The Pump and Dump (and pump again?) Economy

What’s Up with the Market?#

So, the stock market has taken a hit, losing more than $5 trillion since its highest point, which was just about a month ago from when the video was made. Think of asset markets like stocks, real estate, etc., as a look into the future – they show what investors think is coming. Right now, they’re predicting things are going to be pretty grim.

The “Everything Bubble”#

We’ve been talking about this for ages: the “everything bubble.” This isn’t just stocks; it includes stuff like real estate, precious metals, and even some really wild things like meme coins. Their prices have shot up massively. Who’s driving this? Mostly wealthy speculators who are running out of places to put their money.

What Could Pop This Bubble?#

If you’re wondering what could bring this whole bubble down, well, take your pick. We’ve got:

Trade Wars
Actual Wars
Rising Household Debt
Growing National Debt
Big Layoffs
Government programs getting cut
And maybe the biggest issue: nobody knows what the heck is going on anymore.

Just to give you a number again, the market lost $4 trillion in value since its high less than a month before, specifically mentioning February the 19th.

The Impact of Uncertainty#

Okay, here’s a fundamental idea: Money loves certainty. Business leaders and investors need to make decisions based on educated guesses about the future. Whether it’s hiring people, building a new place, launching a product, or paying out profits, someone is making a calculated guess about the next few months, the next year, or if they’re feeling really good, maybe even the next ten years.

Sometimes these guesses are right, sometimes they’re wrong. Good business managers should have a plan B. But when nobody has any clue what the next week holds, let alone the next decade, the only sensible move is to be as safe as possible.

For businesses, playing it safe means:

Reducing expenses.
Stopping work on new, untested products.
Piling up as much cash as possible to keep the business running no matter what happens.

For active investors, playing it safe means:

Selling off what they own (liquidating positions).
Moving their money into safe assets until they can figure out the market again.

Right now, even groups like hedge funds, which usually do well when the market is all over the place, are sitting this craziness out. A report by the Financial Times found that these big investors are:

Reducing the amount of borrowed money they use (pulling back on leverage).
Simply putting less money into the markets (reducing their exposure).

This is happening even though, in theory, these are the times they should be doing great and making big bonuses. The reason for all these safe-playing trends is the same: nobody knows what’s coming next.

Let’s Talk Tariffs#

So yeah, we gotta bring up the tariffs. Here’s a quick run-through of what’s happened so far:

Before taking office: President Trump started by announcing 100% tariffs on any country messing with the USD as the main way money changes hands globally.
6 days after inauguration: The first new tariffs hit Colombia because they wouldn’t accept deportation flights.
3 days later: 25% tariffs were suggested for Canada and Mexico. An extra 10% tariff was also planned for Chinese Goods, on top of taxes they already paid. These were supposed to start on the 4th of the month…
But on the 3rd: They were delayed by 30 days, but only for Canada and Mexico. China’s tariffs went ahead.
China hit back with some tariffs of their own on certain US goods.
A week later: Tariffs were announced on steel and aluminum. This was done by removing special passes (exemptions) that were set back in 2018.
3 days later: Tariffs that match what other countries put on the US (reciprocal tariffs) were announced for countries beyond China, Canada, and Mexico. Warnings went out that no country would be spared.
Two weeks after that: The Commerce Department was told to start looking into if tariffs on copper would work.
3 days after that: The 25% tariffs on Canada and Mexico finally started. There were some special deals (carve outs) for things like energy, which were taxed at a lower 10%. The extra tariff on Chinese Imports was also bumped up from 10% to 20%.
All three countries (Canada, Mexico, China) fought back with their own tariffs on specific American goods.
One day later: Those tariffs from Canada/Mexico/China were pulled back, but only for US automakers.
Then a day after that: The tariffs were delayed for everyone again, this time for another 25 days. The new date they were really supposed to start was April 2nd. “For real this time.”
To start this week (in the video’s timeline): Tariffs were also placed on Australia, the UK, and Europe. There was even a threat of a 200% tariff on wine and champagne after the European Union said they’d put a 50% tariff on American whiskey as a response to the US putting 25% tariffs on steel and aluminum on them.

By the time you actually watch the video, it’s likely these tariffs will have been delayed, increased, changed through talks, or just forgotten about. But that’s the story up to that point.

Tariffs: Good Idea or Bad Idea?#

Here’s a bit of a different take: Tariffs, if done the right way, can be helpful. They can help local businesses grow, protect American jobs, and keep important industries strong. BUT, to get these good things and avoid too many problems, you need a clear plan that’s put in place over a long enough time. Businesses need that time to adjust.

If you’re watching this, you might be thinking this is all just happening without much thought, that there isn’t a real plan behind these on-again, off-again tariffs. Just look at the facts: More trade policy changes have been announced in the last 2 months than in the entire decade before that!

And as we said, when businesses and investors have no idea what’s coming, the only good move is to play it as safe as possible. That’s why we’ve seen such a big selloff in the market over the last month.

The Stock Market vs. The Economy#

Now, I know what you might be thinking: “Who cares?” You’ve probably heard it a hundred times: the stock market is not the economy. And sure, the money lost in the market mostly affects people who are already wealthy because they own most of the stocks. Maybe this crash is even a good thing, a chance to make things a bit more equal between people who own assets and people who work for their money.

Wrong.

Sadly, the stock market is not the economy… until the stock market is doing badly. So, we need to understand how money works to see what happens when the economy, which has been hyped up (like a pump and dump), runs out of “pump.”

How Businesses Are Responding to Uncertainty#

Here’s the important part: even planning for a bad future is better than not being able to plan at all.

If tariffs were put everywhere on all our big trading partners at a high rate (like 25%), that would be bad. It would slow down business, mess up how things get made and moved around (supply chains), and lead to other countries adding their own tariffs, making our stuff harder to sell abroad. Some of these extra costs could be passed on to regular people, but honestly, most people can’t afford to pay more for things right now.

So yes, broad tariffs would be bad, but businesses could slowly adjust. They could:

Move where they make things back home (move supply chains onshore).
Work with suppliers here in the US (domestic suppliers).
Focus more on selling just to the American market.

However, businesses don’t want to spend huge amounts of money on these changes if the rules are just going to change again. They’d have wasted their investment.

Car companies are a perfect example. They make super complicated products with tons of parts, and their factories take years to build and get running. So, it’s no surprise they aren’t really changing anything major until they really know what the trade rules will be like for the long term.

There are a few companies ignoring this trend, though not always for the best reasons.

Big retailers like Walmart have significantly increased how much stuff they keep in storage (inventory). This is so they can keep their shelves full more reliably while these trade issues get sorted out. This might help them last a few weeks longer than competitors, but holding this much inventory is generally bad for business. There’s a limit to how much they can keep, and even with their current high levels, their supplies would only last a little over 4 weeks, even if people bought things normally.
The other businesses making big moves are mostly tech companies. They’re announcing huge investments in places that store data (Data Centers) and power grids (energy infrastructure) right here in America to build artificial intelligence. Some truly crazy numbers are being thrown around for this.

Spending hundreds of billions on AI “slop” might not sound great, but even if the final product isn’t perfect, these investments can still be good in other ways. Building all this infrastructure needs skilled workers. And while it feels a bit like something out of a scary movie that tech companies are building their own nuclear power plants to power their AI habit, that still creates jobs in areas that need more money and work opportunities.

Public Investment Announcements: What’s the Deal?#

Here’s the thing about big public announcements about investments: They’re free. The companies announcing them don’t actually have to follow through, and often, they don’t.

Apple recently announced they’d invest $500 billion in America, saying it would create 20,000 new jobs. Politicians loved this and talked about how business-friendly they were. But if you’ve been paying attention, it sounds awfully familiar.
Back in 2018, Apple announced a $350 billion investment in the US economy, also claiming it would create 20,000 jobs.
Three years later, after a new president (Joe Biden) was in office and there was talk of more rules for big tech companies, Apple made another announcement about investing $430 billion in a plan that would, you guessed it, create 20,000 American jobs.

Apple isn’t the only one; most companies do this. Apple is just particularly bad at not even trying to make it sound different – it’s like they didn’t change their homework! Even Elon Musk is known for saying he’ll do big things but not always delivering (over promising and under delivering). Love him or hate him, he’s basically doing what other tech companies do, just announcing it himself directly.

Why Make These Announcements?#

So, why do companies make these big investment announcements if they don’t always happen? There are three main reasons:

To Get Politicians on Their Side: Lawmakers love good headlines about a booming economy and job creation. It also gives companies leverage. If a company CEO is worried about government rules or investigations (like from the FTC about being anti-competitive), they can call up a politician they have a relationship with and suggest that planned investments might not happen if those rules go through. “Wouldn’t that be terrible?” These announcements can also help companies get money from the government or get easier rules so they can “make” their investments without hassle.
People Just Forget: Most people aren’t closely tracking the future spending plans of huge companies. The sophisticated investors who do care often won’t be upset if the company doesn’t spend half a trillion dollars on a public relations project and instead uses that money to buy back their own stock (which also helps the stock price).
To Pump Up Stock Values: Regular investors see a company announcing a huge investment in something hot like AI. This sends signals: A) The company must have a ton of cash (like half a trillion dollars!), and B) The company is feeling really good about its future to spend that kind of money. If companies can make it look like they’re making big investments without actually having to put them in their official financial reports, that’s a big win. The belief that these companies will keep growing forever, even the giant ones, is why they’ve become incredibly valuable in the last decade.

Stock Valuations vs. Reality#

Picking on Apple again: Their profits have only gone up by about 80% over the last ten years. But their stock value (valuation) has jumped over 330%. We talked about stocks being valued higher than they probably should be (stretch valuations) recently. This only works if people expect even the biggest companies in the world to keep growing super fast, which is getting harder and harder.

So, maybe this market crash is just bringing investor expectations back down to reality, or maybe it’s a chance for new investors to buy stocks at better prices (a buying opportunity).

Is This a Good Time to “Buy the Dip”?#

There are some problems with the idea that this crash is a great buying opportunity:

Buying the dip is basically trying to time the market, which is usually a really bad idea for most investors. You don’t want to make the Plain Bagel angry with bad financial moves!
The bigger issue is: buy the dip with what money? People’s household savings are near record lows.
Unfortunately, because companies have to keep their shareholders happy, they’re likely to keep laying people off to cut costs while things are uncertain.
And don’t forget the people who’ve lost stable government jobs.

While it might feel good to see the net worth of some of the richest people drop with the market (cathartic), they’ll almost certainly be fine and handle the tough economic times better than most families. Some, like Warren Buffett’s Berkshire Hathaway, have slowly built up hundreds of billions of dollars in cash. So yeah, old man Buffett is probably going to have a great time buying things when prices are low. Most other people? Probably not so much.

What About Real Estate?#

Okay, even if the stock market becomes concentrated in fewer hands, maybe a crash will help average people get into another big asset market: real estate. If real estate stops being a good investment for big money, maybe that will be good for people who just want to buy a home, right?

Well, even if prices fall, unfortunately, a real estate crash probably won’t help you buy a home. (Go watch the video linked in the original to find out why, and make sure to like and subscribe to keep learning how money works!)

Sponsorship Message#

(This section is a message from the video’s sponsor)

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Nobody Knows What’s Going On (Including You)#

Just want to be clear: the group of people who don’t know what’s happening right now includes you, me, anyone you watch online, company bosses (corporate executives), and probably even most of the people making the actual big decisions.

This is a serious problem for businesses because, as we said earlier, even planning for a bad future is better than not being able to plan at all.

If tariffs were put on everything across all our major trading partners at a high rate (like 25%), that would be bad. It would slow things down, mess up supply lines, and lead to other countries putting tariffs on our stuff, making our exports less appealing. Yes, some costs could be passed to consumers, but have you noticed? Most people can’t handle paying any more right now.

So, it would be bad, but businesses could slowly adjust. They could move their supply chains back home, work with US suppliers, and focus on selling just to the American market. However, businesses don’t want to make these huge investments if the rules are just going to flip-flop again, because then they would have basically just thrown their money away. Car companies are a prime example – they make complicated products and factories take years. They’re not changing much until they really know the long-term trade situation.

We also saw some businesses like big retailers increasing inventory (Walmart) and tech companies investing in AI (building data centers, energy infrastructure, hiring skilled labor, even talking about nuclear plants) throwing around massive numbers. But remember, big investment announcements are often just talk. Apple, for instance, has announced huge US investments multiple times with the same job numbers ( $500B,$ 350B, $430B, all promising 20,000 jobs). Companies do this to get political favors, hope people forget, and boost their stock price by making investors think they’re growing rapidly and have tons of cash. This expectation of unlimited growth is a big reason why companies like Apple have seen their value grow way faster than their actual profits (Apple’s value up 330% vs. profits up 80% in a decade).

So, while the crash might seem like a market correction or a chance to buy low, timing the market is risky, most people don’t have the savings, companies are likely to lay off staff, and the wealthy (like Warren Buffett) are best positioned to take advantage, not average households. And even a real estate crash likely won’t make buying a home easy for regular folks.