The most dangerous finance story you'll see all week

It’s August 24, 2022. Here’s the rundown:

• The high costs of being single

• The most dangerous finance story you’ll see this week

• Numbers and links

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The high costs of being single

Data shows that coupling up has significant financial benefits.

Two incomes trump one. That seems intuitive enough, right?

A recent story in The Wall Street Journal extrapolates just how much of a difference that second income in a given household can make, especially as prices rise and the costs of borrowing go up. In short: It pays to couple up, and if you’re a single-earner or live in a single-income household, it can be costly.

“The median net worth of married couples 25 to 34 years old was nearly nine times as much as the median net worth of single households in 2019, according to the most recent data from the Federal Reserve Bank of St. Louis. In 2010, married households’ median net worth was four times as much. And now, after a spell of rapid inflation and more than two years of pandemic living, single people are getting left further behind, say economists at the Fed and elsewhere. “

So, relatively young, married couples have NINE TIMES the median net worth as their single counterparts. That’s a huge difference. Massive.

As the story explains, this comes down to the simple ability to pool assets. Again two incomes are better than one, and if two people are tackling the expenses of a single household, it’s much easier to manage, and there’s (hopefully) a lot more left over to save or invest. That, the story says, is where the big difference has been made over the past decade:

“Having combined assets was particularly helpful over the past decade as many households’ wealth was compounded by rising housing prices and a strong stock market.”

Again, while this makes some obvious intuitive sense, I think it’s surprising just how much of an economic advantage coupling up has afforded many households. While there are clearly plenty of very successful single-earner households out there — and plenty of dual-income households that are struggling — the fact that median net worths were almost ten-fold those of single ones is eye-opening.

It also harkens back to what I think of as an antiquated mode of thinking: Marrying for economic reasons, rather than love. It seems old-fashioned or strange to many of us, but we’re not that far out from a time when people did get married strictly for economic security. People still do it. And evidently, there’s a relationship between marriage and poverty.

Maybe I just never gave this much thought, but again, the story really surprised me at just how big of a difference coupling up can make in terms of an ability to grow wealth.

Of course, marriage or long-term relationships aren’t for everyone, and this isn’t all to say that maybe we should start thinking about the economic benefits of marriage before gauging whether or not we actually like another person. But if you know single people who are a step behind or struggling financially, a lack of a second-earner in their household could explain why.

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The most dangerous financial story you’ll see this week, BBBY

Meme stocks are back — and could fill your head with crazy expectations.

Bed Bath & Beyond (BBBY) became the latest “meme stock” to make a few people a small fortune over the past couple of weeks. Like GameStop before it, BBBY was hyped up on internet forums like Reddit’s WallStreetBets, and saw its value climb rapidly.

At the beginning of August, shares of Bed Bath & Beyond stock were trading for about $5. But by the middle of the month, the hype train helped the stock top $28 per share — that’s a more than 500% increase:

Image: TradingView

Of course, values have since fallen to a bit more than $11. Still, if you had bought it at $5, that’s a good return. But you would’ve missed the big returns and probably be feeling down about it.

Regardless — it was the dramatic rise and fall in BBBY’s value that led to some big opportunities for some people. That’s how we got the most dangerous financial news story of the week, involving a 20-year-old college kid, nearly 5 million shares of BBBY, and a whole lot of money.

Naturally, it gets the wheels turning and makes us all feel like we missed out on something when we see headlines like this:

The story, originally reported by The Financial Times, says this:

“Jake Freeman, an applied mathematics and economics major at the University of Southern California, acquired nearly 5mn shares in Bed Bath & Beyond in July, according to regulatory filings, after dismal earnings and the ousting of its chief executive sent its stock price plummeting. Freeman bought his stake at under $5.50 a share. On Tuesday, Bed Bath & Beyond surged to more than $27 a share. As the stock soared, Freeman sold more than $130mn worth of stock from his TD Ameritrade and Interactive Brokers accounts.”

In the end, this kid walks away with $110 million — this is more or less what everybody who’s opened a Robinhood account over the past couple of years has dreamed of.

So, why do I think that this story is so dangerous? Because it’s going to make other people think that they can replicate Freeman’s success. And that could have disastrous consequences.

There’s another critical element to the story, too, which is that this kid, Freeman, was rolling deep:

”Freeman’s initial stake cost about $25mn, which he said was mostly raised from friends and family. He has invested for years with his uncle, Dr Scott Freeman, a former pharmaceutical executive. The two recently built an activist stake in a publicly traded pharmaceutical company called Mind Medicine. Freeman also said he had interned for years at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and its founder, Vivek Kapoor, a former Credit Suisse executive, published a paper titled “Irreducible Risks of Hedging a Bond with a Default Swap”.

Freeman amassed his more than 6 per cent position in Bed Bath & Beyond via Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to the filings.”

This guy convinced friends and family members to give him millions of dollars, worked alongside professionals, and was running his investments through Wyoming-based holding companies. So, no, you or I are not going to be able to keep up with those types of resources.

Really, his BBBY score kind of came down to dumb luck. Other people made money off of the BBBY bull rush, too, but you likely won’t see stories about them — but this one was simply too good to pass up.

But again, the danger here is that these types of stories spark a little hope in us all that if we just use our wits and resources, and hit a little lucky streak, we’ll be perfectly positioned to take advantage of a skyrocketing stock. Who knows? Maybe some of us will?

We don’t, however, have friends and family members who are going to give us millions to play around with (especially the 20-year-old versions of ourselves). That’s really the key, here: Freeman simply had the resources to make a lot of money. Most of us don’t.

That all said, invest and trade how you want, but don’t get lulled into thinking you’re going to make millions trading stocks on your phone. That’s not to say it’s impossible, but if it was easy, or even remotely replicable on a large scale, everybody would do it.

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Numbers, links, and more

• ~60%: Percentage of renters who said their rent went up this past year. (Freddie Mac)

• 9,500: The number of people killed in traffic accidents during the first quarter of 2022, a 20-year high. (NHTSA)

• $1.68: The price, per pound, of chicken wings in July, down from $3.25 in May. (Axios)

• A vicious cycle: Climate change is creating a cycle of droughts and flash floods, as the soil can no longer absorb water like it used to. (Wired)

• Russian knockoffs: “Stars Coffee” opens up in Russia after Starbucks left the country. (Associated Press)

• “I’m not worth your Red Lobster money?”: A Kansas City pastor to his congregation, after they didn’t buy him a nice watch. (Patch)