Welcome to The WC — your weekly shot of awesome.
Today, we’ve got:
- How are you getting scammed?
- McKinsey for AI
- The ticking student loan time bomb
- The subprime auto loan time bomb
- How to steal and lose $3 billion
Table of Contents
How are you getting scammed?
Precious metals are a funny asset class.
- They’re valuable, usually, because they represent stability and security. No matter what happens with inflation/war/zombies, gold retains value.
- Investing in precious metals is the wild west, and it’s rife with scams.
I’m certain there are many more, but here are two of the most common scams we’ve seen.
SCAM 1: The spread
Gold IRAs are self-directed IRAs that invest in, you guessed it, gold. Usually sold as gold bullion and usually via a super high-pressure sales pitch.
They’re especially popular when Democrats are in office.
The scam is simple:
- The company scares retirees into rolling over their retirement funds into gold, silver, palladium, or whatever.
- The scammer takes a 20% to 100% spread on the transaction.
From the Better Business Bureau:
This is typical. There are hundreds of complaints from retirees who have lost a significant chunk of their life savings.
SCAM 2: There’s nothing there
From a community member this week:
I have [a] concern about the “precious metals” investment firms – I just don’t have any faith in the processes and maturity that ensure that if they have sold 100kg of <insert-element-here> to investors, they actually have 100kg in the warehouse. Provided that it doesn’t all get liquidated at once, and provided they continue getting more investors, it’s pretty easy to run that as a Ponzi scheme, and it’s way less likely to be detected given near-zero regulation around trust accounts etc for these firms.
It’s an easy scam. Unless you and all the other buyers tour the facility at the same time, there’s no way to ensure what you’ve bought is actually there.
We’ve covered this kind of scam extensively.
This strikes me as an excellent use case for blockchain to verify and validate the assets are actually there.
Anyway, whenever you’re making any investment, make sure to ask the following.
Have you been scammed? Did someone try to scam you, and you foiled them? We’d love to hear your story.
McKinsey for AI
Recently, Shaan Puri talked about ten AI companies/opportunities he thinks are future moneymakers. It’s a refreshing take when everyone agrees AI is cool, but most people/companies haven’t really figured out what to do with it.
There are ethical issues around some of his ideas (porn, removing accents from call centre workers), and his top idea wasn’t really a business idea and was more of an industry, but one jumped out at me:
McKinsey for AI
Think about how many billions have been made by digital transformation consulting. Sound boring? It’s a $700 billion-a-year industry.
And while you’d think every company on the planet has already got itself sorted out on this front, it’s still growing at 25% per year with 467,000 searches per month.
AI consulting could easily match or beat these numbers. Should the technology live up to the hype, it will transform how every business on earth works.
The best way (IMO) to start a consultancy from nothing, assuming you don’t have a rolodex, is to begin with content. Perhaps we should start an Investing with AI newsletter…🤔
The ticking student loan time bomb
Last week, I wrote about the best public schools in America. Today, it’s a quick one on the cost of higher education…and the ticking time bomb that may be about to go off.
First, the counterargument.
Dan Currell recently published a thoughtful piece on student tuition and the games universities play. It’s long, and the entire thing is worth a read, but here’s the gist:
“College prices are distorted by a system that deliberately lists tuition levels much higher than what students pay.”
In order to appear academically competitive with the very best (and most expensive) universities in the country, second (and below) tier schools increase their tuition to match the Harvards of the world. Then they give nearly everyone a scholarship to discount the price to something people going to third-tier schools can afford. Everyone loves a bargain.
So, the reality is that students (parents) haven’t faced a tuition increase in decades despite the national discourse.
So, all this noise about student loans is nonsense.
But then, how do we explain this?
Lots of reasons:
- Undergraduate enrollment is way up
- Graduate enrollment is way up, too
- Likewise, enrollment at for-profit schools is way up (and most don’t graduate)
- State funding for universities is way down
- Real wage growth is stagnant
So, from a glass-half-full perspective, it’s not much harder today for normal parents to get their normal kids into a normal school they can afford, more or less.
But from an economic/structural/health of the macro-American consumer perspective, it’s a ticking time bomb.
Check out the Fitch FFELP Trailing 12-Month Constant Default Rate (CDR) Index.
The CDR Index shows how many student loans have defaulted in the past year, annualized to give an indicative rate. And it’ll surely get worse as private loans, which are variable rather than fixed, rise as high as 12% this year.
For those students still paying their loans, they’re treading water at best.
This is the principal repayment index — the rate at which borrowers are paying back the principal amount of their loans. Higher is better.
It’s getting lower.
Regardless of where you stand on student loan forgiveness, it’s plain to see where this is headed.
The subprime auto loan time bomb
Let’s stick with financial armageddon.
If I were to draw a Venn diagram of
- Kids who take out high-interest-rate loans to attend but not graduate from expensive for-profit universities and
- People who take out subprime loans on used cars
I’d suspect it’s a circle.
Add the following data point to the piece above – subprime auto defaults have hit their highest rate since Fitch began keeping records.
Many people have asked me to why I haven’t commented on the concerning auto loan data that just came out.
— CarDealershipGuy (@GuyDealership) October 23, 2023
In case you haven’t heard…
The percentage of subprime auto borrowers 60+ days past due on loans hit a record 6.1% in September.
This marked the highest delinquency rate…
If you’re already struggling to make ends meet, then you lose your car, usually that means you lose your job too. Then you lose your home (don’t forget housing affordability is at an all-time low).
That wave of foreclosures may finally unlock the US housing market, but it’s a painful way to get there.
How to steal and lose $3 billion
Wrapping up a scam-filled issue, this is a fun watch.
That’s all for this week; I hope you enjoyed it.
Cheers,
Wyatt
Disclosures
- Our friends at Perimtec sponsored this issue, and we get a few cents if you click on affiliate links.
