Hey there, friends!
We're back at it again, cracking the code on all this financial stuff. Remember, we're in this together, breaking down the fancy jargon and making this whole money thing make sense. Swing by my Twitter(X) @Lumberhawk- I keep the conversation going there with more insights and real-time updates.
That being said, today, we're going to talk a little about a lot...
TLDR:
The economy is a mixed bag. Short term positive, long term I am concerned. Taxes might be goinig up. Tesla and Bitcoin look primed to do very well. War makes me nervous. Working class Americans are still in a precarious position. Tell your friends to like and subscribe!
Credit Card Debt
Credit card delinquencies are trending to heights last witnessed during the global financial crisis and show no signs of abating. It's vital for the Federal Reserve to recognize and address this alarming trend, but with sticky inflation I am not sure there is much to be done. If this is you, please strive to avoid maintaining a balance with an interest rate exceeding 10%, and prioritize paying it off as swiftly as possible. This shoe will drop eventually.
Auto Debt
Really, this is the same story as above. Typically auto delinquency is a lagging indicator of the rest of the debt markets, including Real estate. It’s not looking good.
Real Estate
There is no crash as of yet. The data is clear, median values are up. Affordability is down. In March 2024, the sales of new single-family homes were 8.8% higher than anticipated. To put it simply, home sales seem to be picking up.
The only short term risk I see is related to that credit debt we just mentioned. As personal lines of revolving credit are being maxed out, we are seeing more people access their home equity (largely through HELOCs). If this trend continues and consumers continue to live above their means, and a recession hits in a year or two… we could find ourselves in another significant housing correction. In the meantime, I see inflation and the major housing shortage continuing to support these prices for the next year or two.
S&P 500
Approximately 75% of S&P 500 companies have surpassed earnings expectations for the first quarter. Despite these positive results, the market has not fully adjusted its risk/reward perception. The trend of companies meeting or slightly beating expectations is expected to continue, but there is a caution that future forecasts, particularly in the growth sector, might need to be moderated as the year advances. Market reactions are largely influenced by future guidance, and with many companies merely reiterating previous forecasts rather than improving them, this has led to a sell-off in stocks even amidst seemingly positive earnings news. My opinion? Short term bullish, medium/long term bearish. With interest rates higher for longer, this becomes more likely. A surprise Fed pivot in the dovish direction will change things but also drive inflation back up.
Tesla
Elon Musk discussed Q1 challenges and successes, focusing on the ramp-up of Model 3 production and increased EV adoption. He highlighted Tesla's record profitability and strong sales in the Megapack segment, projecting that energy products will soon outpace car sales in growth. Significant strides in AI, including a major increase in training capacity and expansion with 35k NVIDIA H100 chips (aiming for 85k by year-end), were noted. Musk announced plans to accelerate the launch of affordable car models, including an early 2025 release of new models. The latest Full Self-Driving (FSD) version has reached over 300 million miles with a reduced subscription price, and discussions are ongoing to license this technology to other automakers, hinting at a potential deal with Ford. On the regulatory front, Musk expressed optimism about broad approval for FSD in the U.S. He also mentioned advancements in the 4680 battery, essential for the Cybertruck, and initial production capabilities for the Optimus robot aimed for 2025. Concluding, Musk reiterated Tesla’s focus on leading the transition to autonomous electric vehicles, with strategic plans including a potential share buyback following a positive shareholder vote and the expanding adoption of FSD technology. All this positive info should not overshadow the diminished Q1 earnings and recent layoffs. In the short term, Tesla may have some more share price pain infront of it. In the long run, I am very bullish on Tesla.
Whitehouse
The Biden administration's proposed increases in capital gains and high-income taxes have sparked significant debate. Critics argue that these measures could damage the U.S.'s competitive edge by discouraging investment and risk-taking in capital markets. Despite aiming to generate $245.9 billion over ten years, this revenue is small compared to the government's rapid accumulation of debt, which exceeds $1.2 trillion every 100 days. There's a concern that the real impact of these taxes will fall on investors, entrepreneurs, and skilled workers who may choose to relocate their capital to more tax-favorable environments, potentially undermining America's position as a leader in innovation and investment. As part of the $6.8 trillion budget for 2024, this would raise the capital gains tax rate from 20% to 39.6% and add a 5% Affordable Care Act surcharge, totaling a 44.6% tax rate for high earners. In todays current high inflationary enviroment, this would have massive implications that would ripple throughout the economy. I don’t think this proposal will actually pass, especially the part about unrealized capital gains (which is why I didn’t really address it), but policy is trending in that direction.
War
I’m not going to pretend to be an expert here. Simply put, there is a lot of conflict going around and that generally leads to massive money printing and debasement created inflation. You must own assets and hope that we dont go nuclear. There have already been several major spending bills passed. I expect more to come.
Bitcoin
Halvings create supply crunch by reducing issuance and squeezing miner profits. Period. Someday this trend will end, but not this cycle. The bull run is coming and I expect the ETFs will have a significant impact. Hold on to your socks. Plan your exit strategy (if at all) now before Euphoria prevents you from thinking critically. Trust me, it happens.
Greyscale
After a subdued start to the year, Grayscale is launching a "Mini" Bitcoin ETF with the industry's lowest fees at only 0.15%, aiming to rejuvenate investor confidence. This new ETF comes amidst recent market turbulence caused by unexpected price spikes and substantial capital inflows from the Bitcoin spot ETFs, with the majority of the down days caused by investors selling the high fee (1.5%) Greyscale ETF (formerly Greyscale BTC trust). Facing significant outflows due to those high fees, Grayscale has responded by introducing this new cost-effective ETF option to retain investors. I hope this slows the downward selling pressure we have been seeing in the market lately.
MSTR
MicroStrategy is currently the 351st largest company in the U.S. by market cap, valued at $22.32 billion. There's growing speculation that MicroStrategy will soon be included in the S&P 500 Index. In my opinion, this inclusion is overdue. When it does happen, expect a significant increase in the stock price. Also, expect other companies to mimic the MSTR balance sheet strategy. I’m genuinely surprised it hasnt already happened.
Tik-Tok
Looks like it might get banned. Tell your friends to stop getting their financial advice there, and make them subscribe to my newsletter! (lol, but also seriously)
Well, that's a wrap for today y’all. If you found this helpful or it got you thinking, why not hit that 'like' button and share it with your buddies? The more we share, the more we all learn.
Disclaimer: The goal here is to educate and entertain. However, keep in mind, this isn't financial advice. I'm a regular person like you, sharing my perspectives based on my personal research and experiences. Always do your own research (DYOR) and make your own informed decisions.
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