Post-2008 Wealth Creation: A Guide, Part 1

Entrepreneurship is too hard, America’s ‘pioneer spirit’ is gone, and the news is pretty much a waste of time. Blogging, writing, etc. also mostly a waste of time and usually doesn’t make money.

In our post-2008 winner-take-all, bigger-is-better economy and society, instead of trying to compete directly with the big and rich, why not piggyback off their success by buying the same rapidly appreciating asset classes that they use to become rich? That leaves two ways to make a decent passive income, or even wealth: real estate (which I already discussed several times here) and investing, also a popular topic here. Both of these take advantage of low interest rates, which boost asset classes. I imagine hundreds of millions of dollars of venture capital could have not been squandered on such duds as Ello (remember that?) trying to compete with Facebook or Google, by instead investing the money in index funds or real estate or returning the money to the investors.

Pre-2008 wealth creation: jobs (enough good-paying jobs, for all levels of intellect and credentials), entrepreneurship, investing (all stocks, all sectors), venture capital (all tech industries), real estate (all regions).

Post-2008 wealth creation: fewer jobs (but lots of low-paying service sector jobs, lots of credentialism and competition for medium-paying and even low-paying jobs, as the middle class gets squeezed and pushed to the periphery), real estate (especially in high-end regions like the Bay Area, Manhattan, Orange County, etc.; less expensive regions have failed to recover fully), investing (only index funds, large cap stocks with market dominance, NOT small or medium-sized individual stocks), venture capital (mostly Web 2.0, and only Uber, Snapchat, Air BNB, Dropbox, Pinterest, Slack, and a handful of others).

It’s obvious that wealth creation in post-2008 society is much more selective, choosy, and concentrated in fewer industries and sectors. It’s much easier to make mistakes when the targets are smaller. What worked decades ago likely will not work anymore.

From Post-2008 Capitalism: A Guide:

But overall, when pundits proclaim ‘capitalism is dead/dying’, they may be referring to an antiquated meaning or idealization of capitalism that does not take into account how capitalism is changing, but this does not mean capitalism is dead -hardly by any stretch of the imagination – instead, it’s evolving to a more efficient, technological, network-driven, ad-based, winner-take-all version of capitalism that we have now. Capitalism, like much of the post-2008 economy, has become bifurcated, with winners being high-IQ capitalists and ‘high-IQ’ capitalist endeavors, and less intelligent people and ‘low-IQ’ businesses are struggling.

Perhaps post-2008 capitalism is characterized by the following ‘themes’:

1. High-IQ favoritism – both in the business/investing world and individually, with smarter people and smarter businesses succeeding over their less intelligent peers.

2. Winner-take-all/bigger-is-better (small business failure at record highs, expensive real estate regions keep getting more expensive, Web 2.0 valuations at record highs for a handful of companies, etc.).

3. Flight to quality (similar to #2) – observed in the investing world, venture capitalism, Bay Area real estate, and strength of the treasury bond market & US dollar vs. weakness of foreign peers.

From 2014, The New Gilded Age; The Post-2008 Economy, Part 4:

The best investment strategy right now (and for many, many years to come) is to take advantage of the bigger is better market environment and go long large cap tech, such as Facebook, Google and or the S&P 500, while hedging it with a combination of emerging market short positions and or small cap shorts. Or you can short ALL markets excluding the US while going long the S&P 500. Since 2014, in the wake of the fear of recession in Europe and elsewhere, we’re seeing a huge flight to safety. Fund managers are taking money out of the smallest, weakest stuff and pouring into the safest and highest quality stocks, indexes and sectors such as the S&P 500, healthcare, biotechnology, and large cap technology such as Microsoft, Google and Apple. Again, this trend will continue of the big getting bigger and companies with huge growth and zero competition being rewarded with enormous but sustainable valuations. Such high-growth companies include Facebook, Snapchat, Uber, Tesla, Dropbox, Pinterest, Tinder, and Air B&B.

So far, two years later, that strategy has paid off handsomely.

And with the S&P 500 at new record highs (in agreement with my predictions), I remain optimistic [1] as ever about the US stock market (record high profits and earnings; globalization; strong exports and consumer spending), treasury bond market (‘flight to safety’ and ‘flight to quality’ due to weakness in Europe and emerging markets; global liquidity boom), and expensive real estate (due scarcity, rich foreigners, Web 2.0 boom in Silicon Valley).

Part Two will describe the specific method I and others are using to take advantage of this.

[1] Whether it’s finance, investing, economics, or HBD, Grey Enlightenment represents a reality-based approach divorced from wishful thinking and delusions. Or you can listen to losers at Zerohedge, who haven been predicting since 2009 a bear market, bond market collapse, and hyperinflation, to no avail. Same for Peter Schiff, who has also been wrong about everything since 2009 (as usual, Mike Stathis has the best takedowns of Peter Schiff and other losers who peddle overpriced gold and other bad investments).

Source: avaresearch.com

But anyway, the stock market is driven primarily by two things: profits and earnings. It doesn’t care about about student loan debt, wealth inequality, national debt, whether Trump or Hillary becomes president, the latest media-generated crisis or scandal, Europe, or whether some pundit (including even George Soros) is bearish – as long as profits and earnings keep rising, so too will stocks. As shown below, profits and prices are correlated:

There was a large divergence in the late 90′s during the ‘tech bubble’, but such a divergence doesn’t exist now, suggesting prices are aligned with fundamentals (not a bubble).