I will be careful…

The craziness has begun.

I have been thinking the past few months about the state of the world and economy. And as much as I want to be optimistic, I think there are a lot more things to be scared about than to be optimistic about. I don’t invest using macroeconomic indicators, we are bottoms up investors after all. But being aware of what is happening around us is paramount to be an investor. Micro is what we do. Macro is what we have to put up with.

I don’t want to be a bear who trumpets the crash of markets. But it’s been harder and harder everyday to be optimistic.

Money Supply

This is the amount of money printing that is happening in the US. To help fight COVID, governments are printing money.

What does that have to do with us? If it will help us recover, why not? – You might ask.

And it’s a very valid question. If it can jumpstart the recovery, why not do it, right? But the thing is, During the 2008 crash, the government bailed out the banks. And they did it using a couple of things, including printing more money. So the printing never really stopped. It just accelerated. And the whole world is doing it.

What does printing money do?

Money, with nowhere to go, went into stocks, cost of living and ultimately — inflation went up.

In the Philippines, we haven’t felt the rise in inflation. As reported inflation is just flat. But the hidden story of it is something else to be aware of.

Money printing and low interest rate accelerates inflation. Just look at what’s happening right now in Turkey which has 20% inflation. Even with high inflation, the central bank still continues to lower the interest rate. And it keeps on destroying their currency. It’s a crisis.

Also we have Evergrande, who is just waiting for the axe to fall on their necks. We won’t know what repercussions this will bring to the world if it files for bankruptcy until it finally happens.

Oil

If you would remember, the government instituted a price control for oil after putting an additional excise tax increase. And that artificial price ceiling prevents the prices of goods to go up. Good if you think about the benefit it brings. But you’re actually using bandaid solution to a bigger problem.

Fraud and craziness

A new wave of financial frauds have been circulating. I have close friends and relatives that know nothing about stocks and trading talk like youtube investing gurus. And I’m not saying this because they are not earning money from stocks/cryptos and trading, they are actually making money given the fact that they only knew about it a few months ago. Much like before the crashes of 2008 and even 1929. Crypto scams are rampant. Banks like BDO got hacked (allegedly phished). New technologies like 2001 all over again.

This year I’ve seen a lot of my engineering acquaintances quit their jobs to become a trader. And now teaches trading. After a few months, was posting on their facebook page that they have bought a new house.

The amount of gullible newbies have increased. And the money that these people earn also increased.

Should we talk Axie?

I have been asked a lot about Axie and has been invited a lot of times to play it. Here’s my opinion.

I recently joined a conference for Startup founders and have seen a boatload of speakers promoting Axie and crypto, play to earn schemes. Founding companies to recruit and play Axie to earn money. These are people who you would consider sane and on the top of the tech field, now addicts to the fast easy money made through playing games and NFTs. Even Investagrams have their own NFTs. Kind of suspicious from a company that says they’re promoting financial literacy. But hey, who am I to judge other people’s business decisions.

A lot of companies are being started to invest in play to earn games. One example is a startup that pitches to investors that the money they would get would be used to recruit more players into their guild to farm SLP and to sell it. Giving a percentage commission to the players while sponsoring them. And the funny thing is, these kinds of startups that doesn’t do anything good for the world gets invested.

You would argue that you are changing the lives of people who play to earn as they have no other means to earn money this pandemic. That maybe true. But I beg to differ. You might get fed. But in reality, you are just playing a game and hoping that other people who also want to make money in the game, buys what you farm in the game. What purpose is that really? When all the people who play in the game are just there to earn money. And the people that earn money, earns from the new people who also wants to earn money. Doesn’t that sounds like a little ponzi scheme?

I’m not saying games like Axie are actual ponzi schemes. The structure of how money gets created and earned very much looks like a ponzi. You wouldn’t play Axie if you know you won’t make money right? So all the new people are people who wants to make money. And to earn you have to spend (invest in a team). Your initial investment goes to the people who joined earlier than you. And you keep playing so that newer players might buy what you farm. Like a ponzi, everything depends on the number of new people who join. Once that number dwindles, the price of SLP will drop and the game will die. So the real losers are the people who joined in late. Just like in a ponzi.

I couldn’t help but shake my head. It seems like almost everywhere I go, people have lost their heads. Even the places I go to to escape the greed of finance are tainted by the craziness.

I know because I was reached out a couple of times. And everytime I get invited I declined.

I would always be an old school investor. Always be wary of new new things.

The Solution and safe havens

I will be careful. My conclusion is that something big is about to happen. For those who have money to invest, I would suggest looking at safe havens. I would talk about safe havens on another post if others are interested. Or the more easier solution is to take in the losses of inflation and sit on cash until the bad things show itself and then take advantage. I know cash is trash. But it’s a good idea to keep dry powder.

But its just my opinion. I will always be invested and not sell. I still have investment in the US and has been adding to my positions here in the Philippines. There are a couple of companies out there that are cheap enough that in time of a crash has a higher probability that it might not get affected that much. So accumulating shares of those companies are somewhat like a safe haven while you collect those dividends. Knowing how to spot undervalued companies is a different mindset altogether.

Stay safe fellow investor.