I keep starting to write something, but end up stopping when some earth-shattering news story hits. We have cave-men occupying the Capitol building, staggering Covid-19 numbers, Bitcoin and Ethereum at $40k and $1.2k respectively, and here I am trying to find some pithy blurb about why some company is 10x undervalued or overvalued. Well, whatever, I can’t wait an eternity to get a word in amongst anarchy and division. Also, aren’t we supposed to be quarantining? Every damn time I decide to see what’s going on in the world I am disappointed and retreat back inside.
Dems and a New Stimulus?
I’ve been focusing a lot recently on stimulus checks. I think they are a good thing, but it doesn’t mean the money distributed by the government came from some kind of reserve or that there’s some kind of plan to pay this money back. In fact, it challenges the basic existence of money and debt. In short, that’s probably why BTC and ETH (along with a whole lot of other coins) have spiked. They are a decentralized store of value. The real commodity is the graphics processors minting BTC, which is why I prefer proof of stake versus proof of work, but that’s another topic.
Financial Product Idea: Someone really needs to create a ‘currency index coin’ that holds in reserve a mix of currencies (Dollar, Euro, etc), decentralized currencies (BTC, ETH, etc) and hard commodities (Gold, Silver, etc). That covers all sorts of doomsday scenarios along with a myriad of other scenarios like business as usual, high inflation, low inflation, hype cycles, recessions, and new innovative stores of value. The index itself should be crypto-based, but actually hold all this basket of stores of value in reserve so it could theoretically be liquidated at any point and distributed according to the basket mix.
Ok, back to the long-term implications of just handing out money. We need a new tax code. Income tax is fine, but tends to unfairly tax salaried workers and favor anyone who makes their money off of ‘capital gains’. Capital gains can come from any business or property venture, but what usually happens is people who make a lot of money in business invest in property. Property, which is literally secured by the Constitution of the United States is taxed at the State level, which makes no sense to me. The US army protects our land, the value of everyone’s property should be taxed appropriately to pay for that privilege. It certainly shouldn’t be completely left up to the states to charge as little or as much as they choose. This is how California ends up with the highest income tax, but lowest property tax for the rich. If California votes for Democrats, how can they let this stand? I mean, I live in CA, but I still think it’s ridiculous (no I’m not leaving, it’s beautiful here).
Next tax to talk about: inheritance tax. If we actually had a significant one, Donald Trump would not exist in our lives. I don’t believe in passing along wealth from generation to generation from the simple economic standpoint in that it hinders innovation. If you believe in trickle down economics (no one should), then you believe the rich deserve to be rich and their innovations will trickle down jobs and wealth to the middle class. Well, if you inherit all your wealth, odds are you spent most of your college years bullying underclassmen, doing a bunch of coke, and coming very close to failing out (our last two Republican presidents people). How is that supposed to foster innovation? If necessity is truly the mother of invention, then we will invent what we need. But if the inventors, and more importantly the capital providers behind the inventors, just need to hold on to power, we’re in for a wild ride mixing extremist populism and fascism. Instead of building a better future, ‘some people’ encourage crazy people in bear suits to storm the Capitol. I understand this argument doesn’t hold up in practice, but it’s something to think about.
So, now that the Dems control the Congressional and Executive branches, what does this mean for taxes and the market? Probably not as much as effectively distributing and delivering the Covid-19 vaccine, but there are some probable events. First, I think we can expect a $2,000 stimulus. Do you think the Democrats will go back for $2,000 in addition to the $600 or an additional $1,400? I think we can also expect big tech to be put under a microscope. They have good lawyers, so my guess is that everything will reach a reasonable conclusion. Also, as I’ve been saying, Biotech should continue to explode. And if you believe the hype, electric vehicles and clean tech will keep blowing up. These are more long-term investment ideas, which the market doesn’t seem to favor right now. It is shocking Elon Musk is the world’s richest man, yet his innovations and products, which are fantastic, affect so few people. We’re not going to live on Mars in our lifetime, so there’s no reason Tesla’s stock price should be living there right now.
Mitch McConnell took a lot of shit for blocking the $2,000 stimulus, but given his situation (like take this literally, be him, trying to accomplish his goals, and the goals of the Republican party), I can’t really fault his decision. It was a solid example of a Prisoner’s Dilemma. If he didn’t block it, he would be signaling to the true Republicans that the budget deficit is not a priority and government handouts are rarity. The Republican base in the next election would have very little to stand on in terms of fiscal policy and aligning their fiscal policy with the Democrats probably favors the Democrats long-term. But, by opposing it, he was a major contributing factor throwing the Georgia senate seats to the Dems. When faced with a classic Prisoner’s Dilemma, shoot the hostage is the answer I guess :).
So, if we increase the stimulus from $600 to $2000 (assuming people get an additional $1,400 sometime soon), it will cost between $465bn and $600bn depending on how many dependents and spouses are included in the calculation. If the government issues $600bn in bonds and decides to pay that back over 30 years at 1.18%, the government basically owes $900bn over the next 30 years, which is $30bn per year (it doesn’t really work like that, but humor me). The US government has annual revenues of $3.5tr. It seems like a drop in the bucket, but it’s really not (I would continue with the math, but it becomes circular because basically the government just needs this money back because it’s spending money it doesn’t have). The US government needs to save an additional $30bn per year for 30 years to make this work. Instead, this year alone, it increased the budget deficit by $3.1 Trillion. So for every $2k the government hands out, it’s going to need that money back. Either tax rates will go up, or we all better start earning more money. Hey, what if we just make everything just cost more so salaries go up without needing to increase actual output efficiency? 🙂
In other news, I’m not sure why we are all so upset. Would you rather be alive today, current wealth and living situation, or live in the 19th century enjoying the wealth of the top .1%? Well if you’re over the age of 40, there’s no point in even answering that question because the average life expectancy in 1860 is 39.4 years. If you’re 30 or over, great, you’ve got another decade with absolutely no Netflix, iPhones, or Ugg comforters (I just got one, it’s fantastic). So, maybe we should all just chill out and rather than trying to be the loudest in the room, try to appeal to reason, because at the end of the day, we live in an insanely advanced world capable of solving world-sized problems.
BTC: I have to say something about Bitcoin. If you’ve forgotten you bought in 2017 and looked at your account today, you’d be pretty happy. I think the future of Bitcoin is a lot more clear. First, it will never replace any government backed currency. Second, it can work as a store of value, similar to gold. Unlike gold, it has no physical (or digital) use besides the fact it exists. Third, millennials love Bitcoin. Fourth, If Bitcoin was valued like gold by the market value of investor’s positions, it would be worth $146k today. And fifth, BTC moves with the stock market, instead of against it, which is not what traditional investors want for a currency, inflation, volatility or recession hedge. So, while BTC is probably going through another hype cycle, I’d say a reasonable upside in the next 5-10 years is $146k, if not higher because it will probably attract more investors than gold as more teenages race to open Robinhood accounts to gamble their allowance money.
FuboTV: What a wild ride! Kerrisdale Capital published this:
Fubo is not Roku. Fubo is not the next NetFlix. Fubo is not the next DraftKings. Fubo is a streamier version of a pay TV distribution model that is going away, only with far worse underlying economics.
I beg to differ! LiveTV will live on because, sports. If you’re like me, you watch most of them, basically know the rules, but I’m never going to pay for any sport in particular. Enter FuboTV. Also, betting on sports is fun. Enter DraftKings. Add premium content and sponsored events, and boom, you have Netflix + DraftKings + $$$. Silly Kerrisdale. Buy and hold baby!!! K, I’m going to stop talking about this one
PSTH: Price is ~ $27 with a par value of $20. If you buy this stock, you are pay a 35% premium. The fund raised $4bn and are value at $5.47bn. They have done nothing for 5 months and have an additional 19 months to close on a ‘mature unicorn’. You’re supposed to buy this stock because the market is acting irrationally, not because it makes any kind of sense. Ackman is well-known hedge fund name and odds are whatever he buys will make a splash. He can certainly get meetings with any company he wants.
SPACS – In General: SVAC, YSAC, PSTH, IPOC, BTWN (disclaimer, I sold IPOC and BTWN because I went up 15% for absolutely no reason. This is why we buy these things). There’s not much of a point in doing a ton of research, they all seem to rise and fall together and your guess is as good as mine as to what these entities will purchase.
XL Fleet: This is an EV company taken public by a SPAC purchase. They provide vehicle electrification solutions for commercial and municipal fleets. I like that they are relatively still small at a $2.75bn market cap and they have been around since 2009. They have thousands of vehicles on the road and seem to fit into my SPAC and clean energy bets