Wall Street’s Glory Days Are Numbered

“Welcome to Wall Street,” said the investment banker.

The year was 1989, and my college’s financial club had organized a trip to the New York Stock Exchange.

Our guide led us to the floor of the exchange because, back then, that’s where all the action took place.

Orders came flying in by phone, and some people even had portable devices to keep track of their stocks on the go.

As the open got closer, the noise rose to where you could barely hear the person standing next to you. But that was nothing compared to when the minute hand of the clock struck 9:30.

The minute we heard the “ding, ding, ding” of the opening bell, it was pure pandemonium.

Today, the floor is a little less exuberant, being mostly there for show now that a good portion of today’s trading takes place via computers.

But even though Wall Street’s essence has remained the same since it began in 1792, I believe its glory days are numbered.

See, Wall Street still has a monopoly on one essential part of trading … but in time, the internet is going to wipe out this current advantage.

Cutting Out the Middleman

Right now, Wall Street is made up by an army of middlemen.

These are your investment bankers, securities exchanges (like the New York Stock Exchange and the Nasdaq), corporate lawyers, analysts, consulting companies, auditors, accounting firms, rating agencies and all-around paper pushers.

These entities exist for one main purpose: to help sell equity or stock to the public. So if you want in on the action, you have to go through this vast network.

And for this monopoly, you pay a heavy price.

According to PwC, an elite consulting company, investment banks charge a 5% to 7% fee to do an IPO, or initial public offering. This is the first time that a company’s stock is offered for sale to the public.

That means if your company’s IPO is worth $1 billion, investment bankers net as much as $70 million in fees.

However, that’s just the beginning…

Exorbitant Fees Cannibalize IPOs

According to a survey of registrations filed by the Securities and Exchange Commission — an arm of the government that regulates stocks — the average cost of these middlemen’s fees amounts to $3.7 million.

While that may sound like a lot of money to you, I actually believe that this average is way too low.

Bottom line: It costs way too much to become a publicly traded company today.

The best evidence of this is the lack of IPOs. After peaking in 1999 with 486 companies going public, IPOs have since crashed.

In 2008, just 31 companies became publicly traded.

And 2016 marked the lowest number of companies going public in nearly a decade, with only 105 IPOs.

Wall Street still has a monopoly on one essential part of trading … but in time, the internet is going to wipe out this current advantage.

A Better Way to Go Public

It’s clear that more companies are choosing to stay private longer.

But now, these companies will have a new way to get their shares and stock to people wanting a slice of the pie.

This new process is called an ICO/ITO, or initial coin/token offering, which is being popularized by cryptocurrencies.

Basically, this is the process of digitizing an asset to make it publically traded via the internet. And if used to sell stocks, this process has been shown to dramatically reduce costs.

According to one Quora user, an ICO can be done for as little as $100. On the high end of the spectrum, an expensive ICO might cost $300,000, said a lawyer on the same site.

That’s still peanuts compared to the $70 million an investment bank will charge your $1 billion company. Or the lowball $3.7 million estimated fees you’d pay an army of middlemen to do an IPO.

Now, to my knowledge, no one has gone this route yet. But the dramatic cost reduction in doing an ICO/ITO offering vs. an IPO means it’s only a matter of time before someone tries this method out.

And once a successful model has been built, it’ll be curtains for Wall Street’s current IPO business.

That’s one of the reasons I’m staying away from traditional Wall Street companies in my services.

Instead, I’m looking for companies that are going to benefit from the new school of finance — be it through ICO/ITOs, mobile payments or even the implementation of blockchain technology.

These trends are the future of investing, and they’re what I research in my flagship Profits Unlimited newsletter. So, if you too want to explore the cutting-edge areas of finance — before other people even hear about them — I encourage you to read up on my service.


Paul Mampilly
Editor, Profits Unlimited

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Source: Banyan Hill

Less Than 10% of Millennials Would Keep Paying Back Student Loans: Here’s Why

How’s this for a business proposition? I owe you $17,000. If you forgive my debt, I won’t use Uber or Lyft for my transportation needs. Or, how about I agree to give up texting and mobile messaging for a year in exchange for debt forgiveness? Doubt I’d get any takers.

I received an email about a recent survey,“Survey Reveals What Millennials Would Rather Deal With Than Paying Student Loans”. The sender suggested, “The insights would be a great fit with your audience.”

They questioned 500 millennials, age 18-34. At first, I thought it was a joke:

“We’ve … compiled some key findings:

  • A staggering 49.8% of all respondents said they would give up their right to vote in the next two presidential elections in order to have their debt forgiven
  • Ride-sharing services like Uber or Lyft don’t seem to matter to millennials quite as much… According to the results, 43.6% were willing to give up these services forever in exchange for debt forgiveness
  • Interestingly, 42.4% of respondents would also give up traveling outside of the country for 5 years, while only 27.0% said they would be willing to move in with their parents for 5 years
  • Millennials seem to value texting more than the other options – only 13.2% reported being willing to give up texting and any mobile messaging equivalent for the next year in exchange for having their debt forgiven
  • Only 8.2% of respondents chose to select none of the above and said they would rather keep paying off their student debt”

I asked the sender, “… My generation was faced with a choice. The rich kids went to college, the poor kids joined the military (gonna get drafted anyway) and then came out and used the GI bill to help fund their college. Were there any questions about trading military time for debt reduction? I received a polite response saying that was not part of the poll. Did it even dawn on them to ask?

The survey sponsor appears to be in the loan business, promoting refinancing student loans.

While I passed on the idea, I soon changed my mind. The survey appeared on Facebook, generating some brutal feedback. Many called respondent’s snowflakes and much worse. They felt the respondents had no clue about sacrifice and the real world.

Might part of the problem be the survey itself? If respondents were only given those silly choices, they would check the ones they felt most appropriate. Perhaps student loan debt is not that much of a problem. They are not willing to sacrifice much to make it go away.

Here’s one example. Survey says…49.8% would give up their right to vote in the next two elections to have their debt forgiven. The article also mentions less than half of the millennials voted in 2016.

What some consider sacrifices doesn’t cut it with many Americans.

OK Millennials, listen up!

When you took out a student loan, you entered into a contract, borrowing money to complete your education. You felt your education would lead to a better job and you could repay the debt from your earnings.

The government was a co-signer, guaranteeing repayment of the loan. By doing so, the banks offered YOU very low interest rates.

Today, paying off your debt is an inconvenient challenge. In my article, “Student Loans – A Multigenerational Curse” I outlined you are not alone:

“Since the 2008 recession began student loans have skyrocketed to over $1.4 trillion.

The Wall Street Journal reports, “Revised Education Department numbers shows that … at least half of students defaulted or failed to pay down debt within 7 years.” Many young people (not all graduated) owe several hundred billion dollars they have been unable or unwilling to repay.”

The survey says, “…The Federal Reserve puts the median student loan debt balance at $17,000, with monthly payments of $222.” More than half are failing to honor their contractual obligations.

Government guaranteed student loans are a deal with the devil.

With some very limited exceptions, you cannot discharge student loans in bankruptcy court. As a taxpayer, I LOVE that provision. In 2012 Marketwatchreported:

“According to government data … the federal government is withholding money from a rapidly growing number of Social Security recipients who have fallen behind on federal student loans. From January through August 6, the government reduced the size of roughly 115,000 retirees’ Social Security checks on those grounds.”

What is debt forgiveness?

Unlike bankruptcy, debt forgiveness is when a lender voluntarily agrees to allow the debtor to forego payment of the remainder of the debt. It’s a gift, plain and simple. If student debt is forgiven or defaulted, the government pays off the bank.

Unfortunately some politicos, pandering for votes, are promoting the concept, willingly giving away billions of our tax dollars.

Let’s cut to the core. Asking for debt forgiveness is asking taxpayers, your friends and neighbors, to pay for decisions YOU made for YOUR benefit.

The Student Loan Debt Clock tells us the current total is over $1.5 trillion.Reference.com says there are approximately 138 million US taxpayers. If all student loan debt were forgiven, the cost would be approximately $10,870 per taxpayer.

Its no wonder the feedback on Facebook was so negative. Taxpayers work hard and don’t want to pay off someone else’s debts.

What to do?

Student loans should be a last resort when it comes to financing an education. Students should be educated about debt and the consequences before they take out the loan.

As I outlined in my previous article, college costs should be minimized. Four-year graduation should be expected, 36% of incoming freshmen get it done! Students are making adult decisions, many times at an early age, and parents need to guide them so they don’t end up with a huge debt burden.

I checked out the Army ROTC website:

“Scholarships and stipends in Army ROTC help you focus on what’s important. Namely, getting that college degree – not how you’ll pay for it.”

A college degree and a few years as a military officer have worked well for many young people. If you are not willing to do so, that’s fine, just be responsible and honor your contractual obligations.

27% of the respondents said they would be willing to move in with their parents for student loan debt forgiveness. That’s a bass-akward solution for sure!

A recent US Census Report tells us:

“More young people today live in their parents’ home than in any other arrangement: 1 in 3 young people, or about 24 million 18-to 34-year-olds, lived in their parents’ home in 2015.

… At 24.2 million people, the population of 18- to 34-year-olds living at home is a large and diverse group. …About 81 percent are either working or going to school.”

If you are going to live at home, do it while you are going to a local junior college, saving a tremendous amount in educational cost. The goal is to transition into adulthood easily with no debt burden.

While many parents want to help their children, having them move back home after college for extended periods of time is an economic and emotional burden. Parents must move ahead and get their retirement in order.

Plan B

Based on the survey and available choices, it’s easy to conclude that student loan debt is more an inconvenience (average $222/month???) than a real burden. If debt consolidation will help reduce monthly payments, investigate the option. However $222/month is not the case for many millennials.

My granddaughter and her husband married in their senior year in college. Their combined student loan debt is significant. They both work, husband got a second job and they are responsibly working to pay off their debt and raise a family. Yes it is difficult.

Debt Forgiveness

There are ways to legally obtain some debt forgiveness. Military.com highlights many Student Loan Forgiveness and Discharge Programs. It involves more sacrifice than promising not to text. Here are some options:

“Public Service Loan Forgiveness Program

Under this program, members of the military who have been employed by the military or a qualifying public service job for the last 10 years may have their federal student loans FULLY discharged.

Public service qualifying occupations include:

** Emergency management
** Military service
** Public safety
** Law enforcement
** Public interest law services
** Early childhood education (including licensed or regulated childcare, Head Start, and state-funded pre-kindergarten)
** Public service for individuals with disabilities and the elderly
** Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations)
** Public education
** Public library services
** School library or other school-based services

You need to be employed in these positions at least full-time, which is considered to be at least 30 hours a week or what the employer considers to be full-time.”

If you have student loan debt, sacrifice and do what it takes to get the loans paid off as quickly as you can. If you are in college, or headed in that direction, get a good education in four years with minimal student loan debt. Work your tail off so you can easily transition to your next step in life.

Decisions and behavior have consequences. Welcome to the adult world!

Stop losses are a MUST. Retirees cannot afford to gamble on the buying power of market coming back in their lifetime; the risk is much too high!

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