I started writing in my typical Monday format this morning. I ended up writing a lot about the stock market and the Bitcoin halving. As a result, this post focuses mostly on those topics after a quick blurb about Paris. I also include a few recommendations from my weekend at the end. If you are not interested in the stock market or Bitcoin, even though I tried to write about them in a way that is accessible to everyone, you may like to skip those parts after Paris.
Without any further ado or anything extemporaneous, here is the weekend review which I call The Weekend Miscellaneous.
Paris – Lauren and I were supposed to be in Paris this weekend. We booked round-trip flights for $316 in mid-January and were going to see for ourselves whether a Thursday to Sunday long weekend trip to Europe was a reasonable thing to treat ourselves to. It seems that our experiment will have to wait. If and when international travel does return, I recommend Scott’s Cheap Flights. The site offers a free email subscription which is constantly offering unreal deals on flights. I cancelled my subscription last month so as not to be consistently teased by temptations of international flights when I know I will not be booking them, but I set a reminder for myself to consider re-subscribing at the end of the year, or else delay the reminder to a later date.
Stock Market – Before writing this ahead of the stock market’s open this morning, I looked at how the market compared to where it was on the first day of trading this year on January 2nd. Since January 2nd, as of last Friday’s close on May 8th, the DOW is down 16%, the S&P is down 10%, and the NASDAQ is actually up but only by less than 1%. This all seems absurd to me. Curious, I looked at the chart for the most recent market-wide fall before this year to help put the current one into context. I focused in on a 3-month period from September 21st, 2018 to December 21st, 2018. In that time, the DOW went down 16%, the S&P went down 18%, and the NASDAQ went down 21%. In other words, the NASDAQ had an incomparably worse time, the S&P was almost twice as bad, and the DOW dropped by the same percentage that is has this year. Do you remember what happened between late September and Christmas 2018 to drive that more significant fall in the market than we have seen thus far this year? Neither do I. I did a brief search to see if I could find anything of note and the biggest factors I could find were “tariffs driving uncertainty”, “Fed hikes interest rates”, and “big tech under scrutiny”. These seem extremely less consequential than the terms that I would attach to the times we are in now which would include “global economic shutdown”, “Fed prints trillions”, and “highest unemployment since The Great Depression”. So, what are the takeaways from this? First, it looks like tech broadly is doing better than the rest of the market this year versus the 3-month fall in 2018 when it was doing worse. This year, the NASDAQ (which is approximately 50% tech) is flat while the S&P (~20% tech) and the DOW (~17% tech) are doing much worse. This is not a novel observation but one that I think is worth making. Second, and more importantly, it seems that one of two things must be true based on the current state of the market. The first thing that may be true is that the stock market is almost entirely detached from the actual economy in terms of the financial well-being of people all over the country, many of whom are unable to pay rent or buy enough food to feed their families after having lost their jobs. The idea that corporate profits (the market) may not be strongly correlated with people’s pockets (the economy) seems reasonable to me, but right now the lack of correlation seems to be happening to a drastic degree. The second thing that may be true is that the market has not yet fully fallen from the severity of this global economic crisis which is hiding behind the headline of a global health crisis, not to take away from the tragic number of deaths that the virus has caused. As I wrote in The Virus Is Not Our Only Problem, I fear that the consequences of our response may be worse than those of the virus itself. I believe it is only a matter of time before the stock market will reflect that with a fall more comparable to that of the recent recession rather than a relatively reason-less 3-month dip at the end 2018. I remain mostly on the sidelines holding my two shares of Amazon which I believe are virtually market-proof, a single “support share” of both Tesla and Beyond Meat because I believe in them long-term but am not confident in their near-term, and a small number of shares of Twitter for those same reasons. All 3 I could see dragging down, potentially severely, with a broader fall of the market. Lastly, I made small winning bets on DraftKings and Peloton in the last month and am holding small numbers of each which have basically been paid for by my winnings. Some people call this “playing with house money” when you are only risking losing what you have already won. For some reason, I have always called it “playing with monopoly money”.
Bitcoin Halving – I would be remiss if I did not comment on the fact that the Bitcoin halving is expected to occur just before 3pm ET this afternoon. It is a significant happening that has occurred only twice since Bitcoin’s inception. It happens approximately every 4 years. After it happens, the amount of Bitcoin that is mined (added to the existing owned total of Bitcoins) per block (~10 minutes) will be half of what it was for the last 4 years, for the next 4 years. It will then halve again and the cycle will continue approximately every 4 years until around the year 2140 when it is expected that the last fraction of the 21 million Bitcoins that will ever be mined will be added to the existing owned total. That may be just about the only thing that I can predict with any degree of certainty about the year 2140. It is worth noting that more than 18 million of the ultimate 21 million Bitcoins have already been mined in the first decade or so since the Bitcoin network came into existence on January 3rd, 2009. The first block of bitcoin had a reward of 50 Bitcoins. As I am writing this, each block has a reward of 12.5 Bitcoins. By the time I sit for dinner this evening, each block will have a reward of 6.25 Bitcoins. The nature of the halving fundamentally builds scarcity into the asset. That is why many consider it to be like digital gold. The halving mechanism is a key part of what makes Bitcoin Bitcoin. I expect to write more about Bitcoin this week, hopefully tomorrow. Make no mistake, I believe Bitcoin is an extraordinarily excellent investment. That does not mean it is without risk. Far from it. It just means that I believe the risk is very well worth the reward. The amount I have invested in Bitcoin is significantly more than the amount I have invested in all of the stocks that I listed above combined. I have invested more and more only as I have learned more and more about it. If I lost all of my money in Bitcoin, I would be very upset but eventually alright. It is a calculated risk while I am young and can afford to take it for the possibility of the reward, similar to the risk I took quitting my job several months ago. If I did not take these kinds of calculated risks while I was young, I would have a hard time believing that I ever would.
Lastly, I will share with you 4 things from my weekend which I highly recommend. These things include a book, a podcast, a song, and a product. I reserve the right to write more about any of them.
Book – The Sovereign Individual; Mastering the Transition to the Information Age by James Dale Davidson and Lord William Rees-Mogg
Podcast – Joe Rogan Experience #1470 – Elon Musk
Song – Still Crazy After All These Years by Paul Simon