Hi There again,
We had a 8.45% gain in our portfolio last month (see our scoreboard). Last 2
months we had gains after going down for 11 months. Is the bear market over? I do
not think so. Usually bear market ends with bearishness reaching an all-time high.
We are not there yet. According to Barron’s, “Inflows to US stock mutual and
exchange-traded funds for 2022 through October, on track for the largest annual
haul since 2013!
At times, we have to wait patiently to reap the rewards. Take Boeing for example,
on 2/19/19, it hit an all-time high of $424 but it has been on the decline for a very
long time. However, from 9/30/22 to 12/2/22, Boeing rose by 50% ($121 to $182).
If you look at the chart, it just passed a double bottom. Value stocks are back!
As the market expected, Fed Chair Powell on 11/30/22 indicated that the Federal
Reserve is ready to pause rate hikes; and as expected the market rallied As Steve
Weiss stated a few weeks ago, first the market will rally when the Feds pause
raising rates and then when we get lower revenue/earnings reports in the future,
market will decline again. I agree with that assessment. There is a time lag between
rate hikes and the impact it would have on “main street”. The Feds did not say that
we have seen the last of interest hikes. All depends on the rate of inflation
In my last newsletter I stated how the market guru Joe T bought AMD at $90 and
sold at $65 saying that he got caught to the famous Wall Street “falling knife”. As
Joe T was selling, I started buying AMD (nibbling-little at a time). After Joe T sold
AMD at $65, AMD rose to $76- 17% gain. The chart just made a double top so
expect AMD to fall significantly in the future.
Jessica Inskip is an advanced product specialist within the self-directed investing
space. Jessica is currently the Director of Education and Product for OptionsPlay.
Jessica’s responsibilities include solving key industry issues via creative thinking,
driving the vision of innovative business ideas with a focus on options, technical
analysis and engaged trader experiences. Jessica stated (on CNBC) that the market
will continue its bully rally till 12/16/22; or till 12/31/22. The market is on one of its
Santa Claus rallies. In my opinion, this rally is irrational.
We had a slight decrease in the rate of inflation in November so most people
assumed that the Federal Reserve is ready to pivot and stocks and bonds rallied. Fed
2
Chair Powell has stated over and over again that they will act more like Paul Volker
(1980s) than Arthur Burns of the 1970s.
In the 1970s, for the slightest decrease in inflation, the Feds would pivot and start
lowering rates. As Carl Icahn stated on 11/10/22, if the Feds do not keep increasing
rates and pivot for the slightest decrease in rates, we will have a period of
hyperinflation in the future (as we did in the 1970s). The Feds will have to keep
coming back to raise rates and each time they raise rates, they will have to raise
rates to a much higher level. Initially this happened to Volker too; then he raised
rates to about 15% and killed inflation for 30 years. What would the Feds do? No
one knows but depending on what they do, we will know what we can expect in the
future. For the first time in many years, the Federal Reserve stopped buying
treasuries and started selling their treasuries to decrease their balance sheet. Initially
they were going to decrease their balance sheet by $50 Billion in Fall 2022 but they
ended up selling treasuries over $90 Billion. Everyone was afraid that when they
start dumping their treasuries, interest rates would rise sharply. The opposite
happened! They have been raising rates for a while (3% since 6/16/22) and after the
November 2, 2022, 75 bases points raise, they warned that they will keep increasing
rates for many months and will keep rates at high level for many years. The market
refused to believe them as they no longer have much credibility. If they pivot soon,
they will lose more credibility. 11/2/22 to 11/25/22 (23 days), the S&P500 went up
by 4+%! More alarming is what happened in the bond market. Bonds go up when
the bond yield (interest rate) go down. Let us look at 20 yr treasury bond ETF,
“TLT” – On 11/2/22 this ETF was at 96.91 and by the market close on 11/25/22, it
was at 102.61 ! That is an increase of 5.88% in 23 days !! The market keep
lowering interest rates. Most people expect the Feds to increase the interest rate by
50 bases points in December and then be data dependent. Since they follow the
bond market, most probably they will do that; but I have a feeling that they are
concerned about falling rates in the bond market and state they are not ready to
pause increasing rates. If stocks and bonds fell sharply, that would have given the
Feds an opportunity to pause here. In my opinion, we are going to have a1970s style
market. I do not understand why the Feds did not make use of this opportunity and
unload more of their treasuries on their balance sheet. Why is that important?
Currently, after printing so much money, their balance sheet is bloated at 8+
Trillion dollars. If they manage to decrease it sharply, they will be in a position to
help the US economy if we have a deep recession or an economic calamity in the
3
future. Instead of unloading $90 Billion per quarter, they should unload about $1
Trillion per quarter-that is if the market keeps lowering rates.
Now to my favorite punching ball- Bitcoins and Cryptos! Yes, a lot of people made
a lot of money in Bitcoins/Cryptos. $9 in 2009 in Bitcoins would have got you
$6.8Million when bitcoins hit an all-time high of $64,000 (on 11/25/22 it was at
$16,000-75% decrease!) in early 2022 (double top). Even some gamblers in Vegas
and drug lords make a lot of money so that is not a good reason to get involved with
Bitcoins/Cryptos. Within the past 6 months, cryptos value has gone down from $3
Trillion to $800 Billion. When cryptos were flying high, those people borrowed
against their cryptos and also got in to other counterparty relationships with
mainstream financial institutions. Cryptos are totally unregulated and most act like
a big ponzi scheme! Nothing tangible and nothing real! Like all those metaverse
and NFT imaginary things! Some used to say that FTX was the J P Morgan of the
crypto universe! In 2008, Bitcoin was created by a Japanese software engineer
named “Satoshi” but no one can find him. One objective was to create a “stealth”
medium of exchange as a substitute for money that does not go through the banking
system so governments of the world will not be able to tax or regulate the industry.
Now they are asking the US government to regulate Bitcoins and Cryptos. Why?
Simple-getting credibility and respectability.
Did you hear about the FTX debacle? During their hay day, the founder of FTX was
even featured on the Forbes cover as “Warren Buffet” of the crypto universe! FTX
that had more than $32Billion went insolvent on 11/11/22. Many investors are
already writing off their exposure to FTX. They did business in 48 countries with
100,000 creditors. Most pundits expect all financial markets to be affected by the
FTX contagion effect. Do not expect to see this soon. Bear Stearns crisis happened
in March 2008 but the Lehman Brothers crisis that rattled the economy happened in
September 2008-6 months later! Stay tuned!
FTX was created and destroyed by their first CEO, Sam Bankman-Fried. He is only
30 years! Studied at MIT. Just like Elan Musk, very intelligent but there is a
difference between intelligence and wisdom. Even with all the legal cases pending,
Sam appeared on CNBC for a long interview on 11/30/22; and I was wondering
why he was foolish enough to do that. About 30 minutes in to the interview, CNBC
anchor asked him if his attorneys asked him not to do this interview and he stated
that they vehemently opposed it. One man who lost his life savings of $2 million
4
was there to question him. Sam was in Bahamas and did this interview remotely.
No surprise there!
Have you heard of the “Crocodile of Wall Street’Meet the ‘Crocodile of Wall
Street’, Heather Morgan: the crypto rapper and TikToker known as ‘Razzlekhan’
once allegedly laundered US$4.5 billion worth stolen from a Hong Kong bitcoin
exchange. In February, Morgan and her husband Ilya Lichtenstein were charged by
federal prosecutors with alleged conspiracy to launder over US$4 billion in stolen
bitcoin, per CNBC. Morgan, at first glance, is just a regular Wall Street hustler. She
has a degree from the University of California, Davis, and began her career as an
economist for the World Bank in Cairo, Egypt, according to her LinkedIn profile.
Before entering the corporate world, Forbes reported that Morgan also spent time at
the Hong Kong University of Science and Technology conducting seminars about
American culture for students. According to her LinkedIn profile, Morgan also
made stops in start-up tech firms such as Tamatem Inc. and Endpass. The former
economist would later venture into her own Software as a Service (SaaS) company,
SalesFolk, as the current chief executive officer. According to her Muckrack
portfolio, Morgan was once a writer at Inc. and a former contributor to Forbes. In
her bio, she describes herself as an economist, serial entrepreneur, SaaS investor
and rapper who loves robots. On February 8, shocking news rocked the world of
cryptocurrency when the FBI arrested Morgan and her husband Ilya Lichtenstein.
According to CNBC, the couple was accused of a scheme to launder upwards of
US$4 billion worth of bitcoin stolen in the 2016 hacking of Bitfinex – a crypto-
exchange platform based in Hong Kong. Reuters dubbed it the second-biggest
security breach ever of such an exchange. The Justice Department has already
seized more than US$3.6 billion back from the heist, which was the largest financial
seizure in history, per CNBC.
North Korea’s missile program has been mostly funded by stolen cryptos. In March
2022 alone, they gained $620 million from crypto theft. In 2021, it was over $400
million. According to the UN, in 2019, money collected through stolen cryptos
exceeded $2 billion for North Korea. There are universities in North Korea to teach
these techniques to their young people who get jobs in the military. They have
carried out these activities in 150 countries. 75% of their trade is with the Peoples
Republic of China. North Korea also make money by selling arms in the black
market. Their government has converted 2.6 million of their people in to slaves and
these slaves have ben sent overseas to earn foreign exchange for the government of
5
North Korea. These slaves get sent to 58 countries but 80% have been sent to
Russia and China. (Wion Indian news, 11/24/22)
40% of inflation is due to housing (mainly rents). Most of the 8 trillion the Federal
Reserve “printed” inflated assets of the richest people in the country. Multi-billion
dollar real estate “moguls” bought millions of houses by paying cash and then
rented these to the middle class and the poor and kept increasing rents 100% + per
year. Fed Chair Powell stated that after he clears these speculators, he will lower
rates so the people of this country would be able to buy houses with traditional
mortgages. We are not close to that point yet. Have you heard of Vinebrook
Homes?
Residential REITs buy and hold property and then rent the property to tenants using
gross leases. Sometimes they sell properties to upgrade other properties or to make
new and similar acquisitions, but it's always with the goal of improving the rate of
return on their investments. EQR, one of the biggest apartment REITs that uses
money printed by the Federal Reserve and create homelessness in this country by
raising rents over 100% per year was at $91 on 4/2/22, on 12/2/22 it ended at $64.
Most of these REITS have underperformed the S&P500 by 77% recently. If they go
down 90%+, it would make the Federal Reserve comfortable in lowering rates. As it
is there are over 500,000 people homeless in the US.
In February, Jenike Allen traveled to housing court in Cincinnati to try to stave off
eviction from her three-bedroom rental home. Her landlord said she had failed to
pay a rent hike it had told her about, and Allen wanted to assure the judge she had
never received notice of an increase. “We had the exact same story and the exact
same company — VineBrook Homes,” Allen told NBC News. “If I would have told
somebody this, they’d say, ‘You’re making it up.’” Allen’s experience in court that
day was no anomaly, local legal aid lawyers say. VineBrook Homes Trust Inc.,
which owns over 3,000 single-family homes in the Cincinnati area, is one of the
most aggressive landlords in bringing eviction proceedings against its residents,
they say. A big institutional owner of over 24,000 single-family homes in mostly
lower-income areas, VineBrook Homes is a real estate investment trust (REIT) with
properties in 18 states, including Alabama, Indiana, Missouri and Mississippi.
VineBrook Homes was founded in 2007 by Dana Sprong, a Massachusetts real
estate developer and Harvard Business School graduate, and his partner Ryan
McGarry. The company is one of a growing number of institutional investors
6
buying up single-family homes across the country that they turn into rentals. It is
backed by wealthy investors and affiliated with a large real estate and private-equity
firm called NexPoint Capital in Dallas, according to regulatory filings. Purchases of
housing stock by institutional investors like VineBrook have impacts extending far
beyond their tenants, research shows. Ownership by these investors also raises
housing costs across a region, according to 2020 research by the Federal Reserve
Bank of St. Louis. And higher housing costs can contribute to increased
homelessness, a 2020 study by the Government Accountability Office found; it
concluded that a $100 increase in median rent in an area was associated with a 9%
increase in its estimated homelessness rate. Laura Brunner, president of The Port of
Greater Cincinnati Development Authority, an economic development agency,
characterizes VineBrook’s business model as predatory and says it and other
absentee landlords are causing significant woes for renters in Cincinnati. “For
decades, real estate investment trusts and investment funds have been pursuing
office buildings, apartments, retail space, but after the foreclosure crisis, they
started picking up single-family homes cheap,” Brunner told NBC News. “They
realized the leverage is much different when you’re talking about a poor family than
if Walmart is your tenant. It’s easy to bully them, not take care of their needs, evict
them if you don’t like them or raise their rents.” In July 2021, the city of Cincinnati
sued VineBrook to recover over $600,000 in unpaid water bills and fines it owed
for building code violations, litter and trash citations. The suit
accused VineBrook of “negligent, reckless, and intentional conduct” that “interferes
with the public health, welfare, and safety in Cincinnati;” and identified
approximately 50 properties with code violations including hazardous wiring, yards
with grass over 10 inches high, unrepaired roof and fire damage and no smoke
alarms. Compared with other states, Ohio has landlord-friendly eviction laws, legal
aid lawyers say, making it something of a magnet for big real estate investors.
Tenants accused of nonpayment of rent typically receive what’s called a three-day
notice telling them they must move out within that period or face an eviction
proceeding. From start to finish, evictions can take about a month, legal aid lawyers
say. (Gretchen Morgenson, NBC News, 11/22/22)
One solution is to have rent controls and laws limiting the power of speculators to
create these problems. I do not think it is possible to do it at the Federal level.
VineBrooks operates in Republican states. There are over 500,000 homeless people
in the US; and the numbers are growing. Governor of California promised to make
sure that speculators in real estate do not create homelessness in California.
7
Fed Chair Powell once again stated that a part of the inflation problem was the tight
labor market and this can be resolved by opening up to more immigrants.
Republicans will never allow that to happen. As Powell stated, the problem would
get worse as millions of people are retiring early. Most developed countries
(countries in Europe, Japan, South Korea, Most Arab countries etc.) are open to
immigrant workers from third world countries. In fact, countries like South Korea
and Japan teach their languages in poor countries to tap those labor markets. Our
Social Security is dependent on collecting more from social security taxes from
working employees exceeding the cost of the program. Politicians have avoided
cutting social security but now the Republicans are proposing cuts in social
security. That would be a gift to the Democratic Party. Most economists expect a
recession in 2023 but the Inflation Reduction act passed recently might help us to
avoid a severe recession. Government spending on our infrastructure which benefits
the country more than inflationary tax cuts for the rich and the biggest companies in
the US. This comes from Keynesian economics that saved the US from the Great
Depression. Monetary policy is more effective than fiscal policy in stimulating the
economy. Mathematical economics can prove that government spending is more
effective than tax cuts in stimulating the economy and it fair to the middle class and
not the richest 1% of the country. Republicans say that this is inflationary; but we
can make it net disinflationary by raising taxes on the richest who earn more than
$400K per year (as Biden proposed) and taxes on companies. We were all told to
expect a huge red wave. Trump promised a “red tsunami”. Mid-term election
always go against the party in the White House. Democrats should be very grateful
to Hannity/Trump team for nominating “good” Republican candidates. Only
George W did better than Biden and that was due to 9/11. People did not buy the lie
that Biden was responsible for inflation. Unfortunately, Nancy Pelosi lost her
position by a few seats. It will be interesting to see how we will do over the next 2
years. The country should be grateful to Obama and George W and Liz Cheney for
trying to save democracy. Trump has always stated that he really like how dictators
ran countries like China, Russia and North Korea. George Washington could have
easily appointed himself as king but all Founding Fathers wanted to created an
everlasting democracy in the US. If we go in to “isolationism” calling it “America
First”, our economy will suffer in the future. 50% to 70% of revenue of our multi-
national companies come from other countries. If other countries replace the US as
the major superpower, they will make sure that their companies will take the place
held by US companies. As a student of economic history, I can give you many
8
examples. During Biden’s term, our deficit went down by $1.7 Trillion. Since world
war 2, the only time we had a budget surplus was when Bill Clinton was President.
That was initiated by Herbert Walker Bush who went back on an election promise
and raised taxes for the benefit of the country. Since the Republicans did not
support H W Bush when he ran for his second term, George W went on a tax
cutting spree-exploding our deficit. Stay tuned!
Happy Holidays!
Fernando