The higher education racket gets long in the tooth: For-profits account for 47 percent of defaults but make up only 13 percent of total enrollments.
Bubbles do not burst in a nice orderly fashion. In fact, incredible graft enters the system where it becomes obvious to any bystander that the bubble is going to burst. This is the case for higher education. The US has over 4,000 colleges and universities, with many of them operating like glorified paper mills. Similar to the apex of the housing bubble where we heard about no income buyers qualifying for hundreds of thousands of dollars in mortgage loans, we now have many Americans diving into for-profit institutions that operate at the level of paper mills for tens of thousands of dollars of non-dischargeable student debt. Not only is the for-profit sector a sign of the worm turning for higher education, but many other institutions have jacked up prices to levels that are simply unjustified. This bubble is getting ripe for the picking.
Are stock investors coming back in at another debt induced peak? How regular stock investors are horrible at market timing.
The media is falling over itself with articles on how fantastic the stock market is. The fact that the S&P 500 is now up from the March 2009 lows by over 100 percent seems to put the financial crisis in the annals of history. Yet for most investors, the stock market is largely a casino. For example, if we take a look at the fundamentals we realize that much of the meteoric rise has come courtesy of big institutional funds trading on low volume. The retail investor has been largely absent because first, nearly one third of this nation has no actual savings. It is hard to save with no money. Next, you have the median household income at $50,000. With the rise in tuition, healthcare, and now housing values once again the cost of living is getting more expensive. But of course, just like at the peak of the tech boom, the average investor is now inching slowly back into the waters only to realize that much of what has occurred has been on the backs of giant piles of digital dollars printed by the Fed. Are investors making another investing mistake?
The coming pension crisis: States face a $3 trillion funding gap. Only about 10 percent of Americans now covered by pensions.
Many Americans look at the crisis in Greece and shake their heads wondering how it is possible for an entire country to derail the future of its younger generation. One big problem in Greece was massive government liabilities funding very generous pensions. Yet this came at an enormous cost. The US is facing a different crisis but the markets have already responded over the last few decades. In the early 1980s, roughly 60 percent of private sector workers had a pension. Today, it is down to 10 percent in the latest data and will likely continue to decrease. For young Americans entering the workforce, the self-funded 401k is likely the only path to having a nest egg and any sort of retirement. This is why so many people get angry when they hear about some in California that retire in their early 50s pulling in annual pensions of $100,000. Over 20 to 30 years this can range from $2 to $3 million of payouts. And we wonder why states face a $3+ trillion funding gap with pensions. Are we simply ignoring another looming crisis?
The relentless punishment of the American saver. Fed policy has encouraged spendthrift attitude and yield seeking behavior from Americans.
The Federal Reserve has actively pursued a policy that punishes American savers. The drive to push interest rates lower has inflated both the stock market and housing market once again. Yet little of this gain has trickled down into household income for Americans. The primary reason for this is that most Americans do not derive a significant portion of their wealth from stocks. In fact, a large portion of Americans are living paycheck to paycheck so if the Fed was really interested in boosting wages, they would have looked at income first instead of making it easier for banks to borrow money. Since 2008 savings rates at banks have been below one percent. In many banks, they have hovered slightly above 0 percent. Unfortunately the slow eroding power of inflation has eaten away at the purchasing power of Americans. For many, the choice has been to simply spend income as it comes in or try to chase yields in other markets. Ultimately the prudent saver has been punished.