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Bubble in Higher Education: When Will It Pop?

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Bubble in Higher Education: When Will It Pop?

Bubble in Higher Education: When Will It Pop?

The Chart of the Week is a weekly feature in Visual Capitalist on Fridays.

The soaring bull market in higher education has been flying high for some time.

Many factors combined to make it the perfect storm: the demographic rise of the millennials, easy money from the Fed, the “Chivas Regal” effect in pricing strategy that many colleges and universities adopted, and the US government virtually taking over the market for student loans.

It’s a vicious circle as colleges raise prices, students take out easy loans, and the institutions raise prices again. However, it all seems to be coming to a head as several factors begin to show the chinks in the armor.

First, the US Federal Government now holds close to 45% of its total financial assets in student debt. This does not include things like land or the any of the Fed’s assets, but it is still extremely significant. Pre-crisis, it was only about one-third of those levels at about 15%.

The main reason for this increase is that the government seems to be the only organization backing student loans. Before the Financial Crisis in 2007, the government only owned $100 billion of student debt – now it owns over $800 billion.

Next, the delinquency rate has risen rapidly over the last decade. Even the St. Louis Federal Reserve branch is becoming concerned with this. In their research article from April 2015, they write: “A delinquency rate of 15 percent for all student loan borrowers implies a delinquency rate of 27.3 percent for borrowers with loans in repayment.”

The problem is that real wages aren’t increasing, and many youth are left unemployed or with low paying jobs. With an average debt load just short of $30,000, it is no wonder that graduates are still struggling.

Lastly, colleges are starting to run into problems making ends meet and often institutions are going bankrupt. Particularly at risk are for-profit colleges with low prestige, as well as liberal arts colleges. Corinthian Colleges agreed to sell or close 107 campuses, leaving 72,000 students in the dust. Sweet Briar College has been in a potential bankruptcy saga for months. Even Louisiana State University is in the middle of drawing up its bankruptcy plan.

In the end, it may be technology may be what truly blindsides schools and students. The cost of an online degree (or even self-education) is a fraction of the cost, and colleges and universities are becoming less relevant every day. Big names such as Peter Thiel and James Altucher have been outspoken skeptics of higher education for years.

This college frat party could be coming to an end soon. The question is: who will end up paying for the kegs?

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Bitcoin

The Beginning of a Bitcoin Bull Run?

After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — going on a 150% bull run since its lows in December 2018.

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The Beginning of a Bitcoin Bull Run?

After 15 months of losses and stagnation, Bitcoin has made a miraculous recovery — rising more than 150% from its lowest point in December 2018.

In its heyday, Bitcoin had surpassed $10,000 in early December 2017, before briefly crossing the $20,000 mark for a single day on December 17th. A year later, the digital currency had fallen back to Earth, dropping below $3,200.

Now that the dust of that wild speculative frenzy has settled, Bitcoin is back on the upswing. What could be causing this most recent surge in growth?

We look at four possible explanations for the Bitcoin bull run, as originally outlined by Aaron Hankin at MarketWatch:

Technical Milestones

Bitcoin has seen several technical milestones this year, such as surpassing the psychological barrier of $5,000 in early 2019, breaking the 200-day moving average, and scoring the golden cross (when the 50-day moving average crosses above the 200-day moving average).

Widespread Adoption

Bitcoin is experiencing a steady increase in adoption across several markets. The term Bitcoin has become a household name — even if people don’t understand what it does, they know what it is.

Companies such as Starbucks, Microsoft, and Amazon, and Nordstrom are looking for ways to integrate cryptocurrencies into daily transactions for faster payment clearance, innovative rewards programs, and efficient customer service interactions.

bitcoin merchants

Shifting Sentiments

Bitcoin has possibly seen a shift in public perception. There have been fewer negative articles about Bitcoin and cryptocurrencies, and the news stories that are negative no longer have as big of an impact as they once did.

When Binance announced hackers stole $40 million in bitcoin and when accusations of an $850-million cover-up were leveled against Bitfinex and Tether, the Bitcoin bull run barely flinched and continued to climb.

Wavering Gold Investment

Investor confidence in gold has been more stagnant in recent times. To capitalize on this, Grayscale Investments (of Digital Currency Group) posted a campaign in May 2019 promoting Bitcoin as an ideal alternative to gold because it is borderless, secure, and more efficient for storing value.

Despite the World Gold Council’s response denying those claims, the Grayscale Bitcoin Trust saw OTC Markets Group’s highest trading volumes five days later.

Where to from here?

After a long skid, it appears Bitcoin is showing signs of life again. Bitcoin’s price can be highly volatile, so it remains to be seen whether this is the beginning of a bull run, or whether this is just another bump in the roller coaster ride.

Editor’s note: The price of Bitcoin has fallen to $7,100 at time of publishing and will likely continue to experience extreme volatility. However, even at a price of $7,100, this is still a 120% increase from lows in Dec 2018. As well, an earlier version of this graphic had incorrect dates on the timeline. That has now been corrected.

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Gold

Animation: How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.

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How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare.

It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.

To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.

Protecting Wealth

Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.

Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.

Correlated vs. Uncorrelated

While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.

The King of Uncorrelated Assets

What kind of asset classes can be used for this kind of purpose?

While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.

The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.

Here are some of the reasons billionaires turn towards an allocation in gold:

  • Gold has acted as a store of value for thousands of years
  • Gold can lower the volatility of a portfolio
  • Gold can act as a hedge against inflation in some scenarios
  • Gold is a traditional safe haven asset that investors flock to when the market goes astray

Billionaire Actions

To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.

The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.

With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.

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