Newsletter - 12/28/2024
Happy 2025! Almost. I don't know about you but for the first time in many years I am hopeful. Don't get me wrong, I normally don't start the New Year absent of hope but this year "feels" different. Sure, I am pleased that Trump got elected (more on why his policies may do more harm longer term than good later in this newsletter) but I am trying to be realistic about how much real change can be effected. No, the reason for my hopefulness is perhaps we have achieved "Peak Crazy" for the time being.
Think about it. Since 2020 we have all experienced a life's worth of "Crazy":
-
War in Ukraine
-
War in the Middle East
-
Threats of nuclear war by Russia
-
Pandemic
-
Loss of freedom during Pandemic
-
Vicious Presidential election cycle with two assassination attempts
-
Drones/lights in the sky
-
Acknowledgement by world governments of UFO's
-
"Wokeness" peaking with the Summer Olympics
-
Complete loss of trust in the legacy media
-
Extreme cultural divisiveness
-
Beginning of AI revolution
If you notice I didn't list any financial or economic items. In my opinion, when there have been periods of geopolitical, social and cultural stability it has also correlated to strong periods of economic growth. In simplest terms, when the world is peaceful people have less to stress about and therefore are more freed up to be more creative, more productive. While you might think it is overly simplistic I would challenge you to try and refute that correlation.
Therefore, if you accept that we have been living during a time with an extreme amount of "crazy" then it should be very easy to see that the result of so many "extreme" events socially, culturally and geopolitically is a business environment that has become equally extreme. Record corporate profits which are the result of massive stimulus in 2008 and 2021. Extreme rise in a corporate philosophy that puts profits above everything else - even human life. Record, and growing, wealth inequality gap between the "haves" and the "have nots." Nation-states' militaries being used to help advance business objectives of the powerful and elite.
Do I expect all of the above reversed completely? Absolutely not, those bridges have already been crossed. The reason for my hopefulness is that since we have lived through a period of extremes, I expect some areas to start to "revert to the mean" so to speak. Trump being elected only further supports that point.
And the excitement that is felt in the US could go a long way toward rebuilding those parts of our nation that need rebuilding. Just as it is with a mathematical reversion to the mean, so it is with what will happen to our country; the reversion will gain momentum. And that momentum will fuel an economic boom.
But it's still going to end very badly. There is no other way.
POTUS Update
No doubt about it: for all of the potential of chaos surrounding the Presidential Election nothing has occurred since Election Day. I was one of those who expected something to happen around the election. Obviously I have been continually proven wrong and as the calendar ticks down to the Inauguration I see the risks as being quite low. I think the Dems and the Deep State are waiting until after Trump is sworn in and then they will try to undermine any change via the same tools they have used to achieve their success: by any means possible,.
However, first we have to get through the Inauguration. While I do not "expect" anything dramatic I am still not ruling the possibility completely out. There are just too many opposing forces at work, in our own country and globally, to what Trump wants to do, for me to remove the possibility of "something" happening.
January 3, 2025 - The New Congress is Sworn In
The new Congress has to be sworn in before they can count the POTUS electoral votes. I will be watching for a delay.
January 6, 2025 - Congress Counts the Electoral Votes
Following the effort to overturn the 2020 election, the Electoral Count Reform Act introduced a series of reforms to this joint session, such as clarifying that the vice president's role (as president of the Senate) in overseeing this count is "ministerial," and raising the threshold for objections to a state's electoral slates to one-fifth of each chamber. (from NPR)
January 20, 2025 - Inauguration Day
I am hopeful that the transfer of power will occur peacefully and with no problems. I could not have said this two months ago.
However, I said this two weeks ago: "What are the odds that the market exits January 20th, 2025 unscathed? Now what are the odds that NONE of the other possible risks to the market don't pop off between now and January 20th?"
I have to admit that the odds of something bad happening have gone down since nothing has happened since the election; more recent data and more time.
Globalism vs. Nationalism
Globalism is "the idea that events in one country cannot be separated from those in another and that economic and foreign policy should be planned in an international way" - Cambridge Dictionary
Nationalism is "the belief that your own country is better than others "" - Cambridge Dictionary
What's interesting to me is that in the 1990s everyone I talked to thought that Globalism would be ultimately good for the world. Freer flow of capital would elevate poorer countries economically which would lead to more stability, better security, better health and a removal of borders, among many other promised benefits. For a country that was founded on freedom and individuality, the cornerstones of Nationalism, it was surprising to me to hear very few people strongly speak put against Globalism. Simply put, Americans allowed themselves to be "bought off" with cheaper "stuff," more credit, bigger houses.
While some of the above certainly happened to some degree, Globalism only made the rich, richer and the poor, poorer. And with that increasing divide, conflict, suffering and centralization of power in the combination of corporations and governments exploded.
In fact, the concentration of wealth in the world is astonishing until you understand how it occurred. While the following is an extreme oversimplification, it is a basic timeline of how we got where we are:
-
In 1999, Congress passed the Gramm-Leach-Bliley Act, which repealed most of Glass-Steagall’s provisions, allowing commercial banks to engage in investment activities and vice versa.
-
Explosion of derivatives, debt and risk. This also fuels a record bull run.
-
2008 Financial Crisis culminates with NO ONE RESPONSIBLE being penalized, let along imprisoned. THIS COMPLETELY REMOVED MORAL HAZARD and further consolidated economic power in a few global banks and the strongest countries.
-
At the same time any threat of penalty was removed massive stimulus was given to the very same banks, and they did exactly what they are meant to do: make more money.
-
Life was good, everyone was making money and then Covid hit.
-
Covid caused a complete global shutdown which required even more stimulus. And it also was the first time in modern history that decisions for individual countries were being made by international consensus.
Quite frankly, the change to Globalism was largely successful. But then those in charge do what those in charge always do, they want MORE. More power. More money. More control. If they had been smart, they would have stopped and ended up with exactly what they wanted: complete control. albeit behind the scenes.
And of course the other thing that the Globalists could never have imagined or prepared for was Donald Trump. The very definition of Nationalism, or so it would seem. America First. Make America Great Again. There is no doubt about what POTUS believes or what he plans to do. Trump intends to roll back Globalism and it's symptoms, as he sees them.
At the core of what Trump dislikes about Globalism can be summed up in this chart from the Asutralia Times:
I find it immensely ironic that there are people in the US who are enraged at the current immigration issues in the US and at the same time want a more global economy. Immigration is THE key economic driver for Globalism and Globalism has made it easy to buy MORE STUFF. Trump intends to significantly cut down immigration into the US in addition to expelling millions to leave. This will be inflationary.
Mercantilism
But Trump's plans this time have a different tone to them: they are not just Nationalist and therefore Nationalistic Capitalism. This time his tone is actually more Mercantilist. I view Mercantilism as Capitalism bordering on Protectionism.
While I do not see a complete Mercantile makeover, I do think that with the exception of the eeconomic Philosophy, every other item in the Mercantilism column will be used to one degree or another. And eah of them produce inflation. Do you see a theme developing? Inflation is coming. And there is nothing that Trump or anyone can do about it. Well, nothing that they would be willing to do.
Before you start celebrating the coming avalanche of good times, allow me to offer a realistic view of what could happen with those Trump policies that I believe are most likely:
-
TARIFFS: No doubt about it, Trump is going to use Tariffs, He will use them against allies and trade partners. He will wield them as the powerful weapon that they are. This is my view: if his intent is to level the playing field with allies and trade partners that enjoy protectionist policies themselves in their home markets then I am fine with that. If they are used as leverage to force allies to become more "allied" then I am fine with that. But I have the ability to absorb increased costs whereas the majority of the world does not. The problem with tariffs in a global economy is the same problem that exists with supply chains: you can no longer isolate any disruption to the "chain" - and tariffs are very disruptive. And yes, tariffs are inflationary or at least they are initially. Longer term tariffs hurt the weakest companies/countries first. But the longer they drag on the more it will start to harm the US. And if they drag on too long? Well tariffs can trigger a recession. Tariffs are the economic version of Chicken.
-
REGULATORY RELIEF: Trump via DOGE (Musk) intends to cut wasteful spending and regulations for businesses. Understanding Trump's history as a real estate developer provides valuable insight as to what industries could benefit the most: banks, real estate, construction. They are also the industries that benefited during his first administration. But here is the problem with regulatory relief: it does not provide a large enough one-time financial benefit. While regulatory relief most certainly reduces operating expenses and can produce efficiency gains, neither of them provide a business with what it really needs: customers and capital.
-
DEFENSE: While finding $150k screws will make the headlines there is not going to be a meaningful adjustment to the Defense Budget. At least not downwards. Defense spending will be going up. Trump has already declared that Greenland is a "National Security" asset and the US wants it. I literally am dumbfounded how it is ok for Trump to effectively threaten Greenland and not one peep about it. Trump is not kidding. No, he is not going to invade. But he does intend to accomplish his goal of somehow securing Greenland for the benefit of the US and the US only. Greenland is just an appetizer. I believe that Trump will attack Iran within the first 2 years of his tenure.
-
CHINA TRADE WAR: Trump's desire to initiate a Trade War with China is for military purposes as much as economic purposes. At least he sees that China is using trade, among many other things, as an asymmetric weapon of war. China has a great deal of leverage though since it owns or supplies 87% of the rare earth mineral supply. The US, however, can exert extreme pressure on China via cutting off their supply of oil. Even a threat of disruption could send Chinese markets lower. No matter how this all plays out, a trade war with China will be inflationaty.
-
STIMULUS: It's coming, with or without a bank or CRE collapse. There is simply no way to stimulate growth FAST ENOUGH without throwing cash at the economy. Taxes will be lowered, tax credits will be provided, and banks will have money thrown at them by the Fed and the Treasury. Everyone will be happy as their retirement accounts go up, as housing rebounds - but it will be temporary. Adding fuel to the debt bonfire will only prolong the coming crash and make it much larger. And yes, Stimulus is inflationary.
Update: Where Are We Going?
So the market bounced - and conventional thought would say that this sets up for a move downward in January. But I have a couple of problems with this thesis. First of all, I have heard too many people talk about the same timeframe. That makes for a crowded trade, already. It also means that the "Trump Rally" is done. I don't think it has even begun. How can a real rally begin until he is POTUIS and his Cabinet is seated?
In the meantime, with the market struggling (on low volume of course) it's going to take some heavy lifting to repair the technical breakdowns in the daily charts.
Icarus and
the Death of the Death of CRE?
I'll just say it: banks are going to soar in 2025. At least for a period of time. And barring any meltdown by a major CRE manager, With the combination of looser regulations and stimulus, multiline megabanks stand to benefit. They do most of the lending ($ size) and are positioned best to benefit from any "backdoor" stimulus via temporary funding agreements or some other bullshit name. As for loan demand, it is already there:
So does this mean that banks will be able to extend and pretend long enough for their CRE assets to appreciate enough so that enough of them are out of default danger that their businesses do not implode and their stocks do not collapse and cause financial Armageddon?
Maybe.
I am as shocked as you are to see me type that word but I cannot ignore the data points listed above. Nor can I ignore the complete lack of BAD events. The entire situation with CRE is a race. There are two competing forces: first, there are all the loans that were made via banks via stimulus. All of this money inflated asset prices too quickly. And the Fed wasn't planning on the Pandemic. So those asset prices are "artificially high" because what happens when all of a sudden there is an explosion of demand? Inflation. Asset prices explode. Or exactly what has occurred. Inflation will not come down until either asset prices rise enough to equal the amount of stimulus that was put in the system or the stimulus is forced out of the system. Via a market crash. A big market crash.
The second competing force is time. Normally it would take much longer for real estate and stock prices to advance so far. But all of that stimulus accelerated the value increases without the support of the underlying fundamentals. What's worse is that the Fed badly/purposely miscalculated by lowering rates TWICE which has the effect of once again raising asset prices without the supporting underlying organic growth.
So its a race. What will happen first? That banks will be forced to mark their CRE portfolios to the current market values or that the global economy will organically grow?
I think that some banks will be able to survive and even prosper. The biggest banks. The banks that are the most morally bankrupt. The banks that I want to short. But the smaller banks are going to continue to suffer because no matter what, people will follow the money. If a bank lends you money you will put up with all sorts of crap.
But I don't think this will usher in the new glorious age of banking. As an industry banking will benefit heavily from customer service centric AI, and all of its cost savings. The problem is that the banks that have the capital to spend will lead and those that don't, will die a slow death.
For a period of time, maybe 9 months or as long as 24 months, large and mega banks should do well. But as it always ends with unfettered capitalism, some of those banks will fail. And if enough of them do, they will collapse the economy.
Just like you know who, the end will come when times are the best. And they least expect it.
Update: EOSE
I finally was able to add to my EOSE calls before the price exploded higher Monday. I shared that I was doing this with all of my Discord BEFORE I did it. So no one can say they didn't have a chance. Because EOSE is my top pick for 2025 based on all the data available. If you don't know why, then I would check out my latest podcast below.
USDJPY
Uhmmm. How do you say, "Holy shit the Yen is rising again" in Japanese? Because it is. And its nearing the same level where "they" monkey hammered it down the last time.
Guess what?
It's on purpose.
Why?
Because then "they" can smack the Yen down which will boost the dollar which will boost the markets.
$SPY
Not a good look. Weekly is in a sell. Daily is in a sell.
Worse, the Santa Rally has been a dud.
The Santa Rally usually attracts retail volume. Volume is what's needed to create momentum.
You understand the picture?
$QQQ
From 7 weeks ago:
"500 is the line in the sand."
From 5 weeks ago:
"Price is above that level.
Time for me to get long.
Impromptu Haiku."
From 2 weeks ago:
I am long via UPRO and QLD as long as a number of high beta tech names.
This week:
I am still long my QLD runners.
$RUT
Just ugly. Like when the Washington Redskins beat the EAGLES.
I fear it won't get much better, for both.
$EOSE and $ENVX
A retrace to the 4.79 level would be fine. If it does that at all.
THIS AND THAT
While tech looks to lead again in 2025, it appears that the expectation is for the price advances to be much less.
I think this is wrong. I think specific areas of tech will again provide outsized gains.
Add in looser regulations and Musk with a key to the White House and it's a recipe for another banger year.
I am, watching for non-tech to start closing that earnings gap. At the same time, I am expecting tech to trade at higher valuations than present.
If you believe the estimates, then Tech will also outperform on a relative earnings growth basis.
PODCAST:
The Podcast library is here.
VIDEOS:
The Video library is here.
Paid Memberships:
Look, there are a LOT of scammers out there on FinTwit. 99.99% of them care only about selling packages of crap. SOME OF THEM ARE CHARGING AS MUCH AS $5,000 PER MONTH! None of them include what helped make me a better trader: having a mentor. Having someone who will be your PERSONAL TEACHER, COACH AND ACCOUNTABILITY PARTNER. A Mentor that has over 90,000 hours of screen time. That by itself is invaluable.
People ask why I charge. First, I want only VIPs that are committed and "having skin in the game" guarantees this. Second, because my time is valuable.
See what others are saying:
Don't forget the Discord live chat is STILL FREE but it will be closing to new members soon. In fact, we have already started removing non-active members.
-
In the meantime, come and join us - its the best community out there: Discord.
-
Also, be sure to check out the new page for Daytrading on the website, run by the fine gents @BaconTurkeyClub and @Juggernaut. If you ever wanted to learn or just watch two pros daytrade live, they are at it every day here: DiscordFuturesChannel.
-
Finally, be sure to check out VampireTrades and his amazing penny stock trades.
Thankyou Family!
theBoss
Nothing above is investment advice nor should it be construed as investment advice. It is offerred for entertainment purposes only. Always consult your advisors before investing any money. Do not "follow" or "mirror" any trade ideas provided. Mr.NotAdvice is not a licensed or registered investment advisor. Do your own research.