Hi Again,
Did you notice our performance on Tesla? It was down for a long time and even went down to $600 but patience gets rewarded. From 9/30/21 to 10/31/21, it went from $775 to $1128-total gain for Tesla in 8 months- 93%!
Everything is in a bubble! Have you seen the TV show, “pawn stars”? They were saying that they do not want to buy old video games as they are in a bubble. A pair of shoes manufactured in the 1980s was sold for 1 million. Prior to 2017, most people stated that real estate will never go down and that led to the mortgage crisis. I have been saying that we are heading for a worse situation. Over the past few years, big companies with “printed” money buying houses that they can find assuming that it will be all profitable in the future. I knew it was a bad idea. Greedy landlords were increasing rents and doubling the homeless population. As I have been predicting, we can now see the “cracks on the dam” but we are not even close to the “dam blow up”. Zillow started as a website bringing buyers and sellers, renters and landlords and then they started buying houses and building up big inventories. On 11/2/21, they announced that they no longer will buy houses and add to their inventory as the market prices of their houses are below the purchased prices! This is just the beginning! Market analysts who were praising Zillow for years are now saying that it is a terrible business! I am sorry I did not buy some puts to short the stock. On 11/2/21 alone Zillow dropped by 20%. The worst is yet to come! 2007/2008 will seem like a picnic! It was only last month that I said that in the future, most people will be upside down on their mortgages as it was after 2007/2008. This time around, it is different- Prior to 2007, people with no assets or income were allowed to buy but this time it is hedge funds and private equity (in the US and overseas) have been buying most of the houses expecting to make money by assuming housing prices will rise to the sky. This time around the Federal Reserve and the government should allow these big funds to fail and make housing affordable to most people.
Bubbles! Bubbles! Investors become myopic during bubbles. They believe the universe of attractive investment opportunities is small and growth can only be found in a few selected sectors. They seem enamored with vacations in outer space and electric vehicles, yet ignore the dire need for improving US logistical and electrical infrastructure.(Barron’s/Market View, 10/29/21)
History keeps repeating itself as people do not learn from history. We have so much in common with the 1920. Barron’s had a nice article on the 1920s. There was no compassion for the poor and the struggling middle class. During the Great Depression, when a child stole a loaf of bread, that child was sent to a dangerous adult prison. One of my former older friends who grew up in Nazi occupied Holland used to steal food from the Nazis to stay alive.
Per Barron’s (10/18/21), Annualized growth in China (PRC) GDP for 3rd Qtr, 2021: 4.9%. For decades if the PRC had a growth rate below 8%, it was considered alarming!
Per Barron’s (10/8/21). The total amount of debt tied to China’s (PRC’s) property market: $5 Trillion !! China (PRC) used that money to create homelessness around the world and now the Communist Party is concerned about what that is doing in China.
Now for Bitcoins! China had become a key player in this new financial ecosystem, and Beijing’s actions could be the leading edge of a broader regulatory crackdown on cryptocurrencies and crypto assets by regulators around the world. China had earlier banned initial coin offerings, the cryptocurrency equivalent of initial public offerings of stock by companies. It then took steps to limit Chinese financial institutions’ dealings with cryptocurrencies and crypto assets. The latest move is much broader. All domestic cryptocurrency transactions are now prohibited. In principle, such transactions can be conducted without the government’s direct knowledge. But few Chinese citizens or financial institutions are likely to risk the government’s wrath. Beijing’s actions illustrate how national governments and central banks are becoming increasingly fearful of cryptocurrencies destabilizing their financial systems and other negative consequences. They have good reason to be worried. Bitcoin, the original cryptocurrency, once fueled illicit transactions on the dark web and now facilitates payoffs for ransomware attacks. It has become apparent, meanwhile, that Bitcoin doesn’t work well as a medium of exchange for everyday transactions. Its value is unstable, and the Bitcoin network cannot process a large volume of transactions quickly and cheaply. The prospect of households channeling their savings into crypto assets, leaving them vulnerable to a bursting of the speculative bubble, is worrying to governments. China’s government clearly didn’t want any part of this, especially since it is already facing pushback for trying to cool off the speculative bubble in housing markets, which it once encouraged. Yet another concern was that cryptocurrencies and stablecoins could be used to evade restrictions on cross-border financial flows. Such controls have been eased in recent years. but the government worries that unfettered flows would make it harder to manage the renminbi’s exchange rate. In 2015-16, when China was trying to rein in massive capital outflows and stanch a steep depreciation of the currency, demand for Bitcoin from within China spiked as people used it to take money out of the country and evade the government’s controls. Beijing now sees cryptocurrencies as conduits for evasion of capital controls. The environmental impacts, in terms of energy consumption and computer detritus, have been enormous. With the country in the midst of a power crunch as it tries to wean itself off dependence on nonrenewable energy, Bitcoin mining clearly wasn’t going to be tolerated (Eswar Prasad, Barrons/China Fears, 10/15/21)
Is our debt level too high? During Trump years we were told that deficits do not matter and burdening future generations to give tax cuts to the wealthy and immensely big companies was not a problem. Last stimulus check went to “low income” families earning less than $50,000 but 85% of the population received it. When Trump gave a huge tax cut for companies, he stated that it will help them hire more employees and make it better for employees. Later Trump agreed that 99% of the corporate tax cut went to buy back stocks. Why? Company CEO pay packages are tied to stock performance so some CEOs earn more than $100 million per year. Disney family was disgusted at the difference between the CEO pay and the pay package of an average employee. Now we can see more and more strikes as wage earners are refusing to tolerate these conditions that have been getting worse since Reagan took over in the 1980s. When Trump was threatening to raise tariffs on imported items, he said that if companies move out of the US, the goods they sell in the US will be ‘taxed’ at a high rate as an incentive to produce most goods in the US. Trump is correct. Now 2 Democratic US Senators acting like Republicans say that they do not want the Middle Class or the poor to have a “sense of entitlement”; however it is okay for multi-Billion dollar companies that pay next to nothing in taxes and the 65 US billionaires and the very rich to have a “sense of entitlement” and pay next to nothing in taxes. As in the 1920s, the party will end one day. 65 Billionaires in the US earned more than a trillion dollars in 2020. People say that our debt level is too high and that there is no solution in sight. Is it? Even though this is oversimplified, consider this, assume the 65 US billionaires will earn a trillion per year for the next 25 years. If those 65 billionaires pay a 95% tax rate, the total US debt will be gone in 25 years! Just imagine 65 citizens paying off this “huge” debt of the US within 25 years! Instead of doing that if we honor the great Republican President Eisenhower and bring back those tax codes for individuals and corporations, the total US debt will be eliminated pretty soon. Economists have stated over and over again shown that cutting taxes do not decrease deficits as some would like us to believe. That is like me saying that if all you give me 50% of your assets, your assets will not go down. Even “read my lips” Herbert Walker Bush increased taxes which led to the first budget surplus since WW2 during the Clinton years. Clinton did not have anything to do with it. For HW Bush, country first but George W, it was all about getting a 2nd term as analysts say, ”George W did not see tax cut he did not like”. Compassion is a dirty word for some politicians. Some political party people believe that compassion is for socialists and we have to listen to Reagan who said that “Greed is good”. Just like the 1920s! Read the article, “How the roaring ‘20s crashed and burned” in Barron’s (10/25/21). When everything crashes, make money by short selling the market!
Have a great month and a Happy Thanksgiving!
Fernando