Activity Lesson 4

Research an investment (could be a public company, private company, government agency, infrastructure project, etc) that you believe meets the definition of a malinvestment (past or present) and argue why you think it’s a misallocation of capital (3-5 sentences).

From what I have researched and witness in the past few months, quantitative easing in the U.S. is a true example of malinvestment. The Federal Reserve is keep the interst low in hopes that it would stimulate some economic growth while also purchasing Treasury bonds. Trillions of dollars are being printed out to support the struggling economy during the covid-19 pandemic.What i am starting to see is that the trillions of dollars isn’t making it into the hands of the everyday people. It is going more to small businesses and big fortune 500 companies, some to which even with the money allocated to them, would not make it. Sometimes, it hard to conceptualize what a trillion dollars is.Somewhere along the lines, we have created an artificial market that we hoped would show a recovering economy but instead, unemployment is up, gdp is down and there is still no true stimulus, despite the efforts of the Federal Reserve.

Many university establishments have ageing professors wandering aimlessly with coffee being paid good coin for nothing, give way to next generation and retire years after of being paid handsome salary !! The future is in a much younger generation step aside. This trend continues lack of investment in future talent.

I think the the Canadian oil sands projects are a major malinvestment. The natural gas used on these tar sands projects is a total waste of resources. Complete misallocation of funds, labour and human brain power.

The Dot Com bubble of the '90s is a classic example of malinvestment. Due to low interest rates and a lowered top marginal capital gains tax in the mid 90’s, in addition to excitement about the potential of this new technology, there was a huge rush to invest in any and every tech company. Practically all someone had to do to get capital was pick a name and put .com at the end. Companies overextended themselves and were more concerned with image than making profitable business models. Overexcitement in the perception of the future potential of the sector led people to ignore traditional metrics they would follow when investing in a company. Predictably, the bubble burst and many of the companies went out of business or had to restructure.

WIND SOLAR FARMS
Benefit…Giving power at a cost of 1.1- 2 cents per KWh…Great!
What is the cost?
Pricing…We subsidize the production, installation and transmission without taxes.
We pay government to pay corporations to get it at a cheaper cost???
Communities … they get:

  1. less agriculture output cause the pollinators are killed off so less crop yields, therefore less income
  2. land values go down, who wants one of these in their yard?
  3. the incidence of cancer and other illnesses jumps giving more business to the medical establishments and pharmaceuticals.
  4. the roads and towers must be maintained so roads and debris will change the environment as they will spray the gravel roads and tower areas with pesticides , they will leach into the drinking water and streams surrounding the area and kill more wildlife and food production.
  5. production, repair, dismantling, and destroying the used parts will add to the CO2 footprint.

And the cherry on top???almost IMPOSSIBLE to get real credible information on the costs and any benefits studies …
Yes a real MALINVESTMENT I think.

In Romania, during this pandemic and near financial crisis, the government is borrowing money to rise the pensions and children allowence. In my opinion is the most stupid thing a government can do at this time. We are a poor and corrupt country, but this isn’t the time for bigger pensions especially by borrowing money. The elections are this year and by this they are trying to win them, basically by buying the votes.

The Canadian oil pipe lines billions went in and then the government bought it back from the private investors. years in the making but no pipeline and billions in losses and the oil and gas industry in Alberta destroyed. Instead of a east west pipeline we now pipe oil to bc where it is transferred by ship to eastern Canada. a complete fraud and farce

Malinvestment

To me, the clearest example of malinvestment is USA military spending. The US spends more on ‘defense’ than the next top ten countries combined including China, India, Russia, Saudi Arabia, UK and Germany.

If this is the true cost of defending a world’s primary reserve FIAT currency, they may have wasted their money. The USD already appears to have entered the downward spiral to extinction – the same fate that became all the other historical global trade currencies.

Portugal 1450 – 1530 (80 years)

Spain 1530 – 1641 (111 Years)

Netherlands 1642 – 1720 (78 years)

France 1720 – 1815 (95 years)

UK Pound 1815 – 1920 (105 years)

US Dollar 1920 – 2021 ? (100 years would be about average!)

A malinvestment would be saving money on a monthly basis in your bank. Lets say for your future pension. By the time you go into pension, your money will be worth much less than its original value, if not worthless. So investing in saving money in your bank for years is a very bad idea.

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Our government here in Slovenia is a good example of bad investments. They’re currently burning through European Union stimulus in a way that mostly benefits them. They created these 200€ coupons and are giving them out to people in order to “stimulate” tourism, these coupons carry a wide variety of limitations, for example, can be only used in hotels / hostels (which more than 30% of them are owned by the state itself), can be only used once even if you stay at a cheap place, can only be used within our borders, can not buy any “touristy goods” like souvenirs or go out for a dinner. Whatever % of the coupon you don’t use is pure profit for the government, which will disappear who knows where, but us citizens will have to pay for all of that at some point.

Bottom line, they do these kind of “investments” and people are happy to get stuff for free - as I explained this goes deeper and is everything else but a good investment in tourism.

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I believe the bailouts of the US markets is a malinvestment because no matter how much money they are given is used to buy their own stocks in order to prop up the company in the markets when in fact the company is not producing anywhere near the amount of capital to in anyway to cover the money given to them. So in the end, the next crash comes and boom, these same companies need more money to keep themselves afloat. I always wondered that when the markets crash is it the companies themselves selling their own stock, (which would mean they lost nothing but in turn use the crisis to simply make the company heads that much richer… Hmmmm, the company heads are the same people running the show and printing the money… Hmmmm so are they helping the economy or themselves in the end by taking from the us citizen.? Sorry, I couldn’t keep this under 3 to 5 sentences because it is BS and we Americans, (Ron Paul woke) are sick of it…! END THE FED…! :slight_smile:

Japan’s Pension System
All registered resident aged of 20 to 59 years must be covered by National Pension System. According to the current policy you will receive pension from age 65 years. It started 1960’s in order to give basic financial support to elderly people by making young workers pay for them in the faith of investment for your future. Apparently, you will not be receiving enough financial support for basic living from the system with the current birth rate, and many people who believe the system is getting collapsed are not paying the contribution.

The 2008 Housing Bubble is the first example of a malinvestment that comes to mind. When the banks created artificially low interest rates on mortgages people bought up the bad mortgages and weren’t able to pay them back. The banks then bought them up and sold them to other banks and left the people in the dust of the bust.

Biiiiiiiiiiiiitttttttttttttcccccccccooooooonnnnnnnneeeeeeeccccccctttttt and Mt. Gox are good virtual currency company examples. Bitconnect users locked in BTC and the interest was diverted to a trading bot that would return a high percentage in gains. Well when the bot made some bad trades and people started pulling their money out the ponzi scheme was revealed.

Mt. Gox used peoples BTC to trade and reported false data. When people went to collect the real data showed peoples accounts had been liquidated. This is one of the concerns I have with USDT not being audited. I would love to create some USDT out of thin air and go buy 100 million worth of BTC with it.

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Hertz has filed for bankruptcy which caused its stock to drop. But as a result of the dip, many inexperienced investors ended up buying Hertz stocks and caused the price to sky rocket. It is a bad investment in my opinion.

USA housing bubble is widely known example. And then housing market crash in Europe. But I was lucky and bought our apartment in 2009 right on bottom, 40% discount.
There is very good movie about US housing bubble: Big Short

Though Uber is not directly funded by the government, it received billions of dollars in funding by various investors through out the years since it’s inception. The problem being that Uber does not make profits. Uber is currently 2 Billion dollars under so it is over valued. Apparently, Uber does not charge enough for it’s services and thus, it’s too costly to operate. Still, it seems to keep growing as investors keep pouring in.

College Tuition in USA is wayyy overpriced. Many students have to borrow a huge debt without a guarantee for a job that can pay their rents and debts. Most students get their degrees but ended up working at something that has nothing to do with their profession. It is an unfair trade of paying for a skill set. Online education is a more prevalent choice especially for a post-COVID world.

A bad long term investment in my opinion is the oil industry.
After the crash due to Covid-19, many oil companies will struggle to recuperate, and the ones that took on too much dept during the good times may go bankrupt.
We may see a sligt rise of oil prices again in short term, but i believe the hard times for the oil industry and the reminder of how volatile this market can be, will push more and more to invest in renewable energy which has shown to be a good investment the last couple of years. More investments to renewable energy will boost this sector and give the technology a makeover that could make the oil alternative look very unlucrative.

I would have to say any government bailout that does not reflect the needs of the greater set of citizens. I can think of 3 in particular in Canada where we had government bailouts of Air Canada (CEO had an outrageous bonus the following year), Bombardier (2X) to name a few examples.