Tuesday, November 5^th, 2024

It Is “WISE” To Be A “INVESTOR” NOT A “SPECULATOR”!!!

WARREN BUFFETT is often described as the world’s most “SUCCESSFUL” investor. With an estimated fortune of $140bn, I can see why he’s credited with being number one (1). And given this status, it’s not surprising that he attracts a “CULT” like following with many of his quotes — so-called “BUFFETT BITES” — being used to justify a VALUE-DRIVEN approach to investing.

But one of my favorite pieces of “ADVICE” came from BEN GRAHAM the AMERICAN ECONOMIST...

He once wrote: “The individual investor should act consistently as an investor and not as a speculator”.

It’s not particularly memorable… AND it doesn’t have BUFFETT’s style.

BUT, I think it’s the most “VALUABLE”…AND one that I wish I would have followed when I started on my own investing journey many years ago.

BUFFETT has often credited GRAHAM with being the inspiration behind his approach to buying stocks. Indeed, he has his own version of the quote — “Our favorite holding period is forever”.

So what does GRAHAM’s and BUFFETT’s quotes mean???

In his book, THE INTELLIGENT INVESTOR, GRAHAM distinguishes between an INVESTOR, who’s keen to preserve their capital and seeks a reasonable return, and a SPECULATOR, who might lose everything in pursuit of a greater reward.

When I first started TRADING/INVESTING, I fell into the latter category. I wasn’t too reckless but relatively modest returns didn’t interest me. I soon realized this was a MISTAKE. Trying to ‘TIME THE MARKET’ almost NEVER works.

Since January 1986, the FTSE 100 has delivered an ANNUALIZED RETURN (with DIVIDENDS REINVESTED) of 8.6%. Other markets have done better. For example, the S&P 500 INCREASED by 11.4% a year during this period.

Finally, to those who disagree with about the value of “LONG-TERM INVESTING, I would refer them to the performance of BERKSHIRE HATHAWAY, BUFFETT’s holding company.

An investment of $20,000 in 1964 would have GROWN to $88bn by the end of 2023!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Tuesday, November 5^th, 2024

It Is “WISE” To Be A “INVESTOR” NOT A “SPECULATOR”!!!

WARREN BUFFETT is often described as the world’s most “SUCCESSFUL” investor. With an estimated fortune of $140bn, I can see why he’s credited with being number one (1). And given this status, it’s not surprising that he attracts a “CULT” like following with many of his quotes — so-called “BUFFETT BITES” — being used to justify a VALUE-DRIVEN approach to investing.

But one of my favorite pieces of “ADVICE” came from BEN GRAHAM the AMERICAN ECONOMIST...

He once wrote: “The individual investor should act consistently as an investor and not as a speculator”.

It’s not particularly memorable… AND it doesn’t have BUFFETT’s style.

BUT, I think it’s the most “VALUABLE”…AND one that I wish I would have followed when I started on my own investing journey many years ago.

BUFFETT has often credited GRAHAM with being the inspiration behind his approach to buying stocks. Indeed, he has his own version of the quote — “Our favorite holding period is forever”.

So what does GRAHAM’s and BUFFETT’s quotes mean???

In his book, THE INTELLIGENT INVESTOR, GRAHAM distinguishes between an INVESTOR, who’s keen to preserve their capital and seeks a reasonable return, and a SPECULATOR, who might lose everything in pursuit of a greater reward.

When I first started TRADING/INVESTING, I fell into the latter category. I wasn’t too reckless but relatively modest returns didn’t interest me. I soon realized this was a MISTAKE. Trying to ‘TIME THE MARKET’ almost NEVER works.

Since January 1986, the FTSE 100 has delivered an ANNUALIZED RETURN (with DIVIDENDS REINVESTED) of 8.6%. Other markets have done better. For example, the S&P 500 INCREASED by 11.4% a year during this period.

Finally, to those who disagree with about the value of “LONG-TERM INVESTING, I would refer them to the performance of BERKSHIRE HATHAWAY, BUFFETT’s holding company.

An investment of $20,000 in 1964 would have GROWN to $88bn by the end of 2023!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Monday, November 4^th, 2024

The election is only one day away, it’s about to “GO DOWN”!!!

In today’s “WIZ” DAILY JOURNAL reference document I will identify which sectors would be most impacted in the event of a DONALD TRUMP win or a KAMALA HARRIS win.

The 2024 SELECTION/ELECTION is just one day away, and today I’m going over specific sectors to “WATCH” depending on who wins.

First, let’s start with REPUBLICAN PRESIDENTIAL Nominee DONALD TRUMP.

If DONALD TRUMP wins the PRESIDENCY again, the impact on the markets would likely be shaped by his well-established policy preferences.

A TRUMP win could impact these sectors:

1. TAX CUTS: TRUMP has consistently favored LOWER TAXS, particularly for CORPORATIONS and HIGH-INCOME individuals. A return to his tax-cutting agenda would likely INCREASE CORPORATE PROFITS and MARKET SENTIMENT, potentially leading to a “SURGE” in STOCK PRICES, especially for LARGE CAP COMPANIES and sectors like TECH, FINANCE and, ENERGY.

Go “LONG” on TECHNOLOGY and “SPECULATIVE” STOCKS as well as CRYPTO.

2. DEREGULATION: TRUMP’s approach to DEREGULATION in industries such as FINANCE, ENERGY and, HEALTHCARE could further INCREASE CORPORATE PROFITS BY REDUCING COMPLIANCE COSTS. This would likely benefit stocks in those sectors, especially OIL and GAS, BANKS , INDUSTRIAL and, CHEMICAL companies.
3. TRADE POLICY: TRUMP’s “PROTECTIONIST” TRADE POLICIES, including TARIFFS and a more confrontational stance toward China, could reintroduce “UNCERTAINTY” in global markets. While this may INCREASE DOMESTIC MANUFACTURING and certain industries, it could also DISRUPT GLOBAL SUPPLY CHAINS, IMPACT COMPANIES RELIANT ON FOREIGN TRADE and lead to “VOLATILITY” in industries like AGRICULTURE, TECH and, MANUFACTURING.

Go “SHORT” on CHINA, and ”LONG” on MEXICO and CANADA.

4. ENERGY: A TRUMP PRESIDENCY would likely benefit TRADITIONAL ENERGY sectors like OIL and GAS. He has consistently promoted U.S. energy “INDEPENDENCE” and rolled back ENVIRONMENTAL REGULATIONS.

RENEWABLE ENERGY STOCKS might face “HEADWINDS” under this scenario as policy support could shift away from climate initiatives.

The impact here is neutral since we are already producing record amounts of energy.

5. FEDERAL SPENDING and INFRASTRUCTURE: TRUMP has previously supported LARGER INFRASTRUCTURE PROJECTS. If he pushes forward with INFRASTRUCTURE INVESTMENNT, it could BOOST sectors such as CONSTRUCTION, MATERIALS and, INDUSTRIALS, though this would likely be paired with continued pressure to limit social spending.

Go “LONG” on STEEL and PRISON STOCKS.

6. INTEREST RATES and INFLATION: TRUMP has criticized the FEDERAL RESERVE for maintaining higher interest rates in the past and may put pressure on the FED to keep rates LOW to stimulate growth. This could be “BULLISH” for equities in the SHORT TERM but could also lead to INFLATIONARY concerns, affecting BOND MARKETS and potentially INCREASING MARKET VOLATILITY.

Go “LONG” on the U.S. DOLLAR as interest rates will likely move HIGHER over time but also go “LONG” on GOLD in event of MASSIVE DEFICIT SPENDING

7. HEALTHCARE and PHARMA: TRUMP has supported DEREGULATING the HEALTHCARE sector and LOWERING DRUG PRICES. While this might benefit consumers, pharmaceutical and healthcare stocks could face pressures from pricing reforms and a more competitive landscape.

It’s important to note that the impact here is NEUTRAL.

These are the seven (7) sectors YOU, ME, WE the ATWWI FAMILY should consider if DONALD TRUMP wins.

ALSO, Remember November 9th, 2016…

It was the day after DONALD TRUMP’s “SHOCK” SELECTION/ELECTION victory!!!

As every mainstream media organization on the planet tried to grapple with what had just happened…

A small group of stocks were going absolutely “BANANAS”.

One of them, PEABODY ENERGY (BTU), soared 49% that very day!!!

An Israeli defense stock surged nearly 60% in the weeks that followed… and a private prison operator, CoreCivic (CXW)*, skyrocketed by 140% weeks later.

These lightning gains show just how powerful of a catalyst TRUMP’ re-election would be in the certain corners of the market.

*INDUSTRY SECURITY & PROTECTION SERVICES: CoreCivic (CXW), The GEO Group (GEO), MSA Safety Incorporated (MSA), NAPCO Security Technologies, Inc. (NSSC), Brady Corporation (BRC), Allegion (ALLE), NL Industries (NL), ADT, Inc. (ADT), Knightscope Inc. (KSCP), Mistras Group, Inc. (MG)

Now for the other side of the aisle…

Watch these sectors if KAMALA HARRIS wins:

1. REGULATION: HARRIS has advocated for STRONGER REGULATIONS across various sectors, including TECHNOLOGY, HEALTHCARE and ENERGY.

Increased regulatory scrutiny, especially on TECH GIANTS and large CORPORATIONS, could lead to HIGHER VOLATILITY and PRESSURE within these sectors.

“SHORT” BITCOIN and go “LONG” on UNIONIZED INDUSTRIAL STOCKS.

2. TAXES: HARRIS supports “PROGRESSIVE” TAXATION and HIGHER CORPORATE TAXES, which may influence CORPORATE EARNINGS and INVESTOR SENTIMENT, particularly among HIGH-INCOME INDIVIDUALS and LARGE CORPORATIONS.

Invest in MUNICIPAL BONDS and avoid BUSINESS DEVELOPMENT COMPANIES (BDCs).

3. GREEN ENERGY: A strong proponent of ENVIRONMENTAL POLICIES, HARRIS backs ambitious CLIMATE CHANGE INITIATIVES and CLEAN ENERGY INVESTMENTS. This could drive GROWTH in RENEWABLE ENERGY, ELECTRIC VEHICLES and, related INFRASTRUCTURE, while potentially impacting traditional energy sectors like OIL and GAS NEGATIVELY.

Go “LONG” on SOLAR, NATURAL GAS and, ELECTRIC VEHICLES.

4. HEALTHCARE: HARRIS favors EXPANDING HEALTHCARE ACCESS, potentially through PUBLIC OPTIONS or strengthening the AFFORDABLE CARE ACT.

This could benefit HEALTHCARE PROVIDERS focused on access but may create “UNCERTAINTY” for PRIVATE INSURANCE COMPANIES or PHARMACEUTICAL FIRMS, depending on the structure of reforms.

I recommend “SHORTING” HEALTHCARE INTERMEDIARIES.

5. TRADE and FOREIGN POLICY: Like PRESIDENT BIDEN, HARRIS is expected to maintain a MULTILATERAL TRADE approach, ENHANCING TRADE RELATIONS while maintaining a competitive stance toward CHINA.

This could stabilize certain TRADE-DEPENDENT INDUSTRIES.

Go “LONG” on EMERGING MARKETS and keep a “NEUTRAL” stance on CHINA.

BOTTOM LINE: Overall, a TRUMP win would likely be viewed as “MARKET-FRIENDLY” in the SHORT TERM due to his PRO-BUSINESS POLICIES, TAX CUTS and, DEREGULATION.

HOWEVER, potential TRADE WARS, INFLATION CONCERNS and GEOPOLITICAL “UNCERTAINTIES” might create LONG-TERM “RISKS” and VOLATILITY in specific sectors.

HOWEVER, a KAMALA HARRIS victory could spark initial VOLATILITY as investors adjust to PERCEIVED “RISKS” in sectors aligned with her platform – such as TECH REGULATION, CLIMATE CHANGE and, SOCIAL POLICIES.

 

TRUMP WIN:

JPMorgan Chase (JPM): JPM had $3.9 trillion in total assets as of September 30, 2024, making it the biggest U.S. bank by assets – and one of the world's largest financial institutions.

During the previous TRUMP administration, the former president was relatively good to the banking industry, favoring deregulation and a hands-off approach to overseeing financial institutions. 

• Market Value: $634.5 billion

• Sector: Financial services

• Industry: Banks - Diversified

• One-year total return: 58.1%

 

Lockheed Martin (LMT): Over the years, the consensus has been that DEFENSE STOCKS benefit from REPUBLICAN administrations. DONALD TRUMP is especially “HAWKISH” about defending AMERICAN interests.

 Between the WARS in UKRAINE and ISRAEL, GLOBAL “CONFLICTS” have become a part of everyday life. And continued GEOPOLITICAL “UNCERTAINTY” could benefit Lockheed Martin (LMT), which manufactures F-35 fighter aircraft. 

Further, he's NOT inclined to continue providing MILITARY SUPPORT to NATO members that DO NOT SPEND 2% of their GROSS DOMESTIC PRODUCT (GDP), as the alliance requires. He might like to see the amount INCREASED to 3% if he takes office in January 2025.

• Market Value: $145.8 billion

• Sector: Industrials

• Industry: Aerospace & Defense

• One-year total return: 40.9%

 

Nucor (NUE): Tides could turn for NUE if TRUMP wins the SELECTION/ELECTION. Indeed, AMERICAN STEELMAKERS could benefit from the TRUMP administration's anticipated 10% tariff on all imported products as it could create lesser price competition from the CHINESE and BRAZILIAN STEELMAKERS.

•  Market Value: $37.6 billion

• Sector: Basic materials

• Industry: Steel

• One-year total return: 10.5%

 

GEO Group (GEO) is the smallest of the four (4) stocks expected to benefit from a TRUMP PRESIDENCY. The company designs and delivers support services for PRISONS, IMMIGRATION PROCESSING CENTERS and, COMMUNITY REENTRY CENTERS.

Founded in 1984, GEO is best known for its ICE (Immigration and Customs Enforcement) PROCESSING CENTERS and USMS (U.S. Marshals Service) DETENTION CENTERS. 

• Market Value: $2.1 billion

• Sector: Industrials

• Industry: Security & Protection Services

• One-year total return: 80.7%

 

 

HARRIS WIN:

If KAMALA HARRIS wins the SELECTION/ELECTION, here are five (5) stocks that will benefit from a HARRIS PRESIDENCY, representing WOMEN’s HEALHCARE, INFRASTRUCTURE, ELECTRIC VEHICLES (EV), CLEAN ENERGY and ARTIFICIAL INTELLIGENCE (AI).

Organon (OGN) is a global HEALTHCARE company focused on WOMEN’S HEALTH ISSUES. Although it has three (3) product portfolios: WOMEN’s HEALTH, BIOSIMILARS and ESTABLISHED BRANDS, it is HARRIS’ focus on WOMEN’s HEALTH that could help OGN gain relevance in the U.S. market. 

 

• Market value: $4.6 billion

• Sector: Healthcare

• Industry: Drug Manufacturers – General

• One-year total return: 15.6%

 

Sterling Infrastructure (STRL) is aptly named because the Texas-based company provides INFRASTRUCTURE SOLUTIONS in three (3) key areas: e-INFRASTRUCTURE, TRANSPORTATION and, BUILDING. 

Its business once almost solely focused on HEAVY CIVIL CONSTRUCTION PROJECTS, BUILDING BRIDGES, ROADWAYS and other LARGE SCALE INFRASTRUCTURE.

However, since 2016, it has moved to DIVERSIFY its revenue streams into HIGHER-MARGIN INFRASTRUCTURE related projects. 

• Market value: $4.9 billion

• Sector: Industrials

• Industry: Engineering & Construction

• One-year total return: 120.5%

 

 

 

Rivian Automotive (RIVN): BIDEN, and now HARRIS, back PRO-ELECTRIC VEHICLE policies such as claiming an EV TAX CREDIT of up to $7,500 per vehicle, $1.7 billion in FEDERAL GRANTS like the one mentioned above, and $7.5 billion paid out to STATES to build a NATIONAL CHARGING NETWORK. 

These all favor AMERICAN EV MAKERS such as Rivian Automotive (RIVN), which currently produces the R1T pickup and R1S SUV, as well as commercial delivery vans for Amazon.com (AMZN) and others.   

• Market value: $10.1 billion

• Sector: Consumer discretionary

• Industry: Auto manufacturers

 

NextEra Energy (NEE) is the parent of FLORIDA POWER & LIGHT, AMERICA’s LARGEST RATE-REGULATED UTILITY, with 5.9 million customer accounts, or roughly 12 million people across the Sunshine State. NEE is also the WORLD’s LARGEST PRODUCER OF CLEAN RENEWABLE ENERGY. 

KAMALA HARRIS is a LARGE supporter of CLEAN ENERGY. As Reuters recently reported, she continues to remind voters that TRUMP and the REPUBLICANS want "to surrender our fight against the climate crisis."

 

• Market value: $173.4 billion

• Sector: Utilities

• Industry: Utilities - Regulated Electric

• One-year total return: 63.4%

 

 

 Microsoft (MSFT) should be given a seat at the AI table in Washington and could benefit from a HARRIS WHITE HOUSE if it plays by the books. 

MSFT's investments in AI are already starting to bear fruit. In its fiscal fourth-quarter results, the company said revenue INCREASED 15% year-over-year to $64.7 billion. Its CLOUD revenue, which includes AI, was 21% higher to $36.8 billion. Earnings were up 10% at $2.95 per share.

• Market value: $3.10 trillion

• Sector: Technology

• Industry: Software - Infrastructure

• One-year total return: 27.6%

 

 

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

 

Friday, November 1^st, 2024

Five (5) Questions For The FEDERAL RESERVE (aka: FED)

I am about to DISSECT everyone's favorite “MONETARY OVERLOAD” - the “FED”.

I've been thinking about questions few people seem to ask…

Let's focus on the ELEPHANT in the U.S. economic room: The FEDERAL RESERVE (aka: FED)

Next week, markets expect the FED to CUT its FED FUND’s RATE by 0.25%.

However, a red-hot jobs market or a surprise uptick in core inflation could stop the FED in its tracks. You've got to be watching the Fed and asking questions.

I've said it before... and I'll repeat it... 

Presidents come and go; Wu-Tang is Forever; and a central bank's inflation targeting is the TAX that goes on long after death!!!

The FED's decisions have a lasting impact on our lives and finances, often more than the outcome of any SELECTION/ELECTION.

Let's ask some critical questions... 

Question 1: Dear Federal Reserve, What Would You Say You Do???

More people should ask the FED Chairperson, Jerome Powell, this question.

But those who do—like certain skeptical congressional officials—get an answer that could put a baby to sleep in the middle of a rock concert.

Only a tiny percentage of Americans can explain the FED’s “DUAL MANDATE”, which tells you everything you need to know about transparency in monetary policy.

In a survey run every few years:

• “Only 7% say they know much about the FED’s responsibilities.
• Fewer than one in ten (8%) correctly identify the FED is tasked with maximizing employment, while more, though still a minority (34%), correctly identify its responsibility to stabilize prices.”

The FED says it's responsible for "MAXIMUM EMPLOYMENT” and "PRICE STABILITY”.

So, it uses MONETARY POLICY (raising interest rates, easing and tightening its balance sheet, etc.) to achieve desired outcomes. 

The “PRICE STABILITY” MANDATE calls for inflation to run at 2% yearly (a compounding impact that allows the dollar's purchasing power to weaken over time). 

In addition, the FED attempts to reach an “OFFICIAL” EMPLOYMENT RATE between 4% and 5%, which is where we currently sit. 

Of course, the INFLATION FIGURE is “COOKED”, as is the UNEMPLOYMENT RATE—a subject for another day. 

For now... know... that the FED's “DUAL MANDATE” is to ensure everyone has a job and that the U.S. dollar doesn't turn into “MONOPOLY MONEY” overnight.

So... how's that working out??? 

Just take a look at grocery store prices...

 

Question 2: Okay, FED…. Seriously, What Do You REALLY Do???

We can stop pretending the FED's job is just its “DUAL MANDATE”. Or we have to look at the “MANDATE” it aims to achieve: To create inflation and stop bank panics.

The FED isn't just America's “CENTRAL BANK” - it's the world's “BACKUP GENERATOR”.

Whenever the global financial system hits a POTHOLE, who shows up with a BLANK CHECK???

Remember The Great Financial Crisis of 2008??? 

The FED opened the FLOODGATES.

It slashed interest rates to the bone, bought trillions of dollars in BONDS to stabilize the financial system, and pumped "LIQUIDITY" into the world. It also helped “STABILIZE” the banking system with massive BAILOUT PACKAGES. 

How about the COVID-19 CRASH in March 2020???

Same story…

How about March 2023???

They were “JOHNNY-ON-THE-SPOT” with emergency support when regional banks started wobbling. They are more concerned about protecting banks than protecting the value of your money.

Why is that???

Well, PRICE STABILITY is part of the “MANDATE” and PRICE STABILITY goes BOTH WAYS.

FIGHTING INFLATION… but also FIGHTING DEFLATION!!! 

The CENTRAL BANK is woefully more afraid of DEFLATION hitting the global economy than INFLATION.

If there is DEFLATION in a DEBT-BASED SYSTEM, there could not be enough money to “PAY OFF” that DEBT or REFINANCE the WORLD’s DEBT.

Tens of trillions of dollars around the world MUST be “REFINANCED” every year. 

The numbers are so LARGE that no one wants to think about them. But they need to... because it affects EVERYTHING!!! 

The FED runs the WORLD’s LARGEST INSURANCE POLICY for the banking system.

This is why - whenever there's a “BAILOUT” - you should consider buy AIG (AIG) stock - because the flood of “BAILOUT” money drastically REDUCES DEFAULT “RISK” and AIG insures companies against DEFAULT “RISK”.

That said... guess who pays the FED PREMIUMS???

YOU DO…through INFLATION and CURRENCY DEVALUATION!!!

Now you OVERSTAND/UNDERSTAND why I used to curse so much after my grad school classes.

 

Question 3: Is There Any Alternative to the Federal Reserve???

HIStorically, the U.S. tried a few things... 

Even with the FED in existence, the U.S. had a “GOLD STANDARD” which had its own problems but at least kept MONETARY EXPANSION in check.

HOWEVER, the challenge with a “GOLD STANDARD” is twofold…

If you allow someone to redeem your currency with gold, as the U.S. did, it can lead to nations like FRANCE making a run on AMERICA’s holdings, just ask Charles De Gaulle.

On August 15, 1971, PRESIDENT RICHARD NIXON eliminated the ability to CONVERT THE DOLLAR TO GOLD.

This ended what was known as the BRETTON WOODS SYSTE, the monetary system that dominated the world after WORLD WAR II.

NIXON “FEARED” RISING INFLATION AND THE “THREAT” OF A “RUN” ON GOLD.

BUT, by letting the currency “FLOAT” all while engaging in MASSIVE GOVERNMENT SPENDING AND FIGHTING WARS/CONFLICTS ABROAD, the U.S. saw considerable INCREASE in INFLATION and a SURGE in GOLD PRICES in the 1970s. 

One other issue—when you price your currency in GOLD, rivals could undermine your currency's “VALUE” by flooding the global markets with the yellow metal.

Who are the two (2) largest producers of GOLD in the world today???

RUSSIA and CHINA... 

What other alternatives are there???

The U.S. has had periods without a CENTRAL BANK and somehow “SURVIVED”. 

But like any other “CRISIS” in HIStory—like BANK PANICS and MANIAS—the result of CRASHES tended to surround “SPECULATION” on ASSETS that many people “PERCEIVE” to be “SAFE”: LAND, SOVEREIGN DEBT, COMMODITIES and, EQUITIES. 

The U.S. has had “SEVERE” FINANCIAL PANICS in 1837, 1857, and 1873, all periods where the U.S. lacked a CENTRAL BANK or a LENDER of “LAST RESORT”.

The NATIONAL BANKING SYSTEM (1863–1913) didn't create a FEDERAL RESERVE (aka; FED) but acted as a way to boost “TRUST” in currencies.

Again, the issue was that a CENTRAL AUTHORITY could NOT act as a “LENDER OF LAST RESORT”.

DEFLATION, was a SERIOUS problem in the POST-CIVIL WAR and RECONSTRUCTION ERA.

When the PANIC of 1907 happened, JP MORGAN acted as the “LENDER OF LAST RESORT”, setting the pathway for the FEDs arrival in 1913…

Fast-forward 111 years, and the FED has fueled a “FINACIALIZED SYSTEM” so much that it's like removing a Jenga piece from the bottom of the tower.

This is going to go until it BREAKS... and it can go a lot longer than we expect… 

The FED's INFLATION TARGET of 2% has been a major contributor to the APPRECIATION OF ASSETS like EQUITIES and HOUSING, making it increasingly difficult for younger AMERICANS to keep up with “RUNAWAY” PRICES.

You will NEVER hear anyone at the FED explain this... until they are either retired or giving a speech 6,500 miles away like former FED CHAIR ARTHUR BURNS did in 1979 in Yugoslavia.

 

Question 4: Who Bails The Federal Reserve Out???

This is where it gets “FUN”...

The LENDER of “LAST RESORT”... really isn't the LENDER of “LAST RESORT” in this system.

You should know the TRUTH… YOU ARE THE ACTUAL LENDER OF “LAST RESORT”!!!

The FED DOES NOT and NEVER WILL need a “BAILOUT” because they can literally “CREATE MONEY OUT OF THIN AIR”!!!

But who pays the price???

EVERY SINGLE PERSON HOLDING U.S. DOLLARS!!!

Since the FED's inception, the dollar has LOST OVER 99% OF ITS VALUE!!!

Think about that…

AND their precious "INFLATION TARGETING” since 1993???

It has helped slash the DOLLAR’s VALUE BY 54% IN JUST 31 YEARS!!!

 

Question 5: How Does No One At the FED OVERSTAND/UNDERSTAND the Problems They Cause???

The FED employs hundreds of Ph.D.s who apparently refuse to publicly admit that “inflation is always and everywhere a monetary phenomenon,” to quote MILTON FRIEDMAN.

Even worse, they have built INFLATION into their “MANDATE” - targeting 2% annual destruction of your PURCHASING POWER.

It's the silent “TAX” nobody voted for, justified by the belief that Americans would panic more about DEFLATION than watching their savings EVAPORATE.

While the DOLLAR’s PURCHASING POWER DECREASED 54% in the last 31 years (since the inflation target started), the STOCK MARKET HAS INCREASED 886% (and 1,400% with DIVIDENDS, according to some math I did on the back of a cocktail napkin. 

MEDIAN HOUSING PRICES have been UP 229% in 30 years, aided not only by supply constraints but also by two (2) decades of LOW INTEREST RATES and the existence of the 30-year mortgage (which fuels greater demand due to lower monthly payments than 10—or 15-year mortgages). 

But, MONETARY POLICY is at the front of all these problems. 

HIGHER HOUSING PRICES???

Blame the CENTRAL BANK…

HIGHER FOOD COSTS???

Their policy creates incentives across supply chains and on financial balance sheets. Politicians blame grocery stores (with 1% to 3% profit margins), but no one seems to care that the FED INCREASED THE MONEY SUPPLY MORE THAN 30% IN LESS THAN FOUR (4) YEARS because the politicians are responsible.

MASSIVE LEVELS OF WEALTH INEQUALITY???

The FED pumped up the U.S. EQUITY MARKETS and only a TINY percentage of people own the OVERWHELMING amount of U.S. EQUITIES. 

The CENTRAL BANK bank is fueling those issues.

This isn't “ROCKET SCIENCE!!!

 

So…What's the Best Way to Protect Yourself From The Federal Reserve???

If you can't beat them, HEDGE against them…

That means owning things the FED can't print: GOLD, BITCOIN, HIGH-QUALITY STOCKS WITH PRICING POWER, CLASS “A” REAL ESTATE, etc.

While the U.S. DOLLAR might be the cleanest dirty shirt in the global laundry, an increasing number of countries are tired of the U.S. MONETARY ”GAMES”, ENDLESS WARS/CONFLICTS and, the constant ”BAILOUT” CIRCUS.

In a world where MONEY PRINTERS GO BRRRR, the BEST DEFENSE is a GOOD OFFENSE...

OWN/CONTROL “REAL” ASSETS, STAY LIQUID and...STAY POSITIVE!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

Thursday, October 31^st, 2024

Lessons From The “RISE and FALL” of a Silicon Valley “PIONEER”

WALL STREET has seen its share of “ICONIC” financial trades throughout its HIStory.

In 1992, GEORGE SOROS famously SHORTED the BRITISH POUND – the trade that “BROKE THE BANK OF ENGLAND” – earning himself and his investors $1.5 billion!!!

In 2007, JOHN PAULSON put on “THE GREATEST TRADE EVER”– and made $15 billion by taking a trade on the COLLAPSE OF THE U.S. HOUSING MARKET.

In 2020, BILL ACKMAN turned a $27 million trade CORPORATE BONDS into $2.6 billion after the “CORONAVIRUS” CRASH of 2020 – a profit of almost 100 times his investment.

These trades were MASSIVELY successful by Wall Street standards.

BUT, they are dwarfed by the value of money generated (and lost) in different kinds of “TRADES” placed by the tech GIANTS of ARTIFICIAL INTELLIGENCE (AI).

It’s no exaggeration to say that the success – and failure – of these trades established the constellation of today’s tech GIANTS of ARTIFICIAL INTELLIGENCE (AI), which dominates the world’s internet outside of China.

No other story illustrates this better than the “BOOM” and “BUST” of YAHOO.

ATWWI FAMILY MEMBERS of a certain age will remember that YAHOO was one of Silicon Valley’s INTERNET “PIONEERS”.

Alas, YAHOO is now a “SHADOW” of its former self and has a far SMALLER footprint on the internet than it once did.

Here’s a quick – albeit incomplete – HIStory of YAHOO’s “RISE and FALL”.

In January 1994, STANFORD students JERRY YANG and DAVID FILO created “Jerry and David’s Guide to the World Wide Web.” A year later they incorporated the project and renamed it “YAHOO!”

YAHOO rapidly became one of the world’s leading INTERNET PORTALS. It offered EMAIL, GAMES, TRAVEL, WEATHER, MAPS and, an ONLINE MAGAZINE.

YAHOO floated on the NASDAQ on April 12, 1996. Its share price soared from the INITIAL PUBLIC OFFERING (IPO) price of $13 to $33 in a SINGLE DAY.

YAHOO was an “ICONIC” Silicon Valley success story, following in the footsteps of HEWLETT-PACKARD (now two companies, HPQ and HPE), INTEL (INTC) and ORACLE CORPORATION (ORCL).

 

In 1998, two (2) other STANFORD students – SERGEY BRIN and LARRY PAGE – offered YAHOO a chance to LICENSE THEIR SEARCH TECHNOLOGY for $1 million. The pair wanted to focus on their graduate work at STANFORD.

YAHOO declined the offer. But it suggested that BRIN and PAGE start their own company.

YAHOO even introduced them to SEQUOIA CAPITAL – a “BLUE CHIP” Silicon Valley VENTURE CAPITAL FIRM – which became their company’s first investor.

In January 2000, at the peak of the “DOT-COM” BOOM, YAHOO’s MARKET CAPITALIZATION peaked at $125 billion. It became the MOST VALUABLE COMPANY IN THE WORLD. Its share price PLUMMENTED 95% from there – though it did recover in later years.

Around 2002, YAHOO tried to “BUY” BRIN and PAGE’s company, now called GOOGLE.

The deal fell through because YAHOO was willing to pay only $3 billion rather than the $5 billion that PAGE and BRIN were asking for.

(Ironically, YAHOO had bought BROADCAST.COM in April 1999 for $5.7 billion to grow its WEB BROADCASTING services. It shut down these services three (3) years later.)

YAHOO started to lose momentum.

In 2008, MICROSOFT tried to acquire YAHOO’s entire business for $44.6 billion.

But YAHOO’s management “NIXED” the deal, making the wrong call again.

By the time it was “SOLD” to VERIZON eight (8) years later in 2016, YAHOO’s core INTERNET BUSINESS was worth just $4.8 billion.

YAHOO – the “INTERNET PIONEER” – had gone from “HERO” to (almost) “ZERO”.

You can draw several insights from YAHOO’ “BAD TRADES”

FIRST, far more money is GENERATED – and LOST – in Silicon Valley than in the world of WALL STREET HEDGE FUNDS.

To put the comparison into perspective…

Today, APPLE (AAPL) and GOOGLE parent company ALPHABET (GOOGL) boast MARKET CAPS of $2.85+/- trillion and $1.84+/- trillion, respectively.

In contrast, BRIDGEWATER, the LARGEST HEDGE FUND GLOBALLY, has $140 billion in assets under management. Its value as a company is a “FRACTION” of the value of Silicon Valley’s TECH GIANTS.

SECOND, bad decisions on WALL STREET may cost HEDGE FUNDS hundreds of millions of dollars. But in Silicon Valley, poor decisions can cost hundreds of billions – and even trillions – in forgone profits.

To further add to its impressive collection of these “BAD” decisions, YAHOO tried to “BUY” FACEBOOK INC.” – now META PLATFORMS (FB) – in 2006.

But the deal fell through when YAHOO refused to increase the initial bid of $1 billion by another $100 million.

 

THIRD, a few good decisions can make a company’s future.

Consider the decisions of two (2) Silicon Valley winners…

 

GOOGLE bought YouTube for $1.65 billion in 2006, just 18 months after its founding.

FACEBOOK INC. bought INSTAGRAM – with its 13 employees – in 2012 for $1 billion.

Both of these “TRADES” paid off “SPECTACULARLY” for the pair.

On its own, YouTube would be a $170 billion business today – far more than what Yahoo was worth at its dot-com bubble peak.

INSTAGRAM is worth about $100 billion as a stand-alone company and is a backbone of META’s business.

The takeaway???

YAHOO’s series of “BAD TRADES” led to its ultimate DEMISE as an independent company.

In contrast, GOOGLE’s and FACEBOOK s “GOOD TRADES” helped ensure their future DOMINATION of large swaths of the internet.

“ICONIC” trades on WALL STREET make for good stories…

 

However, “GOOD TRADES” in ARTIFICIAL INTELLIGENCE (AI) based companies will get you “P.A.I.D.”!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.