, which can take them out of the home-buying market.
Fewer buyers mean more of a likelihood that prices will fall. That’s because the buying competition and demand that drives prices up are muted.
So I don’t think this particular mortgage or housing crisis will have as much of an impact across the world as the last one. It will be confined to the countries with the largest home price appreciations prior to rate hikes.
Wasn’t the 2008 crash mainly about bad mortgage loans? Since there is a shortage of affordable homes, there will still be demand, and interest rates will be the major limiting factor. Some developers may be stuck with unsold properties and future sales will slow down even more.
– Richard S.
Hi Richard, thanks for writing in. That’s a great question. The 2008 crash was indeed about faulty loans.
But as I wrote about in my 2009 book, It Takes a Pillage, there was more to it than that.
It was also about Wall Street and big global banks aggregating these loans into trillions of dollars’ worth of other assets. They then sold those assets to pensions, municipalities, retirement funds, and each other.
When the first dominos fell (the faulty or defaulted on loans), it took those assets down too, resulting in the 2008 financial crisis.
And yes, there’s a difference today in the cause of a housing crisis.
Today, it’s because of The Great Distortion. The Fed initially kept rates at or near zero percent since the financial crisis and then at zero right after the pandemic hit.
This enabled a flurry of cheap money to gush into the housing markets in the form of cheap loans. And the cheaper the cost of money, the greater the amount people or commercial enterprises could spend.
That then pushed the value of prices and commercial properties higher.
When the Fed moved to a tighter policy, it made money more expensive to borrow. That makes it harder to spend as much, so cheap-money-driven demand drops. Less demand means lower prices.
Now, that doesn’t mean demand completely vanishes, just that the financing factor is less favorable to buy it.
This is a particular problem for commercial developers that tend to build and sell on the basis of borrowed money. For cash buyers of homes, rates don’t matter as much.
Switching gears, reader Hugh M. touches on a book that’s close to my heart…
Nomi, just finished All the Presidents’ Bankers. What a wonderful expose. Thank you, thank you.
P.S. Did Trump break with prior presidential behaviors? He seemed to break with lots of other expected behaviors.
– Hugh M.
Hi Hugh, thank you so much for reading All the Presidents’ Bankers. It holds a special place in my heart and mind.
That’s because it allowed me to explore documents that had barely – or never – been touched before in the various presidential libraries around our country, delving into the relationships between money and power.
I even discussed President Trump in that book – in the chapter that covers the 1970s and discusses his relationship with the political leaders and bankers then.
So, in one respect, Trump had a relationship with elected officials throughout his pre-Presidential years, as did many other presidents.
On the other, he expanded the number of executive orders beyond former presidents (President Biden is continuing that trend).
Plus, he used social media much more extensively to broadcast his policies and opinions than other presidents before him.
Of course, certain social media wasn’t available over the years, so I say that with that caveat.
President FDR, for instance, used the radio (an early form of unfiltered social media) perhaps more than any other presidents before him, because it had become available.
Meanwhile, reader James O. wonders who will win if we have a debt crisis…
Assuming the U.S. has a debt crisis in the not-too-distant future, what currency do you think will rise to the top of the heap?
– James O.
Hi James, thanks for your question.
The thing with the U.S. is that even if it has a debt crisis, it would still be considered the safest economy to invest in on a relative basis.
That would provide support to the dollar remaining at the top of the heap.
That’s because the European economy is a mess, so count the euro out of becoming the top.
The United Kingdom is facing a decade-long recession according to its central bank, so count the pound out.
Japan’s economy has barely grown since the 1990s and it has a higher debt to QE ratio than the U.S., so count the yen out.
That leaves the Chinese yuan as a possible contender. But it’s such a small fraction of overall currency flow, that it would take forever to reach the top of the heap.
Now, I believe the dollar will weaken this year as the Fed pivots to what I call Stage 2 of this current interest rate cycle. (As a refresher, Stage 2 will be a pause in rate hikes.)
But the dollar will not lose its top spot any time soon, and not in my lifetime.
Finally, reader James D. has a personal connection to a movie on my “Top Six Holiday Movie Picks” list…
Christmas Vacation was made in Summit County, Colorado. I used to live there. The house was built in the gymnasium of the old Dillon High School. The snow scene was on the Breckinridge golf course, and the drive under the logging truck took place on Hwy 9 just north of Silverthorne. We averaged 20 feet of snow in winter.
– James D.
Hi James, thanks for sharing that image and your experience.
It reminded me of my winters growing up in upstate New York, with abundant snowfall and lots of hot chocolate!
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Editor, Inside Wall Street with Nomi Prins