Good Money, Dumb Money, Smart Money, Brilliant Money and Cheese
The past week was all about money.
It started with a fascinating discussion, about what constitutes good money, with Tim Peterson, founder of Cane Island Alternative Advisors and author of “The Debauchery of Currency: A Bloody History of Money.”
As explained in Tim’s latest book, there is a reason why the dollar became the dominant global currency whereas parmesan cheese wheels - still used in some parts of Italy as collateral for loans - did not.
Although parmigiano reggiano is a necessity at Patsy’s (my family’s favorite Italian restaurant while growing up in New York), it doesn’t meet the qualifications for good money.
In order for money to be good, it needs to be portable, durable, divisible, scarce and accepted. Sorry, but cheese just doesn’t cut it (I think there might be some sort of a pun here).
According to Tim, good money also requires the embodiment of work which is supported with some kind of societal contribution. The work can be in the form of physical labor like farming, or it can be intangible such as information on how to do a job. Regardless, in the absence of work, money carries no value.
It is for this reason that governments can’t simply pay people to sit home and binge-watch Netflix. When governments attempt to circumvent work in this manner, they end up devaluing their currency and causing inflation. And as history has shown, time and time again, such currency debasement almost always culminates in civil unrest and revolution.
A few days after publishing my podcast episode with Tim, I gave some of my inflated good money to Fandango in exchange for tickets to see “Dumb Money,” a film recounting the meme stock mayhem of 2021 where retail investors stuck it to the hedge fund managers who had been, abusively, shorting shares of a video retailer known as GameStop ($GME).
Believing that $GME stock was undervalued and possessed an implausibly high short-interst ratio, the retail investors - who had been congregating in a Reddit chat group called WallStreetBets - began vigorously “crowdbuying” shares of the stock.
Because there were far more shares borrowed than had existed in the float (a mathematical impossibility without shenanigans), their buying frenzy created a short squeeze which led to hedge funds, with large short positions, suffering billions of dollars in losses.
Being that I had been covering this story very closely while it was unfolding (check out links below), I didn’t mind spending some inflating good money to watch “Dumb Money,” a movie that I would gladly give 3 stars (the highest rating on the Victoria Jackson movie rating scale). “Dumb Money” was at least as good as “Easy Money,” the 1983 film starring Rodney Dangerfield, which cost 500% less to see, in the theaters, 40 years ago. Furthermore, not requiring a Barbie-pink dress code for entrance made “Dumb Money” even more worth the inflated price of admission.
For those who don’t know, dumb money is a term unaffectionately used by Wall Street insiders to describe the money of retail investors. It should go without saying that dumb money is the antithesis of smart money, which just so happens to be how Wall Street insiders characterize their own money. This institutional smart money should not be confused with A.I. smart money which is the money that will soon have a mind of its own. But that’s a story for another day.
Now, I’m going to let you in on a little, very known, secret. When it comes to investment money, the brainpower of its holder is irrelevant. Jackasses can hold smart money just as scholars can possess dumb money. Smart money has nothing whatsoever to do with intellect and everything to do with information accessibility.
The greater and earlier the access to information, the smarter the money seems to be. This is why public-servant money seems to be the most brilliant money of all.
No wonder why ETFs, which track congressional holdings, were launched earlier this year. Too bad there is not an ETF that shadows congressional portfolios in real-time (you know, like when the trades are actually placed as opposed to when they are begrudgingly disclosed).
Speaking of congress, you can see some of its members in the Dumb Money flick where a few scenes from the 2021 GameStop congressional hearing were reenacted. If you recall, this was that hearing where those with brilliant public-servant money tried to get to the bottom of how those with dumb money were able to outmaneuver those with smart money.
Since only so much content can fit into a 2-hour movie, the highlights of the infamous GameStop hearing can be found at:
Because of that very important congressional hearing, America’s markets, today, are free of fraud and manipulation, and most importantly, they now epitomize a level playing field where investors of all sizes and IQ scores have equal access to wealth creation.
Just kidding.
Today’s markets remain as undemocratized and restrictive as ever. Shorters still abuse small caps and markets still favor large institutional investors at the expense of small retail investors.
But not for long. As decentralization proliferates, retail is rising and will prove, once and for all, just how consequential their dumb money really is to the financial system.