You’ll Be Shocked To Learn What Happens After A Recession Ends

The United States may be better off than you think. Currently, the big concern and preoccupation for people is whether or not the U.S. will be heading into a recession. It’s the big boogeyman hiding in the closet that people are all supposed to be afraid of.

Of course, it’s not pleasant when the economy contracts and people lose their jobs, savings and investments. However, you can’t simply look at the job market, economy and financial markets in a snapshot picture. There are ebbs and flows over time. Short term, the situation may look bleak. Looking over the horizon, everything could turn around, as history has proven.

Recessions Create Opportunities

Many well-known, fabulously successful companies were started during recessions and economic downturns. Recessions, stock market plunges and periods of high unemployment occur relatively regularly. It’s baked into the system. The U.S. economy swings like a pendulum in boom and bust cycles. For context, if you are a Baby Boomer, you have lived through nearly a dozen recessions.

Now-Famous Companies That Started Out In A Recession

  • Hewlett-Packard (1937-1938 Recession)
  • Hyatt Hotels (1957-1958 Recession)
  • Microsoft (1973-1975 Recession)
  • Electronic Arts (1981-1982 Recession)
  • Mailchimp (2001 & 2009 Recession)
  • Uber (2007-2009 Recession)
  • Airbnb (2007-2009 Recession)
  • Slack (2007-2009 Recession)
  • Warby Parker (2007-2009 Recession)
  • Venmo (2007-2009 Recession)

Why Are Businesses Started During Downturns?

During a downturn, people lose their jobs. With a lack of available options, a laid-off worker who harbored dreams of being an entrepreneur now doesn’t have any excuses to wait any longer. There is a feeling of, “It’s so bad that it can’t get any worse, so I might as well take the shot.”

As other people are downsized, you may be able to recruit talent for your emerging enterprise. When the economy craters, it creates new opportunities for budding business owners to solve new problems.

Stock Market Crashes And How Long It Takes To Recover

In 1929, the stock market crashed and the U.S. entered into the Great Depression. Without the public assistance Americans have access to now, families were left helpless. Wall Street professionals who lost their life savings had to panhandle for food. The stock market kept falling for a few more years and hit rock bottom in 1932. The market tumbled more than 80% lower than its all-time highs. It took over 20 years to recover.

In 1987, the “Black Monday” October crash happened. Similar to present-day events, a long bull-market run that kept the stock market moving higher without any corrections to cool it off ended badly, plummeting 22.6%. It took roughly two years to make a comeback.

In the late 1990s into 2000, the U.S. endured the dot-com boom and bust. Speculation in the newly emerging tech sector reached a fever pitch. Stocks were priced at ridiculously high levels based on the euphoria that these new tech darlings would change the world overnight.

Instead of valuing companies based on traditional price-to-earnings metrics, Wall Street research analysts pointed to the number of clicks a website received as evidence that the tech company was a terrific buy. However, the bubble ultimately burst in March 2000. The S&P 500, a benchmark used to gain an overall perspective of the financial markets, cratered—free falling more than 50% from its highs. It took about seven years to recover.

Shortly after the dot-com burst, there was another bubble emerging. In 2008, banks made reckless loans that enabled people to purchase homes that they couldn’t afford, if the economy cooled down. The U.S. had a housing bubble that lead to a subprime mortgage crisis. Sure enough, when the adjustable interest rates kicked in, families couldn’t make the higher monthly mortgage payments. Many lost their homes. The S&P 500 lost nearly half of its value. Around two years later, the market climbed back.

At the onset of the Covid-19, the stock market plunged more than 30% in February to March 2020. In this case, due to interventions by the U.S. federal government and Federal Bank actions, it only took about six months to climb back up again.

After all the gyrations, the end results were largely positive. You would have come out ahead if you were brave enough to invest during these difficult times. For example, a small investment of $100 in the S&P 500, at the beginning of 2009, would have represented a 582.13% return on your investment by the 2021 year-end.

It’s hard to come to grips with the economy and stock market vicissitudes. Recessions happen on a regular basis, as it’s part of the capitalistic cycle. The U.S. may need to endure some rocky times for the foreseeable future. However, if history repeats, it may take some time, but Americans will soon see better days.

What’s likely to happen is that after a few years, the government and Fed will forget about the past and enact more accommodative policies that will lead to another bull run, which will go to excess and ultimately burst. Then, the cycle will start all over again.

I am a CEO, founder, and executive recruiter at one of the oldest and largest global search firms in my area of expertise.

Source: You’ll Be Shocked To Learn What Happens After A Recession Ends

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Here’s How Long It Takes For Stocks To Recover From Bear Markets

With the stock market on one of its worst losing streaks in decades amid a relentless selloff that has pushed the S&P 500 nearly 20% below its record highs, recession risks are rising—but history shows that not all bear markets lead to long-term downturns and stocks can often rebound over the next year.

The benchmark S&P 500 index briefly fell into a bear market last Friday—at one point down over 20% from its peak in January—and continues to hover near that territory as surging inflation and rising rates lead to recession fears.

The last bear market was in March 2020, when coronavirus pandemic lockdowns sent the U.S. economy into a recession, but that downturn was uncharacteristically brief compared to others in the past (the bear market between 2007 and 2009 lasted for 546 days).

“No two bear markets are exactly alike,” notes Bespoke Investment Group, pointing out that 8 out of 14 prior bear markets since World War II have preceded recessions, while the other 6 did not.

Once the S&P 500 does hit the 20% threshold, stocks typically fall by another 12% and it takes the index an average of 95 days to hit the end of a bear market, according to Bespoke data.

In more than half of the 14 bear markets since 1945, the S&P 500 hit a low point within two months of initially falling below the 20% threshold—and forward returns were largely positive, Bespoke points out, with the index rising an average of 7% and nearly 18%, respectively, over 6- and 12-month periods.

If the U.S. economy can avoid falling into a recession, then stocks would be in a better position going forward: Bear markets that occur before a recession are more prolonged (lasting 449 days compared to 198 days with no recession) with steeper losses (an average decline of 35% compared to 28%), according to Bespoke.

It has been several decades since the stock market has had such a long streak of heavy losses. The Dow Jones Industrial Average recently posted its eighth down week—its longest losing streak since around the time of the Great Depression in 1932, while the S&P 500 and tech-heavy Nasdaq Composite have moved lower for seven straight weeks, their longest losing streaks since the dot-com crash in 2001.

The last four times the Nasdaq posted such a streak of weekly losses of 1% or more was in 1973, 1980, 1990 and 2001, according to Bespoke data. In every instance, those streaks occurred “either right before or very early into a recession.”

The S&P 500 has only posted a losing streak of seven weeks or more three times—in 1970, 1980 and 2001, according to Nationwide’s chief of investment research, Mark Hackett. “Unfortunately, the index was negative over the next 12 months each time,” he says. The index could tank by between 11% and 24% if the economy falls into a recession in the near-term future, major Wall Street firms have warned.

“Persistent inflation, another Fed policy mistake and recession fears have unnerved investors,” with the S&P 500 briefly falling into bear market territory, says Edward Moya, senior market analyst for Oanda. The widespread selling will likely “only accelerate” as investors will remain wary until the Fed “starts to show signs that they are worried about financial conditions and that they may stop tightening so aggressively.”

I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires

Source: Here’s How Long It Takes For Stocks To Recover From Bear Markets

Critics:

A chaotic day on Wall Street extended the longest period of market turmoil since 2001, with stocks on Friday briefly descending into bear market territory, a symbolic marker of investors’ deep pessimism about the health of the global economy and the buying power of the American consumer.

The S&P 500 has fallen for seven consecutive weeks, its worst stretch since the dot-com bubble burst more than two decades ago. After a 3 percent drop this week, the index is down 14 percent since early April.

Friday afternoon, the S&P 500 crossed the bear market threshold of a 20 percent decline from its peak on Jan. 3. But with less than 30 minutes left before trading ended, after hours of churn and a drop of as much as 2.3 percent, the market rallied and ended a hair above where it had started the day.

That was little consolation for investors, many of whom have grown accustomed to years of robust returns and have never seen a market upheaval like this.

With this week’s relentless slide and Friday’s wild swing was a constant worry on Wall Street that rising inflation, compounded by the war in Ukraine, might tip the economy into a recession. At the heart of those fears was fresh evidence reported this week from retailers like Walmart and Target that rising costs were now hitting corporate America.

During the darkest days of the pandemic, the American economy was propelled by consumers. Even as the costs of goods, transportation and labor increased, companies were able to pocket record profits by raising prices, confident that people would continue buying. But this week brought indications that some consumers may have reached their limit, and profits have started to shrink.

“What the companies are telling us is that they are starting to notice that their consumer is responding to inflation,” said Jay Sole, a retail analyst at UBS. “We were worried about this moment and we were waiting for this moment, and now it’s here.”

Recessions have often followed bear markets, though one does not necessarily cause the other. A bear market occurred in the early days of the coronavirus pandemic, but it was the shortest on record, lasting just 33 days before stocks began to rally. Less than six months later, the S&P 500 began hitting new highs again, climbing 42 percent above its prepandemic level before starting to slide in January. Now the index is down more than 18 percent from its high point.

Friday’s turbulent trading came after months of investors fretting about how serious and long-lasting inflation would be and how aggressively the Federal Reserve would have to raise rates to slow the rising cost of living.

James Bullard, the president of the Federal Reserve Bank of St. Louis, said during an interview on Fox Business on Friday that raising interest rates by half a point at coming central bank meetings was “a good plan for now.”

Mr. Bullard struck a relatively unconcerned tone about markets, despite the day’s volatility. “You would expect with the Fed raising rates, that all of these assets — trillions of dollars worldwide — would have to be repriced,” Mr. Bullard said.

What set this week apart was a grim earnings report on Tuesday from Walmart, the nation’s largest retailer, which confirmed many investors’ worst fears about inflation.

For the first time in many years, Walmart said its quarterly profits had fallen, a sign to many analysts that the retailer could not pass along many of its rising costs to consumers without risking a slowdown in sales. Target and Kohl’s also said quarterly profits had plunged, adding to Wall Street’s unease.

Walmart said that some of its customers were buying less-expensive meats and other food items as costs soared, and that sales of certain discretionary goods like clothing had slowed, as budget-conscious shoppers focused instead on buying necessities like groceries. The company’s executives said they saw no signs of inflation starting to abate.

“There is a lot of uncertainty moving forward,” Walmart’s chief executive, Doug McMillon, said in a conference call with Wall Street analysts on Tuesday. “Things are very fluid.”

Globally, investors can find little comfort. The Russian invasion of Ukraine and the response from other countries has disrupted crucial supplies of energy, wheat and other staples. Poor countries face a gathering catastrophe over hunger and debt.

Janet L. Yellen, the Treasury secretary, said high food and energy prices were creating “stagflationary effects” — the combination of high inflation and a stagnating economy. China’s economy, the world’s second-largest after that of the United States, is laboring under the government’s strict pandemic lockdowns. Before the war in Ukraine and Covid’s resurgence in China, the International Monetary Fund was projecting global growth of 4.4 percent this year. Now its forecast is 3.6 percent.

Wall Street had been expecting that torrid consumer demand would have to slow at some point. Government stimulus checks that provided Americans with billions in spending money during the pandemic stopped long ago. The hope of both the Trump and Biden administrations was that the economy could eventually be weaned off the stimulus and that consumer demand would stay relatively strong.

But inflation, which has risen faster and remained more persistent than many investors and even the Fed initially expected, has thrown the recovery into doubt.

Unemployment is approaching the lowest rate in decades, and the economy has regained nearly 95 percent of the 22 million jobs lost at the height of coronavirus lockdowns. Average hourly earnings in the U.S. rose 5.5 percent in the year through April, but many of those gains are being eroded by inflation. Over that same period, prices rose 8.3 percent.

“The government just turbocharged the economy, and we were partying on buying goods,” said Scott Mushkin, the founder of R5 Capital, a retail-focused consulting and financial research firm. “People wondered what the hangover would be like. We have never seen anything like this.”

To be sure, some retailers said that not every consumer was pulling back or shifting spending. Walmart said better-off shoppers continued to spend freely on bigger-ticket items like patio furniture, and Target said it was not seeing a broad retreat in spending, either. Home Depot, which has benefited from a pandemic remodeling boom, said it was seeing no big slowdown in business.

But Mr. Sole of UBS worries that if prices continue to climb, higher-income consumers will eventually shift their spending, too. “Right now, lower-income consumers are feeling inflation more acutely,” he said. “The worry is, what if it affects all income and demographic groups?”For months, the mixed signals have been confounding Wall Street as it tries to forecast future profits and how high interest rates will climb.

The current conditions are also confusing to even the most experienced executives, who are finding it difficult to plan their inventory and staffing. Walmart, which is known for successfully navigating the last period of persistently high inflation, in the 1970s, acknowledged this week that it had too many employees in the first quarter and that it had not anticipated how rapidly the increase in gasoline prices would inflate costs in its supply chain. The company’s 25 percent decline in profit from the previous year was a big surprise to analysts.

“If these companies can’t handle this, it tells you something really unusual is afoot,” Mr. Mushkin said.

By:

S&P 500 Briefly Plunges Into Bear Market As Stocks Fall For Seventh Week In A Row

Here’s The Worst Case Scenario For Stocks, According To Goldman, Deutsche Bank And Bank Of America

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Why Jack Dorsey’s First-Tweet NFT Plummeted 99% In Value In A Year

In December 2020, Jack Dorsey created a non-fungible token (NFT) out of his first-ever Twitter post. He turned a static image of a five-word tweet into a digital file stored on a blockchain, and voila, an NFT was born. A few months later, the image sold for a stunning $2.9 million. Yet in an auction this past week, no one bid more than $280 for it. And even current bids on OpenSea only amount to about $10,000, a 99% drop in value. What happened?

Dorsey’s NFT initially garnered little interest, with some people bidding a few thousand dollars in December 2020—a time when NFTs still had few believers. But in March 2021, the market entered hype mode, with monthly sales on OpenSea jumping to nearly $150 million, up from just $8 million two months prior.

Iranian crypto entrepreneur Sina Estavi got swept up in the frenzy, buying Dorsey’s NFT for $2.9 million. He tells Forbes he paid such a hefty sum due to the NFT’s uniqueness and association with such a valuable company as Twitter.

While you could argue that Dorsey’s first-tweet NFT has historical significance, the $2.9 million price tag is nearly impossible to justify. The bubble price Estavi paid epitomizes the greater fool theory at work. “What is the utility of that NFT?

Does Jack Dorsey take you out to dinner in Silicon Valley?” says Mitch Lacsamana, an NFT collector and head of marketing for an NFT trading group. “What is the real value proposition here? I think time has probably told us, and it’s probably nothing.”

On April 5, Estavi put the NFT up for auction for 14,969 ether, or about $50 million. Embarrassingly, no one bid more than $280. Estavi says “no one knows” why the bids came in so low. It seems that few people took it seriously. “Bidders just realized what it was–a publicity stunt. A way to get exposure,” says Blake Moser, an NFT collector who has nearly 400 NFTs. “I do think Sina Estavi accomplished what he was looking for–exposure to his NFT.”

Estavi has indeed gotten attention, but he seems severely out of touch with the rapidly changing NFT market. “The market isn’t ready to jump into literally anything that a celebrity or someone of high stature might release,” Lacsamana says. “I think last year was a really good time for that, but a lot of people have grown weary of cash-grab tactics.”

While the failed auction shows that NFT hype has waned, the market is still very active, with trading volume hovering between $2 to $3 billion a month on OpenSea, up from $150 million a year ago. Prices for some NFT collections like the Bored Ape Yacht Club remain near all-time highs.

Estavi’s NFT saga seems to be a case of an ill-advised $2.9 million purchase, buyer’s remorse and a new bid for attention. Estavi himself has a sketchy history. His startup, Oracle Bridge, says it will allow blockchain platforms to ingest data more easily, but today it seems to be little more than a white paper.

Estavi also claims he was arrested last year in Iran and had to shut down the company for nine months while he was in prison. “They accused me of disrupting the economic system,” he says vaguely. Now he’s trying to start the company up again. Over the past day, bids for the Dorsey tweet NFT have risen to about $10,000. Estavi says he won’t sell for anything less than $50 million.

I lead our fintech coverage at Forbes and also cover crypto. I edit our annual Fintech 50 and 30 Under 30 for fintech, and I’ve written frequently about leadership and corporate

Source: Why Jack Dorsey’s First-Tweet NFT Plummeted 99% In Value In A Year

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Critics: By:

NFTs are traded in NFT marketplaces, which have structured platforms like eBay’s. Most NFTs are sold via auctions, although some sell at fixed prices. Some marketplaces specialize in a type of NFTs, e.g., art, games, sports, whereas others sell everything.

If you wish to create a new NFT (called minting) you can do so through any of the marketplaces. The largest marketplace is OpenSea, which in 2021 had about a 90% market share by dollar trading volume across marketplaces. 

There are fees for creating and trading NFTs, from upfront account setup fees and minting fees to sales fees. If you are going to create or trade NFTs, make sure you know a marketplace’s fee structure. To get a sense of fees collected, OpenSea collected about 8% of its sales volume in fees in January.

There may also be royalty fees (usually 10-30% of the sales price) that go to the original creator of an NFT every time a transaction in that NFT takes place. 

Through 2021, the top ten NFT collections had over $15 billion in historical trading value and around a 60% share of the total NFT market. The dominance of a few collections in the market is most likely due to a preference by NFT speculators to trade within collections. It is easier to value an NFT from a collection because there are other NFTs to compare it to.

It follows that, of the money a minority of traders make speculating in NFTs, most of it is from trading within collections. Clearly, informed traders know where the money is, but it is hard to believe that the market can absorb as many collections as there are today: 3,264, up from 193 a year ago. At some point, having so many collections defeats their purpose.

The evidence from the previous study is clear: most NFT speculative traders do not earn a positive return. From an investing perspective the results are unfortunate, but not surprising. Another aspect of trading in NFTs is that fraud within the NFT ecosystem is said to be rampant. The potential for “bad actors” to engage in nefarious selling and trading of NFTs (including counterfeit tokens or assets they don’t actually own) was described as a “contagion” by the CEO of one NFT platform.

The result is a situation where your NFT purchase could end up being worthless. Combining the difficulty of earning a positive return and the inherent risks, NFT trading is not a good proposition, so stay away. They have all the signs of being an investing fad that will likely pass.

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2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

Every month, there are thousands of searches in Google for terms related to: “Is there a housing bubble?” Clearly, it’s a question on many people’s minds. For this to be a bubble, it’s not just about high prices; investment needs to be driving demand way beyond where it should be.

So, is there a real estate bubble?

I don’t believe there is. Home prices are unlikely to fall by any significant measure. At best, prices will rise more slowly, at a rate that outpaces inflation (just not to the same extreme as this year).

It’s worth keeping in mind that historically speaking, housing bubbles have actually been quite rare. They may feel common because we all lived through one – but the 2007 crisis happened due to a series of events and decisions (such as relaxed lending standards) that would not occur today.

Have lenders been unscrupulous in who they lend to? It doesn’t seem so. Buyers today are extremely qualified. The median FICO for current purchase loans is about 42 points higher than the pre-housing crisis level of around 700, according to data from the Urban Institute.

There were many regulations and restrictions put in place after the 2007 crisis to help maintain a healthy housing market (such as Dodd-Frank) – and many banks were fined millions and even billions of dollars for their participation in lending fraud. They’re wary of getting fined again and so they opt to hold home buyers to high standards.

Speculation was rampant in the early 2000s. Adjustable rate mortgages, which tempted buyers with low introductory interest rates that rose dramatically once homeowners were locked into paying them, were much more popular (and much less regulated).

When interest rates drop, it encourages more investors to enter the market – because they can risk less of their own cash to do so. However, experts seem to unanimously agree that interest rates are going to rise by up to a full percentage point this year. This will help discourage overly-speculative investing as borrowing becomes more expensive – helping to stave off the possibility of a bubble.

The housing market collapsed in 2007 in part because many consumers had almost no equity in their homes – people were buying homes with no money down, and the riskiest mortgages required little proof that buyers could actually afford them. When the housing market was good, it was easy to simply turn around and sell your home if things didn’t work out.

But once the market dipped, many people discovered that their loans were worth more than the homes themselves. Since they had almost no equity in their homes, this meant they couldn’t sell without going into debt – making foreclosure the only option. Today, the average homeowner has over $150,000 worth of equity in their home – an all-time high, which is good.

In the years leading up to the housing crash, new home construction outpaced demand – which contributed to home prices dropping precipitously. Since then, however, new home construction has lagged behind, failing to keep up with a growing population. According to the National Association of Home Builders, the U.S. went from averaging between 9 and 11 million housing starts per decade throughout the 1960s to 2000, to just under 7 million homes during the 2010s.

Increased building regulations, the rising price of lumber/materials/labor, and lingering hesitation due to the crash all contributed to this – and as homes became more expensive to build, home builders were incentivized to build luxury homes rather than starter homes. While the construction industry seems to have hit a recovery point (almost a million homes were built last year), it will likely take years for supply and demand to balance again.

Will Home Prices Drop in 2022?

I’ve talked to experts in multiple real estate markets throughout the country. While some areas are hotter than others, one trend remains clear: demand is high and will likely remain high. Millennials and Gen Z are “coming of age” and placing more emphasis on owning homes as they form new households.

Meanwhile, the latest data from Zillow shows that the number of homes for sale in the U.S. dipped below one million this past December. For comparison: before the crazy bidding wars of 2021, there were an additional 220,000+ homes for sale a year earlier. Demand has yet to decrease, and inventory has actually dropped.

We’re still seeing buyers waive inspections, go all-in with their offers from the start rather than escalate, and go over the appraised value – and it’s been an entire year of this.

So when can we expect home prices to drop, or at least stop climbing so rapidly? My guess is that prices are unlikely to experience a notable dip within the next 5 years. However, we’ll eventually see the market reach more of an equilibrium between buyers and sellers. We can expect such a shift once certain things take place:

  • New home construction continues to increase, helping meet demand (and/or)
  • New technologies like home printing decrease the cost of production (and/or)
  • Cities alter outdated zoning laws to better accommodate growing populations (and/or)
  • Baby boomers – who own much of the US housing stock – begin aging out of their homes

All of these things have the potential to greatly impact the housing market, but none of them are happening overnight. We also don’t know what the average mortgage rate will look like in five years, but that could have a major impact on demand as well.

If you plan on buying a home, you shouldn’t delay meeting with an agent to discuss your options. If you’re thinking of waiting until home prices drop: don’t. You might end up renting forever.

I am the cofounder and CEO of Houwzer, a modern, socially responsible real estate brokerage and home services company focused on consumers. I am

Source: 2022 Housing Market: Will It Continue To Bubble Or Will It Burst?

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Money Has Never Felt More Fake

Calvin Becerra went viral earlier this year for a less-than-ideal reason. He got bamboozled out of what he claims is some $2 million in cryptocurrency and NFTs and complained on Twitter about the incident. Scammers pretended to be interested in buying one of his NFTs in a Discord channel and tricked him by saying they could help him fix a problem with his crypto wallet. During troubleshooting, they raided his wallet. The experience, he says, “felt like death.” He’s gone to great lengths to get the stolen digital assets back, paying hundreds of thousands more dollars to retrieve the tokens, including, most importantly, his three bored apes.

For many outsiders, it’s hard to grasp paying so much money for a trio of cartoon monkeys once, let alone twice. At some point, you’ve just got to let sunk cost be. But Becerra, 40, insists it’s worth it — he believes in NFTs, or at the very least, the moneymaking power of them. “They’re important to me because of the value that they will continue to increase by,” he says. “They’re huge.”

He’s right that NFTs — non-fungible tokens, little digital assets that exist on a blockchain — are having a moment. What’s not really clear is why. Then again, everything about money feels a little strange at the moment. Between NFTs, crypto, and GameStop, AMC, and other meme stocks, money has rarely felt more fake. Or, at the very least, value has rarely felt so disconnected from reality.

The concept of value is a fuzzy one, and valuation is often more art than it is science. Psychology has always played a role in money and investing — and there have always been bubbles, too, where the price of an asset takes off at a rapid pace and disconnects from the fundamental value. As Jacob Goldstein wrote in Money: The True Story of a Made-Up Thing, all money is sort of a collective myth. “Money feels cold and mathematical and outside the realm of fuzzy human relationships. It isn’t,” he wrote. “Money is a made-up thing, a shared fiction. Money is fundamentally, unalterably social.”

The social aspect is clear in much of what’s going on now, whether it be a group of investors on Reddit trying to take down a hedge fund betting against GameStop or people paying thousands of dollars to claim ownership of digital art they could effectively have for free. But why certain groups of people have trained their focus on certain items is hard to parse. Becerra insists there’s a utility to the apes — there’s merchandise, events, and he sees having them as the “new world flex,” like a watch or a nice car. “Everything’s hype, a social media world, right?”

Lately, the hype aspect of money has felt more true and important than ever.

It’s been a weird year in money

Historically, the economy was theoretically based on labor and value creation at the individual level, and on the structural level, voting shares in companies based on their financial fundamentals and future value, said tech industry veteran Anil Dash, CEO of the programming company Glitch. But that idea died long ago. “A machine is what it does, and the purpose of the system is the output of the system. And the purpose of our financial systems … is to create ever more detached financialization that can just generate what the industry calls wealth and what the rest of the world just doesn’t see.” In other words, the confusing status of value today is a feature, not a bug.

You can see this clearly in the markets in 2021. One of the first big stories of the year was the GameStop saga, and it was a fun one. An army of day traders on the Reddit forum r/WallStreetBets drove up the price of the game retailer’s stock in a matter of days, forcing halts in trading and costing some hedge funds that had been betting against the stock quite a bit of money. They rallied behind a guy who goes by Roaring Kitty; in one YouTube video about GameStop, he pretended to smoke a cigar while wearing a cat mask.

There have been all sorts of efforts to ascribe some bigger takeaway to the GameStop story — perhaps it was a populist uprising or a sign that there was something very broken in the market. But generally, most of the efforts to pull a concrete meaning out of GameStop fall flat. It was a relatively ephemeral incident where, as is often the case in investing, there were some winners and some losers. GameStop’s stock price has remained relatively high, compared where it was before January 2021, because enough investors have stuck around to keep it there.

GameStop has come to epitomize an era of meme investing, where ordinary investors are piling into stocks and cryptocurrencies and digital assets not necessarily because they believe in the underlying value of the thing they’re buying (though some do) but instead because it just seems like a thing to do. Dogecoin or NFTs or stock in theater chain AMC get popular online or in their social circles, and they turn around and think, why not?

“For a huge swath of the retail world, the mentality has merged of what is trading versus what is investing versus what is essentially just gambling,” said Tyler Gellasch, executive director of Healthy Markets, a nonprofit.

The scenario has generated quite a bit of fingerwagging from Very Serious People who say what’s going on is beyond the pale, that investing is supposed to be about underlying value and the real, tangible worth of a thing. NFTs and Shiba Inu coin, they say, are clearly fake. At the same time, so is so much of what’s going on in finance and the economy already — including the spaces the Very Serious People occupy.

During the 2008 financial crisis, for example, exotic financial instruments created out of subprime mortgages among Wall Street and banks helped take the economy down. They also revealed regulators to be asleep at the wheel. Very recent history makes it hard to take the Very Serious People in finance and government seriously as responsible stewards of the global economy. The financial industry has gone to great lengths to create new financial products with the potential to do more harm than good in the name of making more money.

“To have a boomer burn down the planet and then have them wag a finger that crypto’s bad for the environment? Please, that’s absurd,” Dash said.

“Money feeling strange in 2021 is based on a decade of money slowly feeling strange for lots and lots of different people throughout the world,” said Lana Swartz, an assistant professor of media studies at the University of Virginia who focuses on money. “We’re at a stage where the government and financial institutions are revealed to be less dependable than we ever imagined they would be, so why not YOLO?”

A made-up quote from a 2021 Onion article gets at the attitude:

NFTs might be bizarre speculative bullshit, but what isn’t? Aren’t we all just finding ways to turn everything that exists into something we can make money off of? I might be throwing away thousands of dollars on NFTs, but you’re throwing away thousands of dollars on TSA PreCheck or lottery tickets or donating to political candidates or raising children. Critics will say NFTs are wasteful and can be used for fraud and other crimes—fine, yeah, find me something that isn’t?

The view may be nihilistic, but in the current scenario, it isn’t entirely wrong. So much of the economy feels like a scam — the gig economy, student loans, the hope of retirement, a 9-to-5 job. Consumers are always being tricked and squeezed by corporations. The promise of the middle class is fading fast, so for a lot of people, it just feels like you might as well lean into whatever financial chaos is available to try to hit it big. If housing prices are so high you’re never going to be able to own a home, why not try your hand at real estate in whatever the metaverse is?

Crypto feels like a scam. So does a lot of the economy.

It’s easy to be dismissive of the current state of casino capitalism, where random people are just tossing random money at random anything. It’s also relatively easy to recognize that this landscape is likely to be one where there are few winners, and the winners are probably going to be the people who were already winning, financially.

“For every one person that makes money, you have 100 people that have lost money. It’s basically just a giant wealth redistribution scheme,” said Stephen Diehl, a software engineer in London who recently laid out a scathing and widely read critique of the crypto asset bubble. “Why it seems so fake is nobody can quite figure out what these things are, and they’re being presented to different people with different stories.”

Dash is one of the originators of the NFT concept, but he worries about the clearly fraudulent nature of some dealings in the market. “They had to coin the phrase ‘rug pull’ to describe the fraud that happens in NFT communities because that type of thing is so common. What does that tell you?”

Value is ultimately a story, one we tell to ourselves and to others. In the United States, we’ve convinced ourselves of the story of the dollar, which is backed by the full force of the US government. But it’s ultimately just a piece of paper. Cryptocurrencies and NFTs and AMC all come with their own stories, which, admittedly, can be on the kooky side.

There’s more to the current money landscape than dogecoin and meme stocks that makes the whole thing seem a little fake. The stock market soared during much of 2020 and 2021, even during the depths of the pandemic, making it hard not to wonder what the whole thing is for. The federal government was able to deliver a lot of money through monetary and fiscal relief to keep the markets — and regular people — afloat. It’s a lesson that when the government needs to find money, it can. But whether or not the influx makes money feel fake depends on your perspective.

“Isn’t this the year that money has felt most real?” said Mike Konczal, director of macroeconomic analysis at the Roosevelt Institute. “Child poverty cut in half, unemployment insurance capable of giving workers actual bargaining power for a change, real wage increases across the majority of people, wealth doubling in the bottom 50 percent.”

It’s a strange place we’re in, which might explain why these tangible improvements don’t seem to dislodge national feelings of alienation. The state of the world and the economy can feel really hopeless. There’s mass distrust in institutions and in government, and economic mobility is increasingly hard to achieve. We’re in the midst of a pandemic that doesn’t look like it’s ever going to really end. NFTs feel like a scam, but then again, so does everything.

Becerra appears determined to stick with NFTs, despite having been very publicly scammed. After all, he’s gone to great lengths to get his bored apes back. When he talks about them, he vacillates between speculator and true believer, in one moment saying he plans to sell them if the price gets high enough, in another talking about them with quite a bit of affection.

“I’m not holding this forever. I don’t care about those apes that much, you know?” he said. He knows the hype could fade. Maybe that will take the sudden value of his cartoon monkeys with it; maybe it won’t. However, he considers the apes to be “blue chip” NFTs, a designation that in the stock world would put them on the same level as well-established major corporations such as Apple and Berkshire Hathaway. “That’s why someone like me, who has money, invests only in the blue-chip ones.”

Most of this is probably a bubble

Becerra, who describes himself as a motivational speaker, high-performance coach, and entrepreneur, compares the current moment in crypto to the 1990s. “This is our dot-com boom,” he said. Of course, the dot-com boom ended in a bust.

It’s impossible to look at what’s happening in investing now and not think that that the prices on many of these assets are divorced from their actual worth. The value of random NFTs and cryptocurrencies skyrocket seemingly out of nowhere, sweeping up hundreds and thousands of people in the process. Sometimes, the bubbles burst fast because the investment falls out of fashion or it winds up being a pump-and-dump scheme, where fraudsters are creating a buying frenzy around certain assets only to suddenly dump them and flee. The broader crypto bubble is still inflating.

If NFTs and crypto, as a concept, prevail, it’s unlikely all of the current projects and fads will. Everybody’s hoping they’ve got a golden ticket, or at least a gold-plated ticket, that they can sell before everyone else realizes what they’ve got is a fraud. Some people in the industry acknowledge that most of this stuff is likely to implode.

“The parallels with the dot-com boom are very apt, the reason being that like 99 percent of these coins out there are going to be worth zero in 10 years. But the ones that remain, the companies that remain … those are going to survive and create long-lasting things that change our lives,” said Jim Greco, managing director of crypto trading at Radkl, a digital trading firm. “Amazon survived the dot-com boom.”

If you buy into the idea that a lot of this investing is pretty divorced from reality, then the question is how long this lasts. For now, the music’s still playing, so people are dancing. How long the song keeps going depends on how long the people holding onto the assets can keep singing.

“It’s really incumbent on people who hold these investments to perpetuate their value, whether that’s through evangelizing to other people or by building systems to make it usable and useful and relevant,” Swartz said. “But then in order to realize the value, to translate it into money, you have to sell it.”

If and when the bubble around some of these hyped investments bursts, a lot of people are going to get hurt and lose money. In NFTs, evidence suggests those who are already wealthy and powerful are the ones ruling the roost, just like in the stock market. While there are true believers in crypto projects, so much of it is just speculation, and venture capitalists and hedge funds are more likely to win the speculation game than the little guys caught up in the mania.

Hilary Allen, a law professor at American University who specializes in financial regulation, said the risk around so many speculative and contrived investments on the market is more tied to the potential ripple effects. Essentially, is the current moment the dot-com bubble or the lead-up to the 2008 financial crisis?

“If it’s just a dot-com bubble, it sucks for the people who invested,” she said. “But if it’s 2008, then we’re all screwed, even those of us who aren’t investing, and that’s not fair. It really depends on who’s getting into this and how integrated it’s getting with the rest of the financial system.”

Emily Stewart

Emily writes about the intersection of business, politics, and the economy. She is specifically interested in how people experience the forces of capitalism and money. Prior to joining Vox, Emily covered politics at The Street, including the rise of Donald Trump and the stock market’s reaction to politics and policy. She graduated from Columbia University and resides in Brooklyn, New York.

Source: From crypto to meme stocks to NFTs, money has never felt more fake – Vox

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