The mining industry in Australia is massive, but investing in in these coal companies is just unsustainable. we just saw a ban on coal from china this could be in part because they are unhappy with Australia demanding a enquiry into the origins of covid. but I think it is also part of their transition to renewables. Australia somehow just doesn’t get it they keep promoting coal even though the whole world in shifting to renewables. this is a terrible investment strategy.
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I think an example of a malinvestment is people putting their money into Signal Advance stock, when Elon Musk tweeted “use Signal”. This is a clear misallocation of capital due to excessive speculation caused by low to negative interest rates and central banks printing money. Instead of capital flowing into the Signal Foundation, a non-profit organization, it instead went to a publicly listed stock. After soaring to $38.7 per share from $0.60 per share, the bubble quickly burst and it is now currently back down to $6.25 per share, an 83.8% decrease in price.
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There is talk of raising the minimum wage in the US from $7.25/hr to $15/hr. To pay these wages employers will have to raise the cost of goods and for small businesses, this could put an end to most of them. unskilled labor will have a much harder time finding work. The middle class will evaporate. In the US middle class starts at about $20/hr. Now they will make a few dollars over minimum wage. This is a political stunt that has dire consequences for an economy and a nation.
In Adelaide Australia the Government built a one way freeway. On weekday mornings the freeway went from suburbia to the city. In the afternoons it was the opposite. On weekends and public holidays it was the opposite again. Lol. 15 years later they upgraded it and made it 2 ways and had to cut through/blow up more land all over again. Ha ha. What a mess. It was confusing which way was open if you didn’t live that way.
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).
I believe that Student Loans have been a catastrophical malinvestment that we are doing in Chile. Lower income people, that is not subject of credit, had a great chance to apply to a 6% yearly interest rate, state sponsored loan to pay for their studies (this rate was reduced to 2.5% almost a decade later). Due to the inequalities in education, most of them applied to careers with low demand, or mid-to-low future wages, and usually, in institutions of arguable quality.
As a consequence, the increase of income resulting from studying a career, is not enough to offset its cost, in comparison with somebody of the same district that went directly into the workforce. As those careers have higher supply than demand, they aren’t even able to exercise their profession, being relocated to another kind of jobs. In any case, 10% of their wages will be deducted due to their Student Loan for 30 years, which will be used mainly to service interests, as the Government will usually pay the capital debt.
So, this is the story of how a great purpose, such as giving poor people the possibility to have an University degree -we can even say, exercise their right to have education-, became a nightmare for them, and, at the same time, a great business for low-quality universities (getting paid for a worthless service), for the banks (which get an unbelievable 2.5% interest rate in a world of negative rates), and governments (which are able to generate new money supply out of the student loans, debasing their currency).
The Kodak one was also awesome, as people believed that they will profit from making vaccines, where the actual profit is in having the vaccine’s patent…
Local business man has built a football stadium in Akasztó ( Hungary ). # of people in Akasztó was ~3500 in this date. Max # of viewer was 22k when local team played in first ligue. There were not enough spectators to cover the cost of the stadium after the local team disbanded. Stadium has becomes ruin.
Yes, and many home buyers took out loans with variable interests rates, which bit them in the back side when the economy went bust.
I would argue that the US government’s issuance of stimulus checks during the pandemic is a bad allocation of funds given that a) the government is the agency that put people out of work in the first place; and b) the government is already trillions of dollars in debt so the “money” doesn’t really exist; and c) people are losing independence.
I don’t begrudge giving aid when it’s necessary, but to tie people’s hands behind their backs, and to let the average Mom and Pop go bankrupt while allowing large corporations like Amazon to thrive and profit even more from this crisis … well, it’s a set-up for economic disaster. And when do we get to cry Monopoly!?
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The attempt to bring Toys R Us back will be a dismal failure as it has no infrastructure to compete with Amazon and Walmart on the internet market. The nostalgia factor will only go so far.
The Housing Bubble in United States in 2008 is one example. If you invested in a real estate in 2006 you paid very high prices followed by a collapse of prices in 2007 and 2008. Due to low interest rates and therefore increased demand, the prices began to rise. In addition, speculative investors also increased the demand. I think this was a misallocation of capital as the prices of real estate where overestimated followed by a massive crash of prices.
I live in Latin America and malinvestment within the corporate and sovereign bond market is evident. Global thirst for yield and income has driven institutional and retail demand for Latam HY bonds. As supply grows, spreads are in their historic lows and spread dispersion between C-BB credit ratings is very small so risk-reward relationship is many times lost. Allocating capital in this environment demands strict security selection and fundamental analysis.
Nicola Motor is one of the companies which was SPAC(ed) in 2020 and a example of malinvestment.
The investment strategy of the Dutch government into the airline (airfrance-KLM) is a malinvestment, because they did to keep the airline a float through the covid pandemic, however the airline is despite of their agreement laying off employees to cut costs. Which was the reason for the government to invest so that the employees could keep their jobs and wouldn’t be reliable on unemployment benefits.
The US Housing Bubble seems like a classic example - loans were made available to people who had no way to pay them back, and housing costs skyrocketed - cash kept flowing into the housing market as fast as the government could print it and we saw the following:
The net result was that a lot of families were hurt by being upside-down on their mortgages - holding loans for an asset that was worth way less than the mortgage amount!
I would that PPP or Payroll Protection Program was a very massive scam and malinvestement. Most the loans that were suppose to help small business want to big one instead. Wall Street benefits as all this overvalued stocks as Zoom, Telsa etc. keep inflating the already big bubble. Main Street continues to suffer as small business close more rapidly, incomes decreases or disappear entirely, and increasingly rely on govt assistance for survival. The everything bubble is real and wont be pretty once it pops.
One of the worst investments in history is when Goldman Sachs predicted crude oil CLH26 would surge to $105 a barrel, as tight supply caused a super spike.
By spring 2008 with crude oil at $100 analyst Arjun Murti doubled down calling for $200 a barrel.
But within months it hit $147 and then went downhill. ever since the world has been flooded with oil and the commodities cycle became a secular bear,
Murti has since retired from Goldman
Our government in the Netherlands rescued several banks during a financial crisis in 2008. If they hadn’t intervened, the banking system in the Netherlands would have collapsed. I always thought that it was the choice of a lesser evil, but looking back with the knowledge I gained during this course, I think that was a malinvestment, because it was designed to protect the current monetary system. Nobody wanted a change that big and we were desperate to keep the current system running.
Granted, we didn’t have Bitcoin back then, but maybe a change that big was exactly what we needed.
Any subsidies, loans, directly or facilitated by the government to universities or any learning institution promoting majors or degrees that absolutely do not pay the investment after employment.
Employers and the free market should dictate necessary skills and hours invested.
Learning institutions must hold a strong and realistic link with the market
My ‘favourite’ recent malinvestment was by the uk gov in Aug 2020 in the midst of the Corona Virus hype. The uk gov decided to run a campaign they called ‘eat out to help out’. This is a scheme whereby in the summer lapse of corona virus, the uk gov offered a 50% subsidy on the price of all restaurant food & soft drinks during August & September 2020 ‘costing’ the UK taxpayers nearly £100m. Restaurants were completely packed out all day every day, throughout Aug & Sept. The uk, then unsuprisingly had a huge resurgence from October onwards & is on a long lockdown once again.
This is a malinvestment in my view because a) it ‘helped’ people who could afford to eat out anyway b) it took funding away from people who desperately needed it for basic living essentials c) was a way to reallocate money back to the uk gov via vat, corp tax & employers/employees taxation/NI d) it put people in close proximity of each other & in the short, mid & long term was v bad for the control of the ‘virus’ & economy.
refs:
https://www.morningadvertiser.co.uk/Article/2020/09/09/How-much-did-Eat-Out-to-Help-Out-generate-for-the-Government
https://www.theguardian.com/business/2020/nov/25/eat-out-to-help-out-venues-claimed-more-than-849m-through-scheme#:~:text=The%20scheme%2C%20designed%20to%20draw,Mondays%20to%20Wednesdays%20in%20August.
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