For our astute readers, we’ve been missing in action for a couple of weeks as we were finalizing research into the great depression of the 1930s along with the impact of money printing. Some of the things we’re seeing today are eerily similar. In addition to that, a strange dynamic has occurred where parts of the world are actually open: Korea, Japan, China, Taiwan and Singapore are in much better shape than the USA. The USA has a narrative that we should blame the virus on China (fair enough), but, it doesn’t change the end result. These countries are operating at normal (or close to normal) while the USA has no clear timeline to recovery until at least September/October. Pains us to say it but the US is just too far behind tier 1 Asian countries to catch up, the propaganda we receive stating that we’re ahead of them simply isn’t true (those who are well travelled understand this). The US needs to invest and invest NOW. With that said lets jump into the changes.
#1 Structural Change – Money Printing: If you cannot figure out what to invest in when governments are forced to print endless amounts of money you either need to do research yourself or you need to focus more on making money. Why? Well the only people who cannot figure this out = people who have not made any real amount of money or people who don’t like to read. They are usually the same person.
With the tough love out of the way, the answer for the lazy is simple: commodities and crypto. These two asset classes make the most sense and is in-line with views we made several times and even predicted a recession in our book Spending for Maximum Return. In fact, this book was so timely we’re shocked it isn’t outselling Efficiency!
When you increase the money supply, all you are doing is changing the price of goods long term. People who do not like to read will ask questions like “how come it isn’t going vertical RIGHT NOW!”. These are low quality questions because you cannot simply go into market place and “market buy” $1-2 trillion dollars worth of anything. Imagine trying to buy $1T worth of Apple stock, even at a $1T+ valuation, you’re attempting to purchase over half of the company in a single day. The price will go vertical and you’ll completely crash the market.
The time lag is roughly 60-120 days (give or take). When you hear about the next stimulus bill (you can bet they will give people money as surely as the sun will rise tomorrow), realize that this won’t really hit the system until 60-120 days later. Until we have some sort of sense of normalcy, unemployment rates of around 7-8% or so, interest rates will remain at zero and maybe even go negative.
#2 Structural Change – Work Environments: The low quality comment from March was that Companies would need more office space to social distance. This comment was beyond crazy as you’d have 1-mile long lines to get into major elevator banks at high rise complexes. After a few months, even Google stated they would be doing more work remote. This was significant as they spent hundreds of millions on new campuses. They had skin in the game to push for a return to normal work… they are now back pedaling.
Going forward you want to become a knowledge worker at minimum and move any of your ideas online. We’ve been pushing the online income angle for years and those that succeeded are actually UP in terms of income. Take any brick and mortar and think of ways to convert that into an online business. Sure you won’t be able to see immediate returns, but like anything in life, the real gains are seen down the line after sudden inflections upward.
Since more people will work from home, this means suburban areas just became more valuable. Having a home office is a real selling point and you will likely see security system sales increase as well. If you are leaving major cities due to crime, you can guess that security systems will also be of value to you.
#3 Structural Changes – Taxes: This is going to become VERY interesting. There is no clear conclusion yet but there is a clear answer here: taxes will need to go up. (Notice this means 401K tax deferral just became meaningless if taxes actually go up later). Does this happen next year? Probably not. Does it happen within the next 5 years? High likelihood. There are too many scenarios here so we we’ll go ahead and outline all the various ways for it to happen:
Tax Adjustment Potential: 1) tax free states begin to tax their residents, 2) federal tax brackets change, 3) subsidies for companies begin to go away, 4) wealthy people move to the most tax advantageous regions, 5) real estate taxes go up, 6) consumption taxes are increased and 7) capital gains taxes are changed. If it gets really really bad, you could see governments quite literally take money from accounts as we saw in other countries (IE. you have $100K in a brokerage account and they take 10% from everyone instantly after locking their accounts).
This is going to cause a lot of interesting issues. If you’re wealthy you’re going to leave the high tax states for good. If they attempt to change the rules in a place you just moved to… you can move yet again. This is the reality of the new working environment. If all of your work is mobile, you can jump around with relative ease.
What does this mean long-term? Call us crazy but it seems like this will be the first step in causing countries to compete for the best and the brightest to move to their country. If your work is entirely remote and you’re a high quality producer… Your country needs to find a way to keep them. For those that don’t understand why this is so important look no further than NYC. When billionaire hedge fund managers leave, they cause such a large tax hit that the entire state is forced to reduce government employee salaries. Now imagine this but at a MASSIVE scale. Instead of attacking the talented you have to find a way to keep them in your country. Otherwise you get nothing but brain drain and are left with talentless people who drive down the production in your country.
#4 Structural Change – Global Work Force: For all of the people who are thrilled to be working from home, it is time to remember that this has opened up world wide competition. If your job can be done remotely, there is no reason to hire someone in the USA vs. any other country assuming their skills are higher. While there are some communication issues, in general, you’ve opened up the pool of competition quite a bit.
If you’re working remotely it means you’re going to rely on technology. If you rely on technology it also means that you’re going to have a net reduction in human capital needs. This is a simple fact that many don’t want to believe. The entire point of technology is to remove remedial human tasks. As more and more companies look at remote set ups they will learn a lot about video conferencing, automated calendars and software tools to get more capacity out of their technology infrastructure.
This is great for you. If you start your own e-commerce/online based income stream, you won’t have to hire anyone. You can scale for quite some time without the need for a single hire. Building out a “team” becomes a relic of the past. You only need a few high quality people who actually add value and the rest can be ignored. You’ve created an entity that not only grows faster but has higher margins! Overhead walks on two legs.
#5 Structural Change – Crypto: This is going to get very interesting as well. In fact the next 10 years is going to be fascinating as a whole. Crypto currency is an answer to not just the financial system but the overall transfer of data and information to the user vs. a random “woke” Company. Instead of being forced to give away your data, you can have choice. Instead of being forced to hand over all of your photos to Facebook and Google, you can choose to block access. So on and so forth.
Crypto creates an establishment of trust world wide when we live in a society that is becoming more skeptical in nature. You cannot print trillions and trillions of dollars and expect people to believe the economy will suddenly recover. You cannot force people to close down their businesses and then expect them to maintain all of their employees due to an interest free loan (that still needs to be paid back by the way). You cannot have mass riots on the Streets in expensive areas and believe that rich people will simply “live with it”. These conclusions are not even debatable.
If the 2000 to 2020 range was the year of the internet and software, 2020-2040 should become the year of decentralized finance and new internet economies. A form of money that is devalued by trillions every 3-5 months is not going to store a lot of value.
#6 Structural Change – E-sports: If you were not bullish on e-sports you should be extremely bullish now. How can you be negative on a growing sector when people are forced to stay at home and have nothing else to do for entertainment? It seems quite obvious that e-sports will become more and more popular for the younger generation.
Notice, we’re not saying that this is healthy for them. But. You’d be a fool to avoid investing in coca-cola stock just because it isn’t good for you. With high unemployment, video games are a form of cheap entertainment & they can be used globally.
The only issue we see in the near term is that online gaming leads itself to cheating. Without organized venues for competitions a lot of people will use hacks/cheat codes to make sure they win. This is something that will be solved over time and it is a lot easier to socially distance with a computer room. All you’d need to do is have each room manned with a representative from the Company (check them to see if they are cheating) and move on.
#7 Structural Change – Humans are the Same! This is a fun one… humans are structurally the same and always will be. This is why we’re going to load up on Canelo Alvarez whenever he fights and remain positive on Trump winning the election. No matter what changes, humans are going to make the same short term decisions and think in the same manner as they did before. The only difference is they apply their flawed logic to a new ecosystem.
If you want proof of this look no further than Litecoin. The founder sold all of his coins at the top and the conclusion was that “he was trying to remove a conflict” which made little to zero sense at all. The price crashed since everyone knows what it means when a founder sells his entire stake.
If humans are the same this means it is likely that Trump wins. We have had this same view since 2017 when his odds were 3:1. We’ve been positive on the same trade since then. Even though he is losing in the polls by the time October comes around, people will have to make a choice. Right now people are focused on the issues with COVID-19 and the economy.
By October they have to make a choice. Vote for the guy who did a great job when times were normal or vote for the guy who can’t even remember how many grandkids he has. A person with visible issues that appear to be the onset of dementia or the status quo. Also. Lots of Trump supporters know they could be fired for being a Trump supporter so they would never answer polls honestly (unless they want to risk their jobs/careers).
#8 Structural Change – At Home Care: From gyms to saunas to facial skin care products, more and more at home solutions should succeed. Why go to a gym when you are now living in a home and can build one yourself? Why go to a professional skin care person when you can have your own routine and avoid catching a dangerous virus? Why go to spas when you can create one yourself in your much larger living situation?
We realize these changes refer to the rich but we have to think about that market as well. If you’re rich, you value health and privacy a lot more than the average person. This ticks both boxes and it might even create a much healthier routine for you as well. Take a wild guess if we’d recommend starting an internet biz based on this theme!
#9 Structural Change – Home Improvement: This is going to continue for the foreseeable future. We’re not sure how to invest here besides basic stocks like Home Depot. Our best guess is that there has to be a business venture here in landscaping. No rich person is going to spend their time digging ditches, pouring concrete and watering plants. They will pay thousands of dollars to have their yard work taken care of by others.
An interesting angle is to look at the latest and greatest tech products for landscaping. There has to be disruption in the next 3-5 years if we already have robots that take care of distribution/warehouses. Find the right products to help with a common task (retaining walls, concrete pouring, plants and creating a terrace).
The big big big downside here is that this is currently a people business. This involves a lot of headaches, being yelled at by rich people and having to listen to their every little detail. The good news? If you have nothing else to do to make money, this is a good backup plan for now.
#10 Structural Change – Real Estate Value: This is going to be quite messy. Major cities are seeing large reductions in rents. If you had a cap rate of just 2% and suddenly your rental income has to go down 20%, now you can’t even pay the mortgage with your tenant. Since people are extremely egocentric, they think that it’s perfectly fine to not pay rent “my landlord is rich!”. Even though he might be losing tens of thousands of dollars per month due to missed payments.
Moving on, this means you should be very careful when you invest in real estate. While prices may go up due to unlimited money printing, it is not clear if particular major cities will benefit. The major cities are stuck between a rock and a hard place. Raise taxes and rich people will leave. If you don’t help the mid-low income families, you see an increase in crime… which causes rich people to leave.
Our simple take is that you want to be exposed to mid-sized suburban homes. This is because families will be forced to live together for longer periods of time and the value of these homes is reasonable. You are in the middle of the risk curve. If things go back to normal quickly, there is still demand. If things do not go back to normal, you own an asset that is in extremely high demand. Think middle class suburban home in tax free areas with good school districts and high quality healthcare systems.
Making Some Fun Predictions: With the high level out of the way, we’re going to be looking for all of the following: 1) notable real estate issues now in 2021, originally we expected this to blow up some time in August/September. However. New legislation is going to extend the laws on evictions. So this can’t blow up by definition until that is complete. This puts us into 2021 (see we do adjust opinions sometimes!); 2) increased number of gamblers as a percent of the US population. This sounds quite random but makes logical sense. Sports betting and anything to get a “high” will be in demand. If you can’t drink, party and do drugs you’re going to chase dopamine somewhere: options, betting and leveraged bets on crypto will be likely; 3) big increase in religion, we’ve been saying this for a while. Since many will go through terrible economic times, they will need a form of hope and optimism. Religion offers this and is one of the major benefits of the entire culture; 4) lots of stealth wealth. If you are making money right now you’re better off hiding it. You should be spending tons on growing your business… And you should be hiding your success. The current environment allows you to pretend that things are going bad for you. Take advantage of it since flashing money (today) is just going to lead to crime. You can show off more when the economy is normal again; 5) big divergence in fit vs. unfit people. It was already bad but it’s going to get worse. People who are interested in self improvement are likely seeing significant gains. They went from being forced to workout while exhausted to being able to workout whenever they like. Should lead to a lot of at home gyms and healthier living for a large chunk of the population and 6) you’re going to see a lot of pain and suffering for people in their 20s. They will be forced to live at home due to the current circumstances. This is going to stunt the growth of many young men so you can expect that in 2030 or so, a lot of the 30 year olds will have the mindset/thinking patterns of a person in his mid 20s.
From an investing perspective you only need to know that the money supply is going to go up. That means you’re simply going to own bitcoin/other crypto you believe in, gold and tech stocks. That has been the trade for quite some time. If you force us to choose we’re going to say the same thing we said when it hit $4,800, likely the best performing “asset” for the next 2-3 years will be bitcoin/crypto in general.
