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Worry-Free Wednesday – Nothing Stops the Nasdaq

Just a quick blip down.

That's all we got yesterday on the Nasdaq as the Russell fell 1.5% and the Dow droped 500 points but the Nasdaq shot right back up and went on to even higher highs, now sitting very close to 15,000 – 200% higher than it was in the Dot Com crash and 100% over last year's low.  Jeff Bezos has gone along for that ride and he's once again the World's Richest Man at $211Bn after gaining $8.4Bn yesterday as Amazon (AMZN) fueled the Nasdaq rally after the Pentagon reversed a decision to give Microsoft (MSFT) a $10Bn military contract for cloud computing..  

Does it make any sense at all that Amazon MAYBE winning a $10bn contract should go right into Jeff Bezos' pocket?  Of course not!  Even if it were 100% certain that Amazon wins the contract and EVEN IF the contract were 100% profit for Amazon, Bezos still isn't Amazon's only shareholder.  Logic has very little do do with the markets these days.  Jeff's ex-wife, MacKenzie, made another $2.9Bn yesterday – that's as much money as she has given to charity since the divorce, proving she literally "can't give the money away fast enough."  

Wealth of that size is like a black hole, money around it gets sucked in by the gravity of it and very little money escapes from it – so they just get bigger and bigger as time goes by.  What does "sucked in" mean?  Well Bezos has $211Bn (Musk is right behind him) and just putting it into 10-year notes at 1.36% requires $2.87Bn in interest per year.  More likely though, Bezos invests his money and gets at least 5% a year, which would be over $10Bn annually and that money has to come from someone, right?  

US Consumer Debt is $15Tn and $10.5Tn of that is Mortgage Debt, which is concerning but not terrible with house prices going up (so, presumably, those loans can be paid) while non-housing debt is $4.5Tn, led by almost $2Tn in Student Loan Debt.  If the average Student Loan has a 3.5% interest rate, then they are paying $70Bn a year in interest and $10Bn (14.2%) of it would be required just to maintain Bezos' wealth.

That's how it works – the money comes from somewhere and people have to pay Jeff Bezos for the use of his wealth even if, like MacKenzie, he has no use of it for himself.  This is how money trickles UP, from the poor to the rich – no matter how much they insist it is otherwise.  

If, on the other hand, Bezos and others were taxes half their wealth, then the Government could afford to subsidize the student loans or just pay for college and then students would bottow less money AND less money would be required to feed Bezos' black hole so the rates could drop 7% for Bezos and 7% for Musk and 5% for Gates (who already gives his money away as fast as he can) and tens of millions of college students would be more happy and start lives out with less of a financial burden while poor Jeff Bezos would have to stuggle along with only $100Bn.  But this is America – we would never let that happen!  

In the 2008 crisis, Personal Debt topped out at $2.7Tn so $4.5Tn is up 66.666% and if that isn't a sign, I don't know what is!   Housing Debt is what did us in then and that was $10Tn at the time and now $10.5Tn so only $500Bn (5%) has gone into home debt in the past 12 years while the much more expensive revolving debt has increased by 66%.  Imagine the nightmare this will become for consumers if rates go higher and their monthly servicing costs begin to rise.

In 2008, the Nasdaq was at 2,000 and fell back to about 1,200 during the crash – so up about 10x since then.  Why has tech run up so much and why has consumer debt run up so much?  Because now we need tech to live, don't we?  Jeff Bezos makes his money taxing you for the products you buy.  We used to go to the store and get things ourselves but now we pay Jeff to deliver them and we pay $10/month to be Amazon Prime Members.  There are 100M people in the US who are Prime Members so that's $1Bn per month sent to Amazon – just to belong.

2020 Is the Year of Tech Advertising - Insider Intelligence Trends,  Forecasts & StatisticsBut Prime TV doesn't do it for us so we have Netflix (NFLX, $20) and Comcast (CMCSA, $200) and Disney+ (DIS, $10) etc. and my kids watch TV on their iPhones (AAPL, $200 for 4 phones) which are connected by AT&T (T, $200) and suddenly I'm spending $640/month (15% of the average household income) just to have my family connected to this brave, new world we all live in.  Even if we assume the "average" family can do it for half as much (I can't see how), that's still $320/month (7.5%) x 100M families = $32Bn/month or $384Bn per year pushed into tech spending that didn't even exist 20 years ago.  

And that's the US alone.  And, of course, those of us who have businesses know there's another solid 15% that is spent on technology.  For most businesses, it's the 2nd leading expense behind Employees, now eclipsing rent for most companies.  That's money we spent essentially $0 on 20 years ago.  Back then we used to BUY Windows and keep it for 5 years before upgrading – now we have to rent it, along with office, etc.   That keeps the money flowing steadily up the ladder – right into Gates' pockets and, oh yes, he and Bezos have your data on their servers now…

Tech is a whole new catagory of things we now NEED to spend money on.  Even our money is going technical and that means our businesses now pay a fee for every transaction we make.  The customer can't just come into the store and buy a can of beans and give us $1 – it has to be on a credit card and they take 0.015 of it which, for the grocery store, is half their profits.

Think about how much money you spend on technology that we didn't when we were kids and then you'll know where all your money went.  Maybe it's not a bad thing, technology certainly makes us more efficient but it's not necessarily a good thing either – not when we've been slowly put into a position where around 10% of our earnings go to something we didn't have 20 years ago.  That's 10% people could have saved for their retirement and maybe that's why we're facing a massive retirement crisis now.

It's also why the Nasdaq goes up and up, driven by Trillions of Dollars of newly valuated companies which were barely on the radar 20 years ago.  The problem for Consumers is Tech isn't a substitution, we don't spend less on food, cars, clothes, housing, college, etc., do we?  No, it's an additional expense and the only thing it could have taken was our savings and now we have a society in which you pretty much can't function without it – hence all the borrowing. 

Even the Unibomber had Internet up at the cabin.

 


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  1. Good Morning.


  2. Good morning!

    Here is the link to today's webinar

    https://attendee.gotowebinar.com/register/6552545459443187211


  3. Phil,

    Would like your counsel. I have short puts in JD (Jan 65’s; cost 2.67, closed 4.20) and am more concerned about the outlook for Chinese market than JD itself (one of the better Chinese companies). I don’t have a strong sense of whether or not this is Armageddon for the Chinese economy, but JD is completely consumer based and would of course be severely impacted by weakness in Chinese economy. Considering offsetting liability in short puts with short calls (Oct or Jan 82.50). Yesterday the short calls dropped $1.50 and the short puts rose $1. I realize one usually waits for a rally to sell calls, but it is not looking like the market may not oblige at present (not sure how durable this morning’s pre-market uptick is). Soo:,

    (1) use short call options to offset the potential loss in short puts and bail on short puts if stock drops below 70 or 65 

    (2) take short put loss now or

    (3) your recommendation ?

    TIA



  4. More Red-State Trouble


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  7. Disturbing trend in world’s most vaccinated nation



  8. Official: Haiti President Jovenel Moïse assassinated at home


  9. Having had  similar episodes of Luddite venting, I have developed the theory that flogging technology is a sure sign of early onset "carmudgeon syndrome". However, it is fair game to vigorously decry the evils of the social media plague. :)


  10. How does an electric car motor work?



  11. JD/8800 – That's why we don't play those companies – I have no idea what's really going on in China so I don't like to make bets on companies we can't really watch.  JD is a great company and now massive, making it's money as the ECommerce backbone to many Chinese companies but what if they can't pay?  Bottom line, as usual, if you don't REALLY want to own JD at $62.50ish, GET OUT).  The premise for any company we sell short puts against is we're happy to DD on them if they drop 50% – if you are not HAPPY to follow-though – then get out while you can.  You're alternative is to make it more complicated to unwind.  Especially selling naked short calls – what if they get bought out.  They've been at $105 – if they pop back there – you have no conviction to short – you are just doing it so you don't have to admit you have a loss on the short puts.  That's not a good reason to stay in a trade.

    Curmudgeon/Pstas – My issue isn't so much with the technology itself – that I love – it's just the repercussions of diverting money into it are not being dealt with and we blame a lot of things for lack of retirement funds, etc. but I'm starting to see that the base culprit was the literal AAPL we took a bite of all those years ago when we were all so innocently playing in our garden.  


  12. Pretty lackluster day overall.

    Bonds back up (rates lower) as Fed has no interest in tightening any time soon.

       

    $72!

        

    /SI should catch up a little, that's a fun bet over $26.25 with tight stops below.

     


  13. Phil/SQQQ-SDS

    I get the feeling that SQQQ and SDS are going to reverse split soon (just because of the decaying nature of the ETF) — any other hedges worth switching over to before these become hard to unwind?  





  14. Haiti Is in a ‘State of Siege.” Here’s What It Means.




  15. Explosion reported in Jebel Ali seaport in Dubai


  16. Reverse/Jeff – Not really.  Dow and RUT are too upredictable so we just re-position in the new contracts.  Last time the split they adjusted our positions, didn't make two classes. 


  17. That's funny, Placer hijacked my link to flip to their main page.  They are great actually but here's what I found interesting:

    https://www.placer.ai/blog/mall-index-q2-2021/