We admit that we doubted the zimbabweconomists who said “this will work, trust us, we’ve never been wrong theoretically,” but the wealth effect is working. We feel GREAT. More importantly, we feel rich. So much so that we are using a new word to describe our riches — wealth. And all that wealth burning a hole in our pocket? What’s a mini-baller to do? Spend spend spend spend spend. We are spending 5x more than we normally would thanks to our new permanently elevated levels of riches, our new so-called wealth. And that spending has beget job creation in the economy. Last week, feeling flush with nouveau wealth, I personally spent $40k to buy windows and $10k to hire homeless people to break those windows in a sort of informal mad-dash shopping-for-dollars-cum-breaking-windows competition. It was inspirational. This actually works — unemployment has never been lower according to current theory I think. The economy is growing at record levels (depending only on how you define these words: “economy,” “growing,” “record,” and “is”).
This wealth effect has radically changed how we evaluate investment opportunities. Never in my life would I have considered buying a CCC junk bond at 110 to yield 7% (quick ratings guide: BBB = investment grade, BB = fine company, B = either a fine or a sketchy company the ratings agencies have no clue which, CCC = this will default just give it a few years, D = this defaulted like we said when we rated it BB uhhhh we’re not good at this). Today? Shit, I’ll take it at a 6% yield. I mean my alternative is earning 0% on basically everything else. Plus I feel wealthy, isn’t this what wealth affected people do? Buy dumb shit?
The universe of potential investments has never looked larger. Anything that hasn’t had all the yield squeezed out of it is acceptable. And we do mean anything. Do you have any CLOs made out of REITs on offer (in all seriousness that doesn’t sound half bad)? Does Hollywood need any money to help make Mystery Men 2? Just send me whatever form I need to fill in, my permanent wealth is in.
Recommendation: Don’t hate the theory, hate the game. Long the Wealth Effect.