Capitalogix

Here Are Some Links For Your Weekly Reading - July 5th, 2021

Here are some of the posts that caught my eye. Hope you find something interesting.

Lighter Links:

• A New Study Reveals Which US City Has the Worst Traffic, and it is No Longer Los Angeles. (USAToday)
• 30 Pics Showing How Unbearable the Heat is In Part of the US and Canada Right Now.  (BoredPanda)
• The Court Decision Freeing Bill Cosby, Explained as Best We Can. (Vox)
• McDonald's is Replacing Human Drive-thru Attendants With AI. (BigThink)
• Joey Chestnut Wins 14th Nathan's Famous Fourth of July Hot Dog Eating Contest with Record 76 Franks. (USAToday)

 

 

 

Trading Links:

• Jeff Bezos Officially Retires with Twice as Much Money as the Entire British Monarchy. (Unilad)
• 130 Countries Agree to Global Minimum Corporate Tax Rate. (Axios)
• EXPLAINER: 5 Key Takeaways from the June Jobs Report. (APNews)
• Manhattan Real Estate Prices Reach New Record as Buying 'Frenzy' Takes Hold. (CNBC)
• Michael Burry, Jeremy Grantham, and Other Top Investors are Predicting an Epic Market Crash. Here are Their Gravest Warnings So Far. (Markets)

 

 

Inflation and Other Economic Effects: Will They Last?

I've recently posted about the rise in global & national debt and the increasing dissonance between markets and the economy. This post is about inflation and the long-term economic effects of 2020. 

We're currently operating on $6 trillion of stimulus. The Trump administration approved the first 4 trillion dollars, and Biden's administration added another $1.9 trillion. Around $3.5 trillion of that went to purchasing government securities. Meanwhile, the U.S. Treasury also printed another $2B in dollars (more than they produce in a normal year).

Here is an infographic showing the programs enacted to counteract the pandemic's economic impact.

 

via PGPF (3/15/21)

These strategies make credit easier to get by growing the money supply and lowering interest rates with banks having more reserves. Without these and the Fed's other emergency measures, the economy likely would have crashed ... but was it a "fix" ... or did it just delay the inevitable?

In the short term, the stimuli did a pretty good job of creating liquidity, preventing a substantial market crash, and increasing faith in the system. 

Markets became more erratic and harder to predict. And other ripples are starting to show in the economy. 

Inflation: Temporary?

It's not hard to tell that prices have risen recently. But, while consumer prices have risen 2%, on average, investors continue to invest in treasuries and push the price of 10-year yields down to where they were in February of last year. That seems to imply that despite inflation and stimulus, investors still have faith in the Fed. 

The hope would then be that the inflation is transitory and not a long-term effect of the stimulus. 

via Wall Street Journal

It's possible that this inflation is the result of a post-Covid demand surge (and not the beginning of a larger trend).  You can also assume that the surge in prices of airfares, hotels, and sports games will drop once they become "normal" again. And, even if they don't, if wages don't rise with that new demand, it's easy to picture demand returning to normal. 

The last time the Fed created money on a similar scale (the Great Recession), high long-term inflation didn't materialize, so it might not happen again. 

Conclusion

I think it's unlikely that we see another 1970s style surge – and I think it's equally unlikely we see major deflation. With that said, I still don't think we've seen the end of the effects of the pandemic and the pandemic stimulus either. 

One of the practical results of the Fed's bond purchases is that it creates money to finance the gigantic debt run up by Congress. With the national debt at almost $25 Trillion, it gets harder to pick a measuring rod of financial health that isn't woefully inefficient. The idea of "sound money" or a sustainable fiscal path seems increasingly questionable. But, if you believe in Modern Monetary Theory and in the United States' amazing ability to borrow, it's possible that there truly is no worry. Japan is a potential example of that - with a debt-to-GDP ratio of double the U.S.

So, even if inflation continues, it's hard to judge how bad a sign it is. 

Whether or not there's a crash tomorrow (or 7 years from now), at some point, we know there will be a "correction."

Predicting the future is hard!

Curious to hear what you think.

Here Are Some Links For Your Weekly Reading - May 23rd, 2021

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• Clearly AI is Going To Win. How People are Going To Adjust is a Fascinating Problem'. (3QuarksDaily)
• How AI-Powered Ships Can Help Us Collect Valuable Data About the Ocean. (ThePrint)
• How the Personal Computer Broke the Human Body. (Vice)
• How Jewish is Leonard Cohen's Hallelujah? A Forward Investigation in 9 Verses. (Forward)
• The 5-Second Rule: Science Debunks Food Myth that Stretches Back to Gengis Khan. (Inverse)

 

Trading Links:

• More Investors Than Ever are Borrowing To Buy Stocks. Here's What this Really Means For the Market. (MarketWatch)
• Governments are Deploying 'Wartime-Like' Efforts to Win the Global Semiconductor Race. (CNBC)
• Space Inc: 10,000 Companies, $4T Value ... and 52% American. (Forbes)
• The Pandemic Changed Where Americans Live. (Wall Street Journal)
• The Billionaire Creator of Ethereum Already Expected the Collapse of Cryptocurrencies. (Entrepreneur)

WallStreetBets Analysis: Market Crashes & Oreos

During the Robinhood & Gamestop debacle, I wrote an article about r/WallStreetBets where I essentially said that most of the retail investors that frequent the site don't know what they're doing, but there is the occasional real post with strong research you would see at a real firm. 

As an example of good research done by the subreddit, here's a link to a post where a user (nobjos) analyzed 66,000+ buy and sell recommendations by financial analysts over the last 10 years to see if they had an edge. Spoiler: maybe, but only if you have sufficient AUM to justify the investment in their research. 

There are also posts that show a clear misunderstanding of markets, and more jokes than quality posts, but I saw a great example of correlation ≠ causation. 

In the past I've posted about the Superbowl Indicator and the Big Mac Index, but what about Oreos?

The increasingly-depraved debuts of Oreos with more stuffing indicate unstable amounts of greed and leverage in the system, serving as an immediate indicator that the makings of a market crash are in place. Conversely, when the Oreo team reduces the amount of icing in their treats, markets tend to have great bull runs until once again society demands to push the boundaries of how much stuffing is possible.

https://en.wikipedia.org/wiki/List_of_Oreo_varieties https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

1974: Double Stuf Oreo released. Dow Jones crashes 45%. FTSE drops 73%.

1987: Big Stuf Oreo released. Black Monday, a 20% single-day crash and a following bear market.

1991: Mini Oreo introduced. Smaller icing ratios coincide with the 1991 Japanese asset price bubble, confirming the correlation works both ways and a reduction of Oreo icing may be a potential solution to preventing a future crash.

2011: Triple Double Oreo introduced. S&P drops 21% in a 5-month bear market

2015: Oreo Thins introduced. A complete lack of icing causes an unprecedented bull run in the S&P for years

2019: The Most Stuf Oreo briefly introduced. Pulled off the shelf before any major market damage could occur.

2021: The Most Stuf Oreo reintroduced. Market response: ???

 - LehmanParty via Reddit

It's surprisingly good due diligence, but also clearly just meant to be funny. It resonates because we crave order and look for signs that make markets seem a little bit more predictable.

The problem with randomness is that it can appear meaningful. 

Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. The only difference between this and other theories is that we openly recognize the ridiculousness of this indicator.

More people than you would hope, or guess, attempt to forecast the market based on gut, ancient wisdom, and prayers.

While hope and prayer are good things ... they aren’t good trading strategies.

A good reminder that even if you do the work, if you're looking at the wrong inputs, you'll get a bad answer. 

Garbage in, garbage out. 

Let My People Go ... Outside

Last night was the first night of Passover, a family-centric holiday that recounts the biblical story of the Exodus of the ancient Israelites from Egypt into the Promised Land. For me, it's a reminder to appreciate what we have – and how we stand on the shoulders of those who came before us. 

One of the memorable phrases from Exodus is when Moses says "Let my people go!"  For generations, people assumed he was talking to the Pharoh about his people's freedom. For modern Jews, after a week of eating clogging matzoh, matzoh balls, and even fried matzoh ... for many Jews "Let my people go" takes on a different meaning.

A friend asked me what part of the matzoh do the balls come from?  I don't know ... but I hope the matzoh ball fairy brought you some good ones. 

Apparently (according to my youngest son), Sea Shanties are en vogue with today's youth. So, here's a pirate Passover song. 

 

via Six13

For Jews, a notable part of the ritual dinner is naming each of the 10 plagues that rained over Egypt and saying "never again".

Perhaps, this year, COVID-19 gets added to the list? 

Just like the Jews making it through slavery, the plagues, and 40 years wandering through the wilderness and desert before entering the Promised Land ... We are approaching the post-COVID promised land after a year of being stuck inside. 

With the coming of spring, the re-opening of the world, and the reminders from the stories of Exodus and Easter - it's a great time to do a mental and physical "spring cleaning". Mine your experiences for the things you want to keep doing (or continue not doing) as things go back to "normal".  

Hope you had a great weekend. 

Onwards!

 

Here Are Some Links For Your Weekly Reading - February 21st, 2021

Click here to see some cool photos and videos from the Perseverance rover. 

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• The Texas Freeze: Why the Power Grid Failed. (Wall Street Journal)
• The Two Hours that Nearly Destroyed Texas's Electric Grid. (Finance)
• After Days of Mass Outages, Some Texas Residents Now Face Huge Electric Bills. (NPR)
• For Better Health During the Pandemic, is Two Hours Outdoors the New 10,000 Steps? (WSJ)
• Countries By Life Expectancy. (WorldAtlas)

 

Trading Links:

• Here's Why 'Black Swan' Author Nassim Taleb Dumped Bitcoin. (Decrypt)
• Turns Out Meme Stocks Have Basically Been Around Since 600 B.C. (Marker)
• China Blocked Jack Ma's Ant IPO After Investigation Revealed Likely Beneficiaries. (WSJ)
• Top US Lawmakers Want To Make Cannabis Federally Decriminalized: What To Know. (CNet)
• Top Wall Street Analysts Say Buy Stocks Like Denny's and Cloudflare As Economy Reopens. (CNBC)

 

When Texas Freezes Over

As I write this, Texas has already cleared up and is warm again ... but the effects of a week spent below freezing (with temperatures reaching below zero) will be felt for a long time. 

 

via Joe Raedle/Getty Images

Even though it had not snowed here in for several days, the Rolling Blackouts continued through the end of the week.  It is hard to believe Texas does not know how to handle six inches of snow.  Having grown up near Boston, I recognize that with no plows, no sanding, and no salt ... you stand little chance of keeping the roads clear. At some level, it is just idiots slipping, sliding, and waiting for the sun to come out.  But who would have thought that would describe top leaders of the State and its ability to provide basic human needs like power, water, and heating (let alone WiFi and battery power)?

 

The ice storm and cold snap weren’t so bad for me (compared to some of the stories I’m hearing from other people in our office). Yes, we lost power, water, and the Internet ... but only for a few isolated hours.  I was lucky (and so was our data center), but millions (including several Capitalogix employees) suffered due to lack of water, electricity, or heat, and to add insult to injury – burst pipes. 

Despite the fact that the temperature is back in the high 50s, here is a photo I took at our local supermarket this weekend.  Let's say things aren't quite back to normal yet.

 

I've seen a lot of political mudslinging from both sides trying to avoid blame.  The reality is that this mess is a disaster that doesn't need to be politicized (and should be used as the raw material to make sure that something like this doesn't happen again). While Texas rarely sees weather like this, this wasn't the first time we have, and it won't be the last. 

Two major factors came into play.

First, Texas chose to stay off the national grid to avoid federal regulation. The Texas grid is called ERCOT, and it is run by an agency of the same name — the Electric Reliability Council of Texas. We joke about Texas seceding from the Union, but the reality is that many Texans are fiercely independent and crave less federal regulation (which is a discussion for another day) so the choice resonated with constituents.  Especially since Texas is a very energy-rich state.  Unfortunately, not being on the national grid means that when our grid is overtaxed, we're mostly on our own. In the winter of 2011, when our power sources couldn't keep up with needs we imported energy from Mexico to keep up, but this year much of Northern Mexico was struggling as well. 

Second, Texas chose not to winterize its power sources. After 2011, a proposal was floated to winterize energy plants by adding insulation, heating pipes, etc. but it was very costly and wasn't adopted.   Many Texans (including politicians) were quick to blame it on the underperformance of renewables, but in this case, according to ERCOT,  natural gas, coal, and nuclear were affected. 

All of these energy sources can be winterized, and renewables work fine even in Antarctica. This isn't an argument for renewables or for joining the national grid. Just an acknowledgment of the current situation. 

ERCOT claimed that they were ready for the storm, and warned their plants to "winterize" how they could, but clearly, it wasn't enough. With more preparation locally and on the state level, Texans should be fine to handle these types of episodes in the future. With that said, it shouldn't take episodes like this to enact change. 

Regardless, crises like this are opportunities to come together, and I've been very happy to see how many people have offered food, water, and their homes to people in need.

Thank you to all who reached out to check in on us. 

 

Here Are Some Links For Your Weekly Reading - January 24th, 2021

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• Meet the Man On a Controversial Mission To Preserve and Digitize Your Brain. (DigitalTrends)
• What is Consciousness? Scientists Compete To Find Out. (Bloomberg)
• Balinese Temple Monkeys are Sophisticated Thieves and Negotiators. (Economist)
• How Predictive Algorithms are Transforming Data Into Decisions. (JeffBullas)
• What is AI? The Human's Handbook to Computers that Think. (MorningBrew)

 

Trading Links:

• The Stock Market is At or Near the Most-expensive Levels Ever By Most Measures. When Will It Matter? (CNBC)
• Stock-Market Bulls Brace for Major Gut Check as Earnings, Fed and GDP Loom. (MarketWatch)
• David Einhorn Warns of Danger From Valuation-Indifferent Investors. (Forbes)
• How VCs and Founders See 2021 Differently. (TechCrunch)
• Virtual Reality Will Be a Trillion-Dollar Marketplace Within Five Years – Here's a Good Example Why. (MW)

 

Trends To Watch Due To The Pandemic

The pandemic has affected many things beyond basic health. Increasingly, I see research showing meaningful increases in pornography consumption, suicide rates, and a host of other trends that are shaping our world today ... but, in the longer-term, it is also affecting the face of tomorrow. 

Flexible Workplaces

In May, after only several months of lock-down, I was surprised how many businesses decided that they had no intention of ever requiring their employees to come back into the office. 

As we close in on a year in the pandemic, I am surprised how easily we adapted to the new normal.  Even with a vaccine in sight, I suspect many of the adaptations will remain.

Personally, I like going to the office.  Most days, I still do ... even though a tiny fraction of our people are there.

With that said, I know that our business matured.  We are better at the skills, tools, and mindsets that make remote work possible or profitable. We've gotten better at deciding what's a meeting (versus an e-mail or an online chat). People are working hours that are more comfortable for them, and we see meetings happen both earlier and later than they used to, before the quarantine. 

As a macro trend, we also see a flight from urban centers.

 

via visualcapitalist

I keep hearing about people moving far from their work-places.  Ultimately, they decided that remote work enables a new form of freedom for them – to live where they want, regardless of what they do (or who they do it for).

Over time, I'm curious how a remote workforce will impact the quality and the amount of work done. 

Adding to my initial concerns, flexible workspaces cause (or exacerbate) other issues, including cybersecurity, digital collaboration, defining the new workday, and a host of other challenges. 

Digital Explosion

I remember the early 2000s and the distress I felt watching how many time cycles my son "wasted" being on his phone (which to me, at that time, seemed like "all-the-time"). But, in retrospect, that was nothing. 

Flash forward to 2019, and everything was even more "digital" and "smart."  Refrigerators, exercise bikes, billboards, and more all had screens, and 2-year-olds were already digitally literate. "All-the-time" took on a whole new meaning.

Somehow, the pandemic still took our reliance on the digital world (or our augmented alternate reality) to the next level. 

 

via Alaska DHSS

Kids are also getting less physical activity and human contact, and spending much more time online.  Contributing to this is the reality that much of their academics have been forced online.  Likewise, adults also are shifting more of their attention and activity cycles to the digital world.

Continued screen-time increases coincide with video game revenue spiking and Internet traffic increasing by more than 50% worldwide. 

As the world opens up, I still expect digital reliance numbers to stay above pre-COVID benchmarks. People's reliance on digital to feed their need for information, entertainment, and companionship is growing.

Changing Business Landscape

Starting with consumers, we've seen a massive movement toward frictionless and touchless payment. Even physical stores are prioritizing getting in and out without having to deal with another human. In addition, there's a massive move toward delivery services for groceries and meals. 

On top of the changes to normal retail services, reliance on online shopping has increased, while the time it takes for electronic purchases to your door has decreased. Combined, these factors will terraform commerce.  Consequently, this year was likely an inflection point for e-commerce penetration ... and, from that perspective, life will never be the same again.

 

via visual capitalist

Despite the growth of online retail, many small businesses that couldn't move online are struggling, and many have already gone under. 

Which leads to the next trend ...

Increasing Wealth Stratification

While small business owners and front line workers have been struggling, billionaires saw their wealth increase by over half a trillion dollars. 

Part of this is due to government aid toward large companies, part of it is due to tax laws, and part of it is due to the digital rise mentioned in the previous section. The big tech companies were already thriving, and the pandemic created a positive inflection point. 

Despite those gains, the pandemic hit millennials and small businesses hard. 

 

via Morning Consult

The longer the economy is affected by COVID-19 measures, the larger the wealth inequality will grow, and the more people you can expect looking for government assistance. The strong will thrive while others will suffer increasingly from learned helplessness.

Obviously, the 2020 quarantine has created impacts in many other areas – including family stress, community isolation, political radicalization, etc. Moreover, these effects won't be isolated to this year - and we should expect many to impact our "new normal" for years to come.

Some people consider this a challenge. I think it's the playing field. It's going to be true for everyone. What you make it mean, and what you choose to do, it is up to you.  Some will be like a cork, floating on the water, going where the tide takes it. Others will recognize the situation as an opportunity and thrive.

The impact has been global, but the choices you make are local ... and they are still your to make.

Here is to making 2021 our best year yet!

Onwards!

Here Are Some Links For Your Weekly Reading - October 4th, 2020

Did you watch the first presidential debate this week? I have friends on both sides of the fence, but we all agreed the debate was a mess. 

Here are some of the posts that caught my eye recently. Hope you find something interesting.

Lighter Links:

• Don't Neglect the Thing that Makes You Weird - People Probably Admire it. (Freakonomics)
• Mindfulness for Skeptics. (RealSimple)
• Elon Musk: Neuralink Brain Implant Will Improve 'Bandwidth' of Human Communication. (CNet)
• The Typical Progression of Covid-19 Virus. (CNBC)
• Why Magic Mushrooms are the next Big Booming (and Legal!) Drug Market. (Observer)

 

 

Trading Links:

• President Trump Tests Positive for Covid. Why the Stock Market Isn't Getting Hammered. (Barrons)
• There's No Place to Hide Anymore When the Stock Market Plunges. (Wall Street Journal)
• Big U.S. Banks to Report Profit Plunge as Pandemic Recession Takes Hold. (Investing)
• Manhattan Apartment Sales Tumble 46%, Leaving 10,000 Homes on the Market. (DailyMail)
• SEC is Willing to Try' a Tokenized ETF, Chairman Says. (CoinDesk)