January 22, 2021
My Dear Reader,
Recently when speaking to Fox Business, Billionaire Mark Greene warned of an economic bubble of “epic” proportions. Like the sword of Damocles, this prediction has been floating about the financial circles for years at this point, at least anecdotally around 2017. As early as 2018, conservitive pundits and politicians such as Ron Paul had been predicting a minor economic crash followed by a drop that could dwarf 2008. However, the time for this second drop is on Mark Greene’s radar as he spoke to Fox Business. “[The economic growth has been] fueled by extreme overvaluations, explosive price increases, absolutely frenzied issuance with these SPACs and IPOs, and hysterical price speculation. / This bubble is at some point going to pop.”
Greene also mentioned that “It’s going to be a very tough balancing act between the right amounts of federal fiscal stimulus [and] targeted fiscal stimulus, but at some point, we have to keep this on track.”
We can corroborate these fears through a recent article by Sovereign Man investing founder Simon Black, who argued that man companies were worth less than zero:
“Businesses can be worth less than zero. And most of the time they don’t have such a remarkable turnaround story. Case in point: Hertz, the rental car company, has $14.4 billion worth of vehicle loans according to its most recent financial statements. But the company estimates that its vehicles are actually worth LESS than the debt they owe.
While this may seem inconceivable, for some publicly traded companies, it was the actual strategy. Famously, Tesla lost money for years before turning a profit, and yet the stock valuation continued to rise to the point that it became more valuable than Toyoda. As IPOs became the hot new trendy stock type, other companies produced a great concept first and then attempted to go public as soon as possible; to use investor money as a screen while they attempted to balance the books. Simon Black continued this train of thought in his article;
“This means that Hertz’s rental cars have negative equity. Including the company’s other assets and liabilities, Hertz has NEGATIVE $2.8 billion in net tangible assets… so the entire company is worth less than zero. They’re also quickly burning cash with no end in sight. Unsurprisingly, Hertz filed for bankruptcy a few days ago. Similarly, the retail chain JC Penny also recently filed for bankruptcy. According to its financial statements, JC Penny has an accumulated deficit of MINUS $3.7 billion, and negative net tangible assets (including interest rate derivatives). WeWork hasn’t declared bankruptcy (yet). But the company barely has any assets at all despite having an unbelievable $47 billion in lease liabilities. So WeWork is probably also worth far less than zero.”
Yet the market is worth as much now as it ever was. This is partly due to the belief that a vaccine will soon arrive and things will go back to normal, which drives speculation and when we compile this fact with the trend towards speculation that has become commonplace before the COVID lockdowns, we can begin to observe the same bleak painting that Mark Greene sees. This issue is compounded by the fact that many Americans own stock as the basis for their financial accumulation period. A potential crash after the lockdowns could be fatal for many plans. I believe that the time for alternative investments could never be greater.
To Your Creation and Potential,