The 401K Trap: Are You Getting SCAMMED?

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Is it really about giving you more “access”—or giving Wall Street a way out?
In this explosive episode of Watchdog on Wall Street, we sound he alarm on a quiet executive order that could flood 401Ks with risky, overvalued private equity. He breaks down:

• Why private equity “valuations” are often smoke and mirrors
• How firms use mark-to-model accounting to hide risk
• The demonic game of musical chairs—and who’s left holding the bag
• Why this move isn’t democratization—it’s liquidation
• And why most Americans will not understand the hidden fees, lockups, and long-term pain baked into these investments

From dot-com scams to Wall Street’s newest hustle, we've seen this movie before—and spoiler alert: it doesn’t end well for the little guy. www.watchdogonwallstreet.com

Episode Transcript

Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it we'll have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.

Speaker 2 (00:16):
Private equity in four A one k's yep. President Trump
expected to sign an executive order designed to help private
equity private market investments, trying to make them more available
to the masses available to retirement plans. The order would

(00:39):
instruct the Labor Department, the Securities and Exchange Commission to
provide guidance two employers and plan administrators on including investments
like private assets and four one K plans. Okay, what
could possibly go wrong here? Oh? No, all right, you
know it's funny as I am. I do this thing

(01:01):
with my interns over the summer. We do movie night. Yeah,
we do movie night, and I have the kids over,
I barbecue for them and we watch a financial movie.
And the first one we watched was going back to
two thousand. Watched the movie boiler Room. It was an

(01:23):
independent film and it was really good, had great, great actors,
and it was a great story and I much prefer
it to the old Wolf on Wall Street because in
the movie it actually you know, Wolf on Wall Street
was all about decadence and the actions of Jordan Belfort.
In this movie, it actually showed the people and how

(01:46):
they got hurt and the damage that was done by
all of these boiler room operations. Now I've got a
lot of experience with Connor's. We started Markowski Investments started
Markowski Investments. That are our original plan to bring in
business to Markowski Investments was to help out the people

(02:07):
that were ripped off by the Wolves on Wall Street,
the boiler room operators. We had an account repair kit
and we were contacting them and looking and teaching them
to help them to rebuild their accounts. So we've seen
quite a lot of a lot of pain that people
have taken by, you know, people that quite frankly ethical

(02:32):
bypass at Birth on Wall Street. Been dealing with them
my entire career. This radio show Watchdog on Wall Street,
we originally spent it was only an hour long when
we first started. That's pretty primarily all I did was
just go after cons and frauds and trying to alert

(02:52):
people to the crooks that were out there. And as
I progressed through the industry. I kind of kind of
learned and that the same thing, the same thing that
the boiler room operators were pulling, the same thing the
big firms are pulling. It's the same things right now
that many, but not all, a lot of the private

(03:13):
equity and venture capitalists are doing. I've often described it
here as demonic musical chairs. He's talking about this again
with my interns. I try to teach them as best
I can, as you know when your kids. I remember
my birthday parties, whatnot. My dad there at the record

(03:37):
player and we're trying to eyeball them out of the
corner of our eye. We're going around the chairs and
what is he going to pick the needle up off
the record? And everybody's got to find a seat. If
you're left standing up, you're out. Well Wall Street's game
of demonic musical chairs. It's who gets who's left holding
a bag? Who's holding the bag? Last us described by

(04:01):
by Christopher Byron as the greater fools? Who was going
to be the greatest fool? And I've watched this game
being played throughout my career in many different ways, shapes
manners forms. Demonic Musical Chairs was played during the dot

(04:25):
com run up, not to the level that I think
we're seeing quite frankly today with the big firms. Again,
I do think a lot of people were just overly excited.
But again, we had the receipts we saw. We saw
the stock analysts at the major brokerage firms calling companies

(04:46):
pieces of you know what, making fun of them, and
then turning around and putting buy recommendations on them. Why
why would they do such a thing, Why would they
ruin their reputation? Well, it's it's not about them. It's
not about them. It's about them selling, doing their job,
moving a product, getting it off their books. Companies are layered.

(05:07):
We want to go back to the nineteen nineties, and
this is prior to a lot of the venture capital
and private equity. The companies would go public much much quicker.
They would have maybe a private placement first bridge financing,
and there'd be insiders there. Insiders would get in there.
Then the company would go public and you know, the

(05:30):
bridge financers could get out. Private equ we could get
out over a period of time. Today the game is
played a little bit differently. Companies don't go public so quickly.
They are layered. Up with multiple, multiple, multiple rounds of
financing over the years, and they're held held by private
equity firms. Now, if you are a private equity firm,

(05:56):
you're kind of the king, aren't you. To some degree,
you get to basically you get to basically determine what
what everything is worth in your portfolio. It's not public, right,
there's no public market for the companies that they're holding
on to. It's private. You know, they you know who

(06:17):
pays their accountants. They pay their accountants. And again you
want to get what they want to accountants want to
keep their business. They're going to you know, put a
nice valuation, nice high valuation on these things so their
portfolio looks awesome, looks fantastic. Wow, this company is valued
at this. Again, I see it all the time. I

(06:39):
see I see small businesses, blue collar businesses like h
VAC companies getting bought out at ridiculous multiples. Do these
companies do these companies have? Are they positive cash flow?
They're making money? Yes, yes they are, but they're bought
out at multiples which are patently absurd. And again the

(07:03):
private well we bought it for this, it must be
worth this, is it? Really? So? They can hold on
to this company and they're poorfolio. Oh, look at the
positive cash flow that it's bringing in again, and they
can charge the people that have invested in their private
equity company based upon the valuation that they place on
those assets, and that valuation, quite frankly, tends to be

(07:26):
very very high. Now, these are the types of investments
that you think should be going into four to oh
one K plans. Do you honestly think that this is
a good ida? Oh, I know they're gonna say, wow,
you know it's got a long time. You can get

(07:48):
out and they can hold on to these private, private things,
and then you know, then they'll go public later on.
Some will, without a doubt. I'm not arguing that point.
I'm not arguing that some of these things are going
to work out great. I'm just telling you most of
them are not. Most of them are not. I see

(08:09):
what they're paying right now. And this is again I'm
coming from personal experience, and I've talked about this here
on the show. The offers that I get to buy
Markowski Investments and what we have built here are ridiculous,

(08:30):
out of faces, absolutely ridiculous, absolutely ridiculous. Now, if I
had a nice house, a nice house, and a nice neighborhood.
And you know, let's say the house, the house was
worth let's say five hundred thousand dollars. Okay, and some guy,

(08:50):
for whatever reason, came in. I'm selling the house for
five hundred thousand dollars. And some guy comes in as
I want, I want that house. I don't care. I
love it, I wanted, I got you know, whatever it
may be, I'm going to pay five million dollars for it.
What really? Okay? Okay, fine, I'm not hurting the guy.

(09:13):
He wants the house, he loves the house, he wants
to live in the house. It's different when you have
a business like I do, where we are professions for
d sharies. We have to put our client's interests above
our own. I know, I know what's going to happen.
I sure I could sell my business for an absolutely
ridiculous multiple, live on a yacht the rest of my life. No, No,

(09:41):
because I know ultimately it's going to hurt my clients
because there's no way they're going to make out on this.
There's no possible way. Okay. I know our industry, I
know the multiples, I know how it works. However, private
equity company is going to say, oh, okay this look
at his company and look at the assets that it manages,

(10:02):
all this stuff. We are going to put evaluation at
ten times ten times earnings. Okay, mind you, mind you,
it's usually three, it's usually three. I know that people
are going to get hurt, and I'm not going to
do that again. Many are at this point in time.

(10:23):
Let's circle back, circle back to the four to one case.
Great great piece on this. I want to share a
little bit with you. This is about re routing a
tidal wave of captive capital. Why is it for one?
Captive capital? Well, you can't get out of you know,

(10:47):
you can't sell your four to one K, can't sell
your four to one k, all that stuff into you
retire unless you want to pay a significant penalty. It's
conversation with my son last night. You know, it's just
taking a look at a salary and he's calculating how
much money he's going to be putting into his raw
thigh array. And I'm like, whoa, whoa, You've been doing

(11:09):
great with that. But chill, I said, what what is
your next major purpose purchase? Is probably going to be
a house? Right, So you don't want to go two
nuts with that. But anyway, neither here nor there. Okay,
trillions of dollars are in these four oh one case
Private markets are illiquid, I liquid. They are more often

(11:34):
than not, Like I said, ninety eight percent of the
ones that we look at are ridiculously overvalued. And they
need more money. They need more money. They need more
money because they want to get out. They want to
keep the keep the it's an essence. It's a bit
of a Ponzi scheme. Okay, a bit of a Ponzi scheme.
They want to get some of their earlier investors out.

(11:55):
How do they do that? What have they got to
find the greater fool? So here is just another game,
quite frankly, of demonic musical chairs. Great statement. Behind the
populist framing lies a deeper truth. Public markets are saturated,

(12:16):
institutional alpha is drying up, and private equity firms are
sitting on aging portfolios. They can't exit without fresh retail money.
To take the baton again. Tell you a bit of
a story. And I told this story before, and this

(12:38):
was during the dot com run up. One of the
firms that was really late to the party was Morgan Stanley,
Morgan Stoneoid White Shoe firm, hanging out at the Long
Island Yacht Clubs. Say, Morgan Stanley was really really late
and they wanted to get involved. I remember their head

(12:59):
gallon at the time was Mary Meeker's. It was their
head analyst at the time. Morgan Stanley goes out and
buys Dean Winter. Dean Winter was kind of an essence,
kind of like an investment firm, brokerage firm for the masses.
They had offices, remember this, back in the day. They

(13:21):
had offices in Sears. They had Dean Winter offices were
in Sears Roebuck And I'm saying, everybody, what in the world,
My god, Morgan Stanley's buying Dean Winter. And I'm just
shaking my head. And I knew, I knew exactly what
was up. Morgan Stanley was buying greater fools. They were
late to the party. They wanted to get their investors

(13:43):
and all of these hot tech stocks. They wanted to
start taking them public. But they needed to find they
needed a base of greater fools so they can play
the demonic musical chairs and burn them. They weren't going
to burn their big clients. They were going to burn.
They're little clients. Now again, think about this. I remember

(14:06):
at the time they actually changed their ticker symbol ms
d W. That was kind of like the facade at
the time. No, no, Morgan standing, we would never do that.
Look at what we're doing. We're providing these great services
to Dean Witter. Look at we have to offer us
a Nope, nope, nope, nope, nope. You're fattening. You're fattening

(14:33):
these Dean Winter clients up to be fed to the dragon.
That's what you were doing. And that's exactly what you did.
Whatever happened to Dean Witter? Well yeah, yeah, they were
the greater fools and they got wrecked. Anyway, going on here,
Opening up four to one ks to private investments under

(14:56):
an executive order circumvents much of the traditional legislative oversight
that would have normally accompanied such a structural shift. It
compresses a massive change and fiduciary standards into a top
down mandate, effectively using policy as a liquidity injection into
elite capital channels, and it raises a subtle but critical

(15:16):
question what happens when the retirement system is turned into
a shadow bailout engine for the capital private capital complex.
Now for the average person out there, Wow, cool, look
at this, I'm going to have access to higher returns.

(15:37):
You think that most people in four to one k's
are going to understand how private markets work, understand the
types of fees that go along with this. They charge
a fortune, mantelly, what we charge here at Markowski Investments

(16:00):
and average around one percent on assets? Way more than that,
and that's fees layered on top of your already your
four oh one k fees. You're not going to have
much transparency. Like I said, They're going to tell you
what they want to tell you. Your lockup in this

(16:21):
thing is forever. The mark to model valuations, obscure downside risk,
oftentimes till it's too late. The democratization narrative masks a
more urgent reality. Institutional capital is saturated IPOs. We're seeing
many IPOs pension funds. You think the colleges are buying

(16:44):
into these things that much anymore? Nope? Nope, So again
again demonic musical shares. They have to find another sucker. Okay,
I'm gonna put it to you this way, and I
guess this is a great, great piece was put out
by Endgame Macro. It's not about giving you access. It's

(17:08):
about getting them out, that's all. It's not about giving
you Oh look at that. It's gonna give people access
to private equity. It's giving you an out again. What's
gonna what I see is going to happen is everyday

(17:29):
Americans are going to absorb the losses after all of
the the BS has gone away, All the BS is
gonna go away again. It's basically who's going to be
ended up carrying the bag? Who's going to lose the
game of demonic musical chairs, And that's the general public.

(17:54):
Nothing new under the sun, Nothing new under the sun.
I watched this same game being played throughout my career.
There's a right way, there's a wrong way of doing things.
Do we get involved in some private equity for our clients? Yeah,

(18:18):
we do limited limited and for the right people and
understanding what the companies have, what's in their portfolio. The
old Reagan trust, but verify Okay, I don't even trust,
but verify, Okay, I am super skeptical, super skeptical. Verify

(18:44):
then trust. It's kind of how I work. So no,
this is in my opinion, this is not going to
turn out well. You need help with your porfolio, you
need help with your four oh one K. You need guidance,
I guess. Get to our website, get in contact with

(19:05):
a sign up for our personal CFO program. That's what
we're here for. Watchdog on Wall Street dot Com Hm