In this clip, Jordan Belfort gave advice on safely investing in the stock market, and he and Vlad agreed that the S&P 500 was the best way to go. Jordan explained that if you invest in the S&P 500 and hold onto it for 30 years, all while investing your dividends, you’ll be in good shape. Moving along, Jordan spoke about being a venture capitalist, investing in crypto, and writing a book, which you can hear more about above.
In this clip, Jordan Belfort detailed going from giving motivational speeches for free to charging over $200,000 an appearance after years of rebuilding his reputation following prison. At this point in life, Belfort explained how he doesn’t measure success simply in dollars and cents, but rather focuses on the carefree life he lives. Elsewhere in the clip, Jordan Belfort gets a little annoyed with Vlad and accuses him of pushing a particular narrative as a result of his line of questioning.
In this clip, Brittany Renner talked about launching her own podcast and working on the follow-up to her book. Brittany and Vlad also discussed investing and becoming financially independent. Later, she pondered about what advice she’d give any young aspiring IG model. While her answer seemed a bit cliche, it was the most important someone could receive: be yourself. Brittany talked about the importance of maintaining your identity and why it’s crucial in the world of social media.
This is the unemployment rate during the COVID-19 pandemic. And this is Amazon CEO Jeff Bezos’ net worth during that same time span. From March to June 2020, Amazon founder Jeff Bezos saw his wealth rise by an estimated $48 billion. The founder of the video-conferencing platform Zoom grew his nest egg by over $2.5 billion, and former Microsoft CEO Steve Ballmer’s net worth increased by $15.7 billion.
These kinds of examples might lead you to think that when billionaires profit during a crisis, it’s just a matter of right place, right time. Well, that’s not false, but it’s not entirely true either. Casino magnate Sheldon Adelson saw his wealth increase by $5 billion, while Elon Musk saw an increase of $17.2 billion. When you add up the numbers, billionaires in the United States have increased their total net worth $637 billion during the COVID-19 pandemic so far.
At the same time, more than 40 million Americans filed for unemployment. With tens of millions of Americans out of a paycheck and the stock market plummeting by 37% in March, how is it that the rich have continued getting richer?
This isn’t the first time billionaires have seen gains while a large portion of Americans were feeling losses. When the housing bubble burst in 2007, home prices fell 21% and roughly 3.1 million homes were foreclosed on in the United States. The stock market plummeted by over 50%. And by the end of 2009, 8.8 million Americans had lost their jobs. And the effects lingered. From 2009 to 2012, the incomes of the bottom 99% grew by only 0.4%, but the income of the top 1% grew by a staggering 31.4% in the same time span. And it all ties back to two things.
First, the government disproportionately gave more aid to banks and corporations. In 2008, the Emergency Economic Stabilization Act was signed into law, creating a $700 billion program to purchase devalued assets from banks. This was called the Troubled Asset Relief Program, or TARP. Later, President Obama would direct $75 billion in funds from TARP to help reduce interest payments for homeowners. That means homeowners received around 10% of the direct relief that banks and corporations did.
And this leads to reason No. 2. When the stock market bounced back, the unequal bailouts meant that the wealthy still had money on hand to invest and thus profit, while the middle and lower classes did not. In 2008, the Federal Reserve lowered short-term interest rates to near zero. They would remain that low for nearly a decade. This paved the way for a historic bull market on Wall Street that began in 2009 and lasted until March 2020, when the pandemic hit.
In that time, the S&P 500 gained 462%. That means that a $1,000 investment in the S&P 500 at the low point of the financial crisis could have returned roughly $4,620, while someone who could afford a $1 million investment could have pulled in over $4.6 million.
By 2009, the world’s high-net-worth individuals had grown their share of global wealth by 19% to $39 trillion, recouping nearly all of their losses in a single year. That quick recovery and larger share of the world’s wealth enabled them to continue to make money at an exponential rate. In fact, the top 1% captured 95% of the income gains made from 2009 to 2012. And by 2020, the combined wealth of the billionaire class in the United States had increased by over 80%.
Which brings us back to the moment when the coronavirus pandemic rocked the economy. In 2019, the Fed reported that four in 10 Americans didn’t have enough cash in their bank accounts to cover a $400 unexpected expense. And in the first few months of 2020, 40 million Americans found themselves unemployed due to COVID-19. Many small businesses had to close due to lockdowns and social distancing, while others were forced to try to operate with entirely remote staff.
The Small Business Administration made $349 billion available to small businesses with the Paycheck Protection Program. But like in 2008, $243 million of that was snapped up by large, publicly traded corporations, some of which were valued at over $100 million. Even hedge funds submitted claims to try to tap into what they saw as free money.
On March 16, 2020, just five days after COVID-19 was declared a pandemic, the Dow suffered the worst single-day points drop in its history. But by June 4, seven of the world’s richest people had seen their fortunes increase by over 50%. Part of what made this possible was a stock-market rebound fueled both by the Paycheck Protection Program and actions by the Fed. Again, the Fed lowered short-term interest rates for banks to near 0%, and as before, they have promised to hold those rates low until the economy is on track.
This is a cycle that has happened time and time again. During the earthquake in Haiti in 2010, only 2.5% of the $195 million of relief funds went to Haitian companies. Much of the rest was awarded to DC-based construction companies. And when Hurricane Katrina struck New Orleans in 2005, real-estate developer Joseph Canizaro said the clearing out caused by Katrina represented some “very big opportunities.” Canizaro was selected as part of a panel to develop the Bring New Orleans Back plan, part of which put a stop on reconstruction of low-income neighborhoods until the residents returned. Of course, residents couldn’t return to their destroyed homes, and many were foreclosed on, paving the way for others to buy those properties and develop them.
When the time did come to rebuild New Orleans, the engineering and construction company KBR received no-bid contracts from the federal government for tens of millions of dollars. KBR received $31 billion in contracts from the government between 2001 and 2010. Vice President Dick Cheney served as CEO of KBR’s parent company, Halliburton, for the five years leading up to his two terms in office.
Combined with their immense investing and purchasing power, billionaires have had government resources in addition to their own resources to profit from during economic upheavals. And wealth-friendly tax laws and loopholes then keep those billionaires at the top. Legal structures such as limited liability companies protect personal assets from being repossessed to pay the debts from business downturns. As it’s set up today, IRS rules allowed Amazon to pay $0 in taxes two years in a row. When its bill finally came due in 2019, it paid just $162 million, a measly 1.2% of the company’s income that year.
And it’s not just Amazon. Taxes paid by billionaires have decreased 79% since 1980. And those are just the legal avenues that the wealthy take to avoid paying taxes. In 2017, researchers estimated that about 10% of the world’s GDP was stashed in offshore tax havens. A study in 2012 found that as much as $32 trillion was being held offshore by the world’s wealthiest people.
So, after reviewing all this, what can be done to help level the playing field? A recent report by the Institute for Policy Studies lays out several action items. It suggests forming a pandemic profiteering oversight committee that would go beyond the oversight of federal stimulus money. It also supports the Corporate Transparency Act, which would create stronger regulations to prevent US billionaires from using shell corporations to hide their income. After the House passed the bill in 2019, it was introduced in the Senate but has not been brought to a vote.
Other suggestions include an emergency 10% millionaire income surtax, a stimulus package aimed at funding charities, instituting a wealth tax, and reducing the amount allowed by the gift and estate tax. Last, and perhaps most importantly, the report underscores the need to shut down the global hidden-wealth economy. The US alone is estimated to lose nearly $200 billion in tax revenues to offshore havens each year. That’s roughly three times the amount of all the money budgeted for the Department of Education in 2021.
Changes like the ideas above are global in scale and require political cooperation to become reality. If the relationship between wealth and income inequality are ever going to change, it’s going to require all of us.’
The GameStop frenzy on Wall Street has investors, and much of the internet, enraptured — not unlike a good horror movie. Everyone knows doom is just around the corner for some key players; a lucky few will emerge stronger; and the monster might be subdued but will ultimately come back for a sequel.
The popular Reddit page WallStreetBets is fond of targeting short-sellers. If you’ve ever played craps, these are the guys betting against the table, and their tactics, while often lucrative, have burnished their reputation as bloodsuckers and other, unpublishable, names. (More on that later.)
It’s not hard to understand why someone would short GameStop, however. The company is expected to lose money this year and next. Sales growth is sluggish because gamers no longer need to go to the mall to buy games or consoles. That said, some investors have argued that GameStop was seriously undervalued, especially when video games have become staples of the stay-at-home pandemic era.
The GameStop stock surge began for a legitimate reason: The company announced on January 11 it had added three new directors to its board, including Chewy co-founder Ryan Cohen. Investors liked that Cohen brought digital experience to the table, something the largely brick-and-mortar GameStop desperately needs, as video games go digital and malls continue their unending slump into irrelevance.
GameStop’s stock rose a little less than 13% that day. But this wasn’t a normal, momentary stock surge. Two days later, it rose 57%. Then 27%. The next week, it surged 10% twice and 51% another day. This week, it rose another 18% then 93% and more than doubled today.
The reason is two-fold, both of which are far removed from anything related to the company’s fundamental strength: Investors following the Reddit group bought a ton of GameStop options, and short-sellers had to buy shares to cover their losing bids.
On Wednesday, while all three major stock indexes tumbled, GameStop finished up a mind-boggling 134%.
For perspective: One year ago, a single share cost about $4. It’s now $200.
Options are bets investors place on a stock, allowing them to buy (a “call” option) or sell (a “put” option) at a particular price. That allows people to wager on whether a stock will rise or fall.
Investors can place relatively inexpensive options bets and sell those options as they rise in value when the stock price gets closer to their wager. Although buying and selling options isn’t the same as buying and selling stocks, big options volumes can drive a stock up or down, typically because options traders buy or sell the stock itself as a hedge.
In the case of GameStop and other stocks targeted by WSB, traders keep buying options, forcing the investors selling those options to hedge their bets by buying up GameStop stock.
WallStreetBets, which has more than 2 million followers, is littered with posts cheering the stock gains and no small amount of righteous indignation.
“What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living,” a moderator in the group posted this week.”That fuzzy sensation you are feeling is called RESPECT and it is well earned. Wall Street no longer dismisses your presence anymore.”
Elon Musk appeared to join the pile-on Tuesday with a single-word tweet — “Gamestonk!!” — that linked to WallStreetBets. Tech investor Chamath Palihapitiya dipped his toe in the frenzy, buying call options on Tuesday but closing his position Wednesday, he told CNBC. Palihapitiya said he would donate his profits to charity and defended the retail-investing phenomenon playing out on Reddit.
“Instead of having ‘idea dinners’ or quiet whispered conversations amongst hedge funds in the Hamptons, these kids have the courage to do it transparently in a forum,” he said. “What it proves is this retail [investor] phenomenon is here to stay.”
The GameStop saga is a battle of new school vs. old school, amateur vs. professional, rebels vs. the establishment. At the moment, the kids are winning. But, like all bubbles, this one’s going to burst at some point.