Archives for April 2020

I used to play Hearts as a kid and over the weekend had a thought on how this could possibly tie in with how strong the US Dollar is around the world.

In hearts, the goal is to get rid of all of your hearts, but there is a strategy to collect all of the hearts instead of getting rid of them and this allows you to win that particular game.

I have been surprised by how strong the US Dollar has been and how countries around the world are clamoring to get their hands on US dollars as well. This shows me that the global reserve currency has tremendous strength as other countries need this to operate in their economies as well.

While this would be a risky play, what if the US Federal Reserve were to “Shoot the Moon” with US dollars and if pulled off successfully could create a truly global currency?

Here is a thought… suppose the Federal Reserve opens even more swap windows, passes trillions more in corona virus stimulus and essentially ramps up what it has already been doing but on a scale that makes our current balance sheet look like child’s play?

If this were to happen other currencies would devalue to keep their economies from seizing up but this in effect would devalue other currencies in relation to the dollar much more. If these currencies essentially become worthless and the need for dollars continues to rise because the demand now becomes even greater to hold any currency that has more value… the US could essentially run their “Shoot the Moon” playbook. If this plan were pulled off successfully, there would be no need to have any other fiat currency.

In this situation, the Federal Reserve would thereby have the only printing press available in the entire world. But… if they try this but leave one heart on the table… well, then it is a bust! Just a thought and if it were to bust… what would be the reason? Lost faith in the dollar and treasuries? Would the world really turn to gold or bitcoin in this scenario? Would Russia or China go along with the Shoot the Moon plan?

Everyone is thinking the US will need to shrink our balance sheet, but what if we were to expand it beyond all current thinking?

Warren Buffett says when the tide goes out, you see who is swimming naked. With the tide going out hard this past month we are seeing an entirely naked system.

It looks like many businesses were running on razor thin margins. Many of those that were generating profits were then buying their own stock to juice the returns even more. Was this healthy for their business? Or did this weaken their overall business? Can they sell that stock now to raise the needed capital to operate?

Have we all been working too much and neglecting our own personal health in the pursuit of higher GDP?

Looks like individuals were spending every penny that came into their bank accounts. Numerous articles have recently been written that very few people have 3 months of emergency savings and this is across almost all age brackets.

When things do open up after the corona virus subsides it will probably make us more conservative with the funds that we receive. New restaurateurs will probably not be willing to take risks with thin margins as before.

Seems like the trickle down effect in every industry could be huge.

Will the Federal Reserve begin to buy stocks to keep everything afloat? Will the Federal Reserve buy all the issued debt to make lenders whole? Will this help individuals?

Our oil independence has been amazing, but is too much of a good thing bad? Too much growth perhaps? We all like cheap gas but could it kill our domestic industry altogether? But hasn’t the oil industry always been boom or bust?

Our hospitals and healthcare system seems like it was caught off guard. Key ingredients for medicines dependent upon China as well as PPE and ventilators?

Supply chain fragility and global dependence will probably be inspected and changed so that we are less likely to be impacted so drastically in the future. This will all take time.

This fragility across the system will probably make for a stronger system in the long run, but may create pain in the near term. The spotlight will shine on the weaknesses and we will adjust.

The more I look back at the investments that I have made, I have noticed that the ones that have done the best have been in the most illiquid markets.

For example, the stock and options markets are highly liquid. Seller financed paper for example is a small niche of debt investing that has been good to me. Liquidity brings a lot more people to the game and many times the pros with better data probably win.

Moving forward, I plan to allocate more to illiquid investments and less to liquid investments. Fewer pros to compete with…