I was quoted in the UK Investors Chronicle last week as one of the quotes or the week:
“We have been living in a 15 year pyramid scheme”
Since then I have been thinking about various pyramid schemes that exist that are just waiting for a crash. What do I mean? Pseudo-economic structures where people assign ever-increasing values to ‘things’ or ‘stuff’, where the values can keep on increasing… because enough people are prepared to suspend rationale belief (or trust in the ‘market) for the prices to keep up going.
A long time classic is the Collectibles area. People like collecting stuff. Some people really, really like collecting stuff. EBay and other auction sites made it possible to value this stuff – when someone wanted to sell it. Web sites and blogs made it possible for people to create a sense of mass community around these ‘stuff’ items. And people started considering these items of stuff as assets that could serve, who knows, as a pension for the future. Those 50 year old magazines in your wardrobe – don’t save, just keep them (ideally away from damp, and mice).
And yet, all this has the classic signs of a pyramid scheme. The people who get in at the beginning really can get rich. Indeed, they may start running the industry blogs, charging money from advertisers and getting an inside scope into the industry iteslf.
And yet, and yet, this is still a pyramid scheme. As the financial markets have shown for complex derivative products, there is only a market if there are buyers and sellers. If the buyers strike, or if everyone wants to sell at the same time, the ‘market price’ may end up being fractionally above zero (or as Citigroup just found auctioning off their recent toxic liabilities, 10 cents on the dollar).
So, if you have bought into one of these pyramid schemes, I suggest first of all enjoying what you have as things that you love. And second, start saving real money, just in case something bad happens. And finally, just to prove a point (hey, prove me wrong) try to sell one of your most valued posessions and see how much you get on the ‘market’. It might just help you put a real value on your assets.