December 13, 2013
- The beginning of the end for higher ed
- Student and parent incomes stall; tuition revenue hits a wall
- Byron King’s year-end guidance: Don’t buy shares when you can steal them!
- Bitcoin cluster: “We’re not commenting right now on why that was first allowed.”
- The 5 accused of giving ammo to “the left”… government solutions to a government-created problem… rising income, static standard of living… and more!
The air is finally coming out of the higher-education bubble, however slowly.
Every year for the last five years, Moody’s Investors Service has surveyed administrators at colleges and universities, both public and private, asking them to forecast tuition revenue in the coming year.
This time around, more than 40% of the institutions surveyed forecast stagnant or even falling tuition revenue.
“Anemic tuition revenue growth has spread to a larger share of the higher education industry,” says the report’s author, Karen Kedem, “infecting public universities for the first time in decades.”
“As this contagion spreads through higher education,” reads her report, “tuition-dependent colleges and universities, both public and private, will be especially challenged to sustain competitive position and credit strength.”
In other words, decades of government attempts to make a college education “affordable” have finally hit a wall.
Four years ago this month, we wrote about “the three H’s” — housing, health care and higher education. In all three areas, government meddling has driven up costs far beyond the overall cost of living.
As you know all too well, the housing bubble burst in 2007-08. Health care costs threaten to detonate state and federal budgets alike, although for now the bubble continues to blow bigger. So higher education is the next bubble of the three to finally burst.
From the Moody’s press release: “The cumulative effects of depressed family incomes and net worth, softened student market demand at current tuition prices, combined with political and regulatory pressure will impede top-line revenue growth.” [Emphasis ours.]
Translation: There’s only so much blood to extract from a turnip. Median household income adjusted for inflation has been falling steadily since 2007. It’s now lower than it was 10 years ago, despite the Federal Reserve quadrupling its balance sheet since the Panic of 2008.
Decades of federal student loan programs aimed to put a college education “within reach.” Instead, they unleashed a flood of new money onto colleges and universities, which proceeded to build out a massive bureaucracy of six-figure assistant provosts, vice chancellors and associate directors whose jobs didn’t previously exist. To say nothing of deluxe-suite dorm accommodations far removed from the linoleum floors, cinderblock walls and shared shower stalls of your editor’s experience.
Now it’s coming to an end. Graduates don’t earn enough income to have a prayer of servicing $29,400 in student debt — the average load carried by someone in the class of 2012.
Nor can parents’ incomes keep up — to wit, the Miami art gallery owner we keep mentioning this week who earns $250,000 a year and plows a sizeable chunk of that into the college education of her three children. Researchers count her among the “new rich,” but she doesn’t consider herself upper-class. “Between rent, schooling and everything — it comes in and goes out.”
[Ed. Note: If “it comes in and goes out” resonates with you, you really owe it to yourself to learn about the strategy that can earn you up to $455 in extra income in only five minutes.
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Major U.S. stock indexes are flat as we write. Of course, that’s been the case most of the week, and each day it seems they get smacked on the nose as the day wears on.
But as we write, the Dow’s holding at 15,736 and the S&P at 1,774.
Gold is perking up a bit after yesterday’s big drop, the bid $1,235. Crude is easing a bit after a sharp move up earlier this week; a barrel of West Texas Intermediate fetches $96.37.
“This is a merger-and-acquisition market,” one of Byron King’s contacts in the mining world told him recently. “Not an exploration-and-discovery market.”
2013 has been rough on tiny “junior” companies in the natural resource space. “In the past year, during the worst of the down market,” says Byron, “sometimes I would call up management teams just to hear if anyone answered the telephone. Then I’d ask, ‘Hey, you guys still in business?’ Or words to that effect. Then I’d get an update on what’s going on.
“Almost always, there’s something going on. The market simply has not recognized hard work or deep value creation. These companies are doing the right things internally. That is, they’re working up their assets, putting out news and building a geological and business case for why the projects deserve support.” But short of a dramatic announcement of a partnership with a deep-pocketed third party, nothing moves the needle on the share price.
In time, that will change…
“Right now is the time not just for buying shares but for stealing them!” says Byron, if you’re looking for a junior bargain and you can afford to be patient.
“Every year in November and December, junior resource shares tend to get beaten down. That is, the juniors suffer through a year-end round of what’s called ‘tax loss selling.’ People sell the shares that are down, to book losses against the gains in shares that are up.”
Make a bid, says Byron: “I assure you, on no-bid days, any new activity draws attention. But be sure to make a tight bid at strict limits! Do NOT just buy at the so-called ‘market price.’ Pick a number — even a lowball ‘stink bid’ — and submit it. You never know.”
Well, that didn’t last long. No sooner did a story about a “Bitcoin IRA from Fidelity!” start making the Internet rounds than Fidelity put the kibosh on it.
On Wednesday, MarketWatch reported Fidelity — the No. 1 IRA provider in the country — had teamed up with the Bitcoin Investment Trust, run by SecondMarket, to allow clients a way to put Bitcoin in their retirement accounts. Or at least well-heeled clients; the trust is available only to “accredited investors” — defined by the SEC as having a household net worth of at least $1 million, not including primary residence.
“If you are a Fidelity client,” crowed SecondMarket CEO Barry Silbert, “you can now invest in the Bitcoin Investment Trust through an IRA.”
Well, not so much. Maybe he hadn’t checked his voicemail.
In fairness to MarketWatch, its original story did say, “An emailed request for comment from Fidelity wasn’t immediately returned.”
When it was, the story fell apart: “On an individual basis, we allowed an investor to invest in that Bitcoin Investment Trust,” said Fidelity’s PR director. “We are no longer allowing that.”
He added: “We’re not commenting right now on why that was first allowed.”
Hmmm…
“There are reviews going on, and we’ll make a decision at a later date. At this time, it is not available on our retail platform.”
Double hmmm…
The Bitcoin Investment Trust, launched in September, is available through a few lesser-known IRA providers, including Pensco, EnTrust and Equity Institutional. Beware the steep minimum investment — $25,000.
For answers to a host of other Bitcoin questions — everything you ever wanted to know and the government didn’t want you to find out — our “Bitcoin Bible” remains the definitive resource.
“So what’s wrong with economic inequality?” a reader writes after yesterday’s episode. “Absolutely nothing. It’s natural and unchangeable and can’t be corrected by economic redistribution.
[Did we say otherwise? But please, go on…]
“Do you really expect young people to be earning a salary equal to others who have had a few years to improve their skill? Should a 19-year-old working at his first job be paid the same as an engineer?
[No, and no. And your point?]
“People are not static. They move up and down the economic ladder based on their own efforts. If they were static, not dynamic, we would have permanent economic classes, but we don’t. Don’t let the left get away with this big lie if you want to hang onto your wallet. Socialism is a dead end every time it’s tried.”
The 5: We’re not sure what “big lie” you think we’re promulgating. But if you feel better for having written in, you’re welcome.
“Why is it,” writes a reader on the same subject, “that the very clowns (Big Ben, Krugman, Obama, et al.) who’ve created a world of 1%-ers and 99%-ers are the ones who rail the loudest against it?
“The word ‘power’ comes to mind.”
The 5: Amen, brother!
“Deflation or inflation, I have no idea,” writes one of our regulars following up on Wednesday’s episode. “What I know in the real world of living is that even as my income increases, my standard of living remains the same. I cannot seem to get ahead, so to speak.
“I also know that if you want to keep up with the Joneses, a family must have two incomes. If you are in the average working class, you likely will have a hard time growing wealth if you are a single working person.
“Seriously, my lifestyle has not changed in 30 years, even though my income has tripled. Thank the lord my employer covers my health insurance; otherwise, my living standard would drop by about 20%. I am not sure what I would cut — most likely my shelter, no cable, back to a land line, you get the idea.
“The electronic dollars I receive each month just don’t ever seem to keep up.
“I use to go to sporting events, but alas, I can’t even afford a beer and a hot dog nowadays, so I don’t attend. At least sporting events appears to be free on the radio, and I can cook a hot dog and enjoy a six-pack for the price of one beer.”
The 5: Once again, “it comes in and goes out,” no?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. If you’re keen to supplement the income that “comes in and goes out,” we urge you to sign up for the free online event we’re hosting next Monday evening, the 16th, at 7:00 p.m. EST. There, you’ll learn how to pull down as much as $455 in a mere five minutes.
It costs nothing to look in on this event; we ask only that you sign up in advance to secure your spot. Here’s where you can do so. If you can’t make it for the live event, we’ll do a rebroadcast at 10:00 p.m. EST.