Best trade ever?

Happy Friday!

This week revisits an economic model that I’ve found effective with clients. Also, it’s an opportunity to ridicule economists (two birds, one stone). As always, let me know if you’d like a copy.

Much to discuss…

First Trust publishes great charts.

The chart below is from First Trust, and it’s top tier. It visualizes the effect of inflation on the dollar since 1980. 

From the start of 1980, the purchasing power of a dollar fell more than 70% by the end of 2021. It reminds our clients that inflation MUST be considered in any investment. Those sitting in cash should especially take notice.

We are not in a recession.

The headlines around the 1Q 2022 GDP print are creating a confusing picture. Real GDP, or GDP minus inflation, came in at -1.4%, but that in no way implies a recession. 

Dig deeper, and the story changes. Consumer spending increased by 2.7% (annualized), business fixed investment soared by 9.2%, and home building came in at around 2.1%. Nothing about these numbers indicates recession.

So what happened? 

First, GDP dings the U.S. economy for importing more than exporting, and imports surged. The idea is that if Americans rely more on what the rest of the world sells than what is made here, our economy should be penalized. I get why some think this way, but I believe that consumer and business spending is way more important to the economy than where goods originate. Sure, buying American from a GDP perspective is better, but that’s a distant second to actual spending.

Second, inventories slowed down. That means companies are buying less stuff to put on their shelves, which makes sense to me. Hoarding has been rampant over the last year, and that’s not actual demand. So, this slowdown seems more of a normalization than any indication of customer demand falling apart.

Third, these numbers will be revised several times before they get set in stone. Admittedly, this could go either way, but my point is that measuring GDP takes a long time, and there’s no reason to jump to conclusions just yet.

The bottom line is that the Fed will probably drive us into a recession at some point, but the odds of that happening in the next year-ish still seem pretty low. 


I didn’t see this coming, but Fidelity now allows retirement savers to put up to 20% of a retirement account into bitcoin. I love this move, but I’m not going to hold my breath either. 

First, the Labor Department regulates retirement plans, and if you think the SEC suffers from regulatory ineptitude, the Labor Department makes the SEC looks like a Blackstone-backed private company. 

Second, this 20% ceiling is aggressive. I’ve met enough degenerate gambler retirees to fill five lifetimes, and I don’t see this ending well when the next 70%+ drawdown decimates nest eggs.

But given what we’ve discussed in the past around the need for a new playbook (versus the 60/40 approach), anything that expands the investment universe for retirement funds should be viewed as progress. Kudos to Fidelity for taking the leap first.

He did it!

Back in January, I published my 2022 New Year’s resolutions, and here’s an excerpt:

Join The Elon Musk Fan Club

Without question, this is the toughest pill to swallow. But I’ve been mostly wrong about him, and here are three reasons for my mea culpa:

1.       He’s an animal: His most recent podcast with the Babylon Bee is a must-see. Watch the entire interview, and if you don’t like the hosts’ politics (they lean very right), ignore them and remain focused on how hard this guy has worked, the risks he has taken, and where he came from. 

2.       He doesn’t give two ducks: Humiliating sitting senators on Twitter, telling the SEC’s enforcement division to pound sand, a driving out of California with two middle fingers in the air months before selling over $20 billion in stock commands respect.

3.       He steals from the poor and gives to the rich: I know this sounds harsh so let me explain. I’m referring to his ability to constantly raise new equity, dilute existing shareholders, and then watch his stock go up the next day. There’s zero chance that institutional buyers are behind this, so I have to assume people who shouldn’t be buying stocks are buying his stock. Having been in sales for most of my career, I respect whatever hypnotic trance he’s placed on his loyal subjects.

That being said, I’m still not buying a Tesla.

This could be one of the best-timed trades of my career. Going long Elon months before he buys Twitter?!?! I should be trading for a hedge fund with calls like these. 

Anyway, I’ve kept quiet about this story over the past several weeks because I didn’t want to jinx it. Now that there’s board approval, it’s likely to close (although not a slam dunk).

There are so many reasons why this is awesome (none of them are political, so don’t get fired up just yet). First, I’ve said for years that Twitter is the VH-1 of social media. In that, it’s complete trash, and if you spend too much time using it, you’ll probably develop a rash. 

Extending this analogy further, Elon could be the penicillin this company desperately needs. He’s said that he doesn’t care about the economics, but that’s likely not the case. He’s staked a lot of his net worth and convinced a consortium of lenders to put up billions in loans. I don’t see banks taking on this type of risk without some plan to profitability.

Second, since its IPO, Twitter has done nothing – zero – zilch – for its shareholders. Check out the chart below. Before Elon’s offer, TWTR was trading below its IPO price back in 2013. Long-term shareholders should be kissing his feet right now for getting them back to even (ignoring inflation, cost of capital, etc.).

Third, the memes. They’ve been top-tier lately. It’s hard to rank them, but here’s one in the top 5. I only expect these to get better as we get closer to closing.

Enjoy the weekend…