Poor Little Rich Kids.

November 20, 2008 4:05 PM

Influential billionaires like Carl, Thomas, Kirk, and Warren have been losing their shirts. And it's being felt around the world.

Warning - First link plays video immediately and without warning.

posted by gman (60 comments total)

Forget the billionaires. Most Americans are "rich" in the eyes of about 1/3 of the world. Poor little rich kids indeed.
posted by stbalbach at 4:16 PM on November 20, 2008

stbalbach - see the 'losing their shirts' link.
posted by gman at 4:18 PM on November 20, 2008

Jim Rogers, on the other hand, has been Cassandraing this mess for a while... he's probably fine. He also wears a bow tie.
posted by qvantamon at 4:22 PM on November 20, 2008

Forget the billionaires. Most Americans are "rich" in the eyes of about 1/3 of the world. Poor little rich kids indeed.
posted by stbalbach at 4:16 PM on November 20 [+] [!]


stbalbach - see the 'losing their shirts' link.
posted by gman at 4:18 PM on November 20 [+] [!]

Tangent:

Screw that, everyone keeps talking about "rich people" in this Country and the 250k mark for the top 5%. I don't know about you but I always use the 80th percentile (thus saying the top 20% of the population are considered "rich"). That mark sets people at 88k combined household income. Yes that means my public-school-teacher parents making 46k and 43k put us in the rich category in America (this is all 2004 statistics btw).

And you know what? It's absolutely accurate. We were rich. Every single friend I had more money but I my parents never let us forget how fortunate we were. We were "rich." The problem is everyone always considers "rich" to be whatever group is above them.

Note: That was an unfair generalization, but whatevs.
posted by Lacking Subtlety at 4:25 PM on November 20, 2008 [1 favorite]

Every single friend I had, HAD more money but I

there. fixed
posted by Lacking Subtlety at 4:27 PM on November 20, 2008

Every single friend I had, HAD more money, but I my parents...

there. fixed
posted by gman at 4:35 PM on November 20, 2008 [1 favorite]

so, uh, are we near a bottom yet? I mean, we have to be, right?
posted by empath at 4:38 PM on November 20, 2008

The funny thing about wealth is that it doesn't show unless you spend it.

I've heard that when universities look to get donations from alumni, they don't focus too heavily on the really rich folk, because those people are often living from (enormous) check to check. The upper-middle may look like a drab bunch, but they're often the ones to be saving money for the future, living more frugally for their future well-being.

That said, when the rich are down on their luck, that's less for them to spend investing in other things, and stories of the rich not doing well can take a toll on the mental status of a nation. If Hollywood stars stopped throwing lavish parties and driving fantastic cars, instead appearing in grocery stores to do their own shopping and maybe even taking the bus somewhere, things will indeed be dire.
posted by filthy light thief at 4:42 PM on November 20, 2008

Yes that means my public-school-teacher parents making 46k and 43k put us in the rich category in America (this is all 2004 statistics btw).

Well, wealth is "living well" ie. simply the state of having your wants and needs met, which generally results in surplus income over expenses while still maintaining a "normal" non-deprived standard of living.

Being *rich*, on the other hand, is simply having one's passive income meet one's consumption. That's what I consider upper class -- not having to earn wage income to live well.

are we near a bottom yet? I mean, we have to be, right?

I am familiar to some extent with Elliot Wave analysis, the dreaded "Wave 5 Down".

Emotion trumps logic in the market. This decline since late September has been utterly stunning . . . a real "black swan" event. The market is so incredibly oversold we are actually outpacing the 1929-1930 crash now.

The market closed at 800 and change in Oct 2002. M3 was $7T back then, it is over $14T now. By all rights there should be no way no how the market is this freaking low, except for fears of a consumer pullback similar to the 1930s or Japan in the 1990s.

Both the above pullbacks were due to personal and corporate debt overextension, which ruined many many people when the music stopped in 1929 (or 1989/1990 in Japan).

My prediction back in June was S&P 500 at 1050 by end of the year. We could entirely be back there again based on fundamentals . . . fundamentals being that we are NOT repeating a 1990s Japan "fukeiki" (negative economy) and that this month's market is irrationally pricing in future events that will not come. Chances are 50-50 about this I think.
posted by troy at 4:48 PM on November 20, 2008 [2 favorites]

So there is 7 trillion dollars of missing money? Where is it?
posted by empath at 4:50 PM on November 20, 2008

We are all Icelandic now.
posted by R. Mutt at 4:51 PM on November 20, 2008 [4 favorites]

So there is 7 trillion dollars of missing money? Where is it?

Sorry! My bad! I left it on the nightstand!

*puts 6 trillion dollars back*
posted by It's Raining Florence Henderson at 4:54 PM on November 20, 2008

Chart comparing 4 market downslides. This market is running sixty days ahead of the 1929-1930 crash.
posted by troy at 4:54 PM on November 20, 2008 [3 favorites]

Here is a graph showing how much people in the UK typically have tucked away in savings. We shall not speak here of debts or tanked pension funds but they probably don't make the picture any brighter. I believe some editors - and many people in the street- believe that the credit crisis is only about CEOs, oligarchs and merchant bankers because they are the ones who have enough tucked away to say that they have made a dramatic loss.
posted by rongorongo at 4:55 PM on November 20, 2008

So there is 7 trillion dollars of missing money? Where is it?
the question
posted by clavdivs at 4:56 PM on November 20, 2008

Jim Rogers, on the other hand, has been Cassandraing this mess for a while... he's probably fine.

Maybe yes, maybe no. He's been touting commodities for years. His RICI index is down some 30% this year. Better than the S&P, but still- not happy making.
posted by IndigoJones at 4:58 PM on November 20, 2008

So there is 7 trillion dollars of missing money? Where is it?

Fuck if I know. It's not missing but it sure isn't coming into the stock market yet. M3 is the global stock of USD and includes China's foreign reserve holdings, which are over $2T in value (but a lot of that is treasuries). AFAICT the only entity that can zero-out M3 is the Federal Reserve, by selling treasury securities on the open market and then incinerating the money taken in.

This chart shows how money supply GROWTH has been slowing this year, down from 18% (~2.5T/yr) YOY to 10% ($1.4T/yr) now
posted by troy at 4:59 PM on November 20, 2008

'Rich' ≠ Earning $50k/year and "owning" a million dollar home.
posted by gman at 5:00 PM on November 20, 2008

I want to feel the rich guys' lost shirt!

Or did I misunderstand?
posted by Astro Zombie at 5:02 PM on November 20, 2008

so, uh, are we near a bottom yet? I mean, we have to be, right?

Nobody knows, and no.

Any stock that isn't paying a dividend has no intrinsic value. "Valuations" are based on mutually shared delusions.

The market will bottom out when we all agree to start deluding ourselves again.
posted by tkolar at 5:05 PM on November 20, 2008

Does anyone actually call T. Boone "Thomas"?
posted by mullacc at 5:07 PM on November 20, 2008

If I remember correctly ... I was in a punk band called the mutually shared delusions.
posted by R. Mutt at 5:10 PM on November 20, 2008

Not in the top 20% either, huh. Thank Allah we have a socialist in the White House.
posted by DU at 5:18 PM on November 20, 2008

Chart comparing 4 market downslides. This market is running sixty days ahead of the 1929-1930 crash.

Hey, that was cool. Thanks for posting it.
posted by tkolar at 5:19 PM on November 20, 2008

Can someone just mefimail me when I am supposed to cry?
posted by cjorgensen at 5:25 PM on November 20, 2008

Every single friend I had, HAD more money, but I my parents...

there. fixed
posted by gman at 4:35 PM on November 20 [1 favorite -] Favorite added! [!]

very much noted
posted by Lacking Subtlety at 5:25 PM on November 20, 2008

Being *rich*, on the other hand, is simply having one's passive income meet one's consumption.

Well, in that case I look forward to being rich as soon as my kids move from private pre-school to public elementary school!

not kidding about this -- operating at a net loss over here
posted by davejay at 5:26 PM on November 20, 2008

Does anyone actually call T. Boone "Thomas"?

His family, Wikipedia, and me.
posted by gman at 5:31 PM on November 20, 2008

Jim Rogers, on the other hand, has been Cassandraing this mess for a while... he's probably fine.

I love Jim Rogers, but he's definitely not doing fine currently. He bought a ton of commodities (ag and metals), as well is heavily China (he's the biggest China cheerleader there is on the runup and has not sold a single share). Have you seen the Hang Seng Index or Shanghai lately? He probably lost the most out of this group of people. However, once we get out of a recession, he's probably the most likely to win the most. He's investing in things with good underlying value, but short-term is screwed. He's a little early, the China boom and hyperinflation will only happen after the deflation and dollar strength dies down when the global recovery starts. The extra dollars are much needed right now and won't matter in a recession. I hope he has incredible patience, because it might be a while.
posted by amuseDetachment at 5:40 PM on November 20, 2008

Any stock that isn't paying a dividend has no intrinsic value.

Nothing has an intrinsic value.
posted by empath at 5:46 PM on November 20, 2008

Someone ought to craft a post about that and the commodification of water as a means of the wealthy securing their wealth in the coming lean years.

Believe it or not, there's actually a fabulous Broadway musical about this topic from 2001. So why post about it when you can sing about it?
posted by Asparagirl at 5:46 PM on November 20, 2008

Nothing has an intrinsic value.

Beer does.
posted by stavrosthewonderchicken at 6:30 PM on November 20, 2008

Only for a while. Then it has an extrinsic value.
posted by It's Raining Florence Henderson at 6:37 PM on November 20, 2008

Nothing has an intrinsic value.


Labor does.
posted by eparchos at 6:38 PM on November 20, 2008

If Hollywood stars stopped throwing lavish parties and driving fantastic cars, instead appearing in grocery stores to do their own shopping and maybe even taking the bus somewhere, things will indeed be dire.

Funny you say that. I'm a production assistance for a company that designs and executes such parties, and things are not going so well. This month is usually a big month for ridiculous parties and instead of being sleepless and busy I am sitting around without any work. I don't know about fancy cars or organic specialty food, but the lavish party business is not going so well.

I wouldn't say that things are dire just yet, but I'm starting to worry that maybe they are.
posted by fuq at 6:45 PM on November 20, 2008 [2 favorites]

After the Crash of '29, stocks trickled lower over three years, so that they ended up at about a third of what they were at the close of Black Tuesday.

Translation: we could easily go much, much lower.
posted by lupus_yonderboy at 7:05 PM on November 20, 2008

Labor does.

Tell me that again when you spend 40 hours making something nobody wants to buy.
posted by mkb at 7:10 PM on November 20, 2008

I figured the "Thomas" link was about Tom Friedman. For those that don't know, he's a gold digger who married an heiress. Except the company his wife owned (the largest operator of Malls in the US) has Lost 99% of it's value, and in the past few days has been meeting with bankrupts lawyers. (the article was written last week, since then the stock has dropped to 50¢)
posted by delmoi at 7:11 PM on November 20, 2008 [1 favorite]

Actually, nothing has lots of intrinsic value.
posted by 0xFCAF at 7:13 PM on November 20, 2008 [1 favorite]

Oh as far as the bottom goes, remember that lots of baby boomers who kept their money in the market have taken it out, and as they near retirement they won't be putting it back. That money is gone from the market.
posted by delmoi at 7:14 PM on November 20, 2008

Your koan is valueless to me.
posted by maxwelton at 7:15 PM on November 20, 2008

Labor does.

Tell me that again when you spend 40 hours making something nobody wants to buy.

Are you getting paid for it?
posted by eparchos at 7:22 PM on November 20, 2008

and as they near retirement they won't be putting it back. That money is gone from the market.

Are they taking that money and setting it on fire? Or are boomers just not buying any good and services that come from businesses who pay people who invest in the market?
posted by 0xFCAF at 7:23 PM on November 20, 2008

so, uh, are we near a bottom yet? I mean, we have to be, right?

http://www.bottomlesspit.us/
posted by gman at 7:33 PM on November 20, 2008

Where did the seven trillion go?

Well, it was never there to begin with. 1998! October 7th! Black Tuesday! This was the beginning of a severe market correction. It was caught up short, strangled, shot, wrapped in a carpet and dumped in the lake... here in the US. In the rest of the world, it was "Asian Contagion" as the emerging markets, the "Tiger Economies" fell back to earth.

It was the sound of Japan's economic armageddon coming home. It cemented the democratic rule of South Korea and Taiwan, and doomed it in Russia.

In the US, we kept on keeping on, until 2001, when Osama pulled his little stunt... and, oh, yeah, Enron decided they were going to make themselves rich by manipulating the market and bankrupting the dot-commie California economy with rolling blackouts and through-the-roof energy costs.

The market corrected there. A leetle bit. Enough to put the nerds out of work... and to make Atlanta and NOVA the new economic hubs. Rise of the new south, amirite?

Welllll.... not so much. The Fed, at the top tier, was, as the British say, playing Silly Buggers with interest rates. The lower echelons, the directors of the Federal Reserve Bank, did their damndest to keep the whole thing going. But it wasn't enough, nothing could be enough as lax congressional and executive oversight allowed the real-estate and commodities bubbles to grow unchecked. When they popped.... all gone!

Now it gets worse. There was a third bubble, and we didn't even know it was a bubble until now. The equities market. Stocks and bonds. Overvalued, artificially inflated. Now the correction comes, and it is terrible. We will see a reset to Oct. 27, 1998, and then build from there... the Bush years have been for naught. Greenspan has been for naught. The invisible hand smacketh.

Lady from the Census Beaureau was here today, at my new Apt., asking us questions (no lie!). Her speciality is Unemployment Data. She says her dept. is projecting 10% unemployment nationwide before the end of next year, RI is already at 8.8%. 15% nationwide if the Big Three go under. The Great Depression had 20% unemployment. Would we like a brochure on how to find genealogical data online? The class of 1930 will be up by March, isn't it exciting?
posted by Slap*Happy at 7:41 PM on November 20, 2008 [2 favorites]

During the first half of the year, I kept hearing how Houston was weathering the economy because they were buoyed by the high price of oil. They've got to be hurting now, but I haven't seen anything to back up the assumption.
posted by drezdn at 8:00 PM on November 20, 2008

"Nothing has an intrinsic value" has an intrinsic value.
posted by zippy at 8:01 PM on November 20, 2008

I have no idea when the market will hit bottom. It could have happened today or it could be a year from now when the Dow hits 3000. But I do know that Elliott Wave analysis is a bunch of mystical nonsense. You can take a historical chart and parse it minutely enough to come up with a bunch of waves that fit the supposed pattern... but I can more or less accurately describe the motion of the planets in the heavens based on the assumption that the earth is the center of the solar system, too, but that doesn't make it so.

Elliott Wave can't predict, it can only overfit past data.
posted by Justinian at 8:08 PM on November 20, 2008

Justinian: Elliott Wave works great, provided that it's before 1997. Before the mid-late 90s, the Elliott Wave models broke down. Go ahead and backtest the models, your simulated models will make tons of cash by applying the theories before '97. Something happened between 1995-2000 to cause the results of Elliott Wave to become a lot messier and the gains from those models are a lot less reliable (I have no idea why).

I do agree that it's somewhat worthless to apply these days, though.
posted by amuseDetachment at 8:33 PM on November 20, 2008

Nothing has an intrinsic value.

Yes, but stock valuations are an illusion of value within the illusion of meaning.

Oddly enough, this means that the illusions cancel each other out and stock valuations are in fact the only meaningful thing in existence.
posted by tkolar at 9:36 PM on November 20, 2008

I figured the "Thomas" link was about Tom Friedman. For those that don't know, he's a gold digger who married an heiress.

I had no idea. Suddenly, his columns make sense.
posted by krinklyfig at 10:16 PM on November 20, 2008

Go ahead and backtest the models, your simulated models will make tons of cash by applying the theories before '97.

But that's the thing. You can't backtest models like that any more than you can test heliocentric epicycle theories of planetary motion by testing against previous data. You'd conclude that, hey, the heliocentric model seems to have been true up until we very recently discovered some weird movements it does't account for. So obviously the heliocentric model was correct but something changed to make it less accurate.

The only real test for a model is whether it can account for future data. There is no value in a model of the market that accurately models past data but fails to accurately model future data. The entire point is to predict future movements. If you can't do that, all you're left with is an intricate system of epicycles showing the planets orbiting around the earth which accurately reflects past observed data... but which is fundamentally in error and doesn't reflect reality at all.
posted by Justinian at 10:36 PM on November 20, 2008 [1 favorite]

For those that don't know, he's a gold digger who married an heiress.

No, she's an economist who married an economist who married an economist.

Or, of course, they just fell in love and got hitched.

If you want trivia on Friedman: his daughter's name is Orly. Orly Tubgirl Friedman.

OK, I made up the middle name.
posted by pracowity at 11:27 PM on November 20, 2008

I have a pretty difficult time generating any sympathy for people with billions of dollars. They may be stressed about losing wads of cash but they aren't going to go hungry or have to decide whether to buy groceries or put gas in the car.
posted by fenriq at 11:42 PM on November 20, 2008

It is so silly to value billionaires by the value of their stock holdings. The markets go up and down like the mood swings of a manic depressive, so there is no point looking at these valuations in the short term. I am sure Warren Buffett is happy as a clam at the moment, despite the short term trouble.
posted by LVdB at 12:47 AM on November 21, 2008

Justinian: Definitely true, but Elliott Wave was created way before '97, so any data after Elliott Wave was publicized will work. You're not testing whether it will work in the future, you're testing how long the models have worked since they were created. The key principle/gotcha of backtesting is that you training data cannot be your test data, and the training data was any time before Elliott Wave was published, and the test data is anytime after. The heliocentric model is exactly the point I was making, hypotheses work until you have new data that refutes it. My argument is that it worked up until '97-'98, and something happened, so you can't say that Elliott Wave is pure garbage handwaving "mystical nonsense", instead you can only say that it's irrelevant today.

Handwaving would be ascribing why it doesn't work today, which I've avoided.
posted by amuseDetachment at 1:22 AM on November 21, 2008

I am sure Warren Buffett is happy as a clam

Cold, alone, sitting at the dark muddy bottom of the sea with a big chunk of calcified irritant stuck in his craw.

No, I'm sure he is quite happy. He's about the most successful guy in the world at what he does, and if relative wealth makes you happy, well, he's never going to be poorer than we are, even if he just spends the rest of his life selling his excess stuff on eBay. And he's supposedly a simple guy: he likes to read, play the ukulele, and play bridge. He'd be rich if he were poor.
posted by pracowity at 1:28 AM on November 21, 2008

Are you getting paid for it?

Of course not, who would pay you to make something without any utility?
posted by mkb at 4:08 AM on November 21, 2008

> Are you getting paid for it?

Of course not, who would pay you to make something without any utility?

Bailout on aisle six, paging agent Ben for bailout on aisle six
posted by davemee at 7:02 AM on November 21, 2008

tkolar: Any stock that isn't paying a dividend has no intrinsic value. "Valuations" are based on mutually shared delusions.

Don't forget the company's assets. I mean, if a company has few excavators worth $130,000 and no debts, you'd expect the value of the company to be equal to or greater than the market value of those excavators.

I suppose you could argue that the excavators don't have intrinsic value either, if you are of the belief that nothing has intrinsic value.

There's also the the expectation of future dividends. I mean, a stock might trade at a few times its last annual dividend because those dividend payments are expected to continue. If dividends are expected to start or increase soon, you'd expect that to be reflected in the price too.
posted by Mike1024 at 10:36 AM on November 22, 2008