Is America on the brink of collapse as the leading global superpower?

‍

I keep seeing so many signals that the American stock market is going to crash, and it could be in the next few months. Yes, the Biden administration just approved a stimulus bill to inject another trillion dollars into the economy so the market might go up 10-20% maybe because of that injection.

Something is happening though that may not let it make it there. The AMC and Gamestop situations. People don’t think about second and third order consequences. Hedge funds control tons of money. When they get burned, they pull money out of winning stocks. Eventually, people like Cathie Wood and active investors will start to pull money out to take their profits in cash. This eventually trickles down to individual investors who start taking money out of the market.

Think about how many more people are participating in this market right now. They’re all human. Human psychology is at play because no one likes losing something. Loss Aversion – ‘people hate losing things more than they do winning things’. It’s just human psychology. You have to be patient to participate and wait in the market. Things happen over long periods of time. The get rich quick scheme usually never works.

Until now with Gamestop and AMC. It could be a get rich quick scheme where tons of retail investors, just by holding a little bit longer than people normally do, will burn hedge funds money. Hedgies are at unlimited downside risks with shorts and could be completely wiped out. Billions of dollars disappearing. That trickles down into their investors. The short squeeze could be epic and bring the whole thing to its knees because its multiple stocks. Watch out for an insane amount of volatility. Winning stocks like Tesla, Apple, Amazon, ETSY, and all these tech stocks will start to crumble. People take their gains and valuations will normalize.

Things are too good right now. Too many people are thinking now is a good time to be in the market. Most people don’t understand you also have the US government injecting more money into the economy out of thin air. As more money gets printed, the value of that money becomes less. In order to become rich, you have own assets that are growing faster than inflation. The average person doesn’t own assets.

This is how situations arise in countries like Veneuzela and Nigeria where their native currency is essentially worthless. Poor people can’t do anything because if their central bank prints more and more money, the value of the money eventually goes down. Scarcity. A ‘one of one’ car is worth more than a car that’s been made 100 times. Now what if you can create that car out of thin air? Eventually countries have too much debt, too few people control too much amount of that printed money, and the native dollar could become worthless.

This ruins poor people’s ability to do anything. They don’t own assets. Sure more people are coming into the market now to own assets but they don’t understand the market conditions that are happening right now. They haven’t studied history. They don’t understand market corrections and valuations and how businesses make money and debt cycles and interest rates and the bond market and money printing and inflation and drawdowns and most of all, human psychology. They haven’t been experienced enough to know what is happening.

I know more really good investors are now hedging the other way. Stanley Druckenmiller talked about it on his Goldman speech. The situation in America is not ideal right now. The fed and treasury acting together and keeping interest rates at zero while printing more money means there’s nowhere to go from a monetary/fiscal perspective. Every point this happened in US history, you need to make money harder to borrow and rates higher to ensure trust in your currency from other countries. The US dollar is still the global reserve currency. While all of this happens, people pull money out of the equities market. Stocks go down. It’ll never take out the whole thing, but woah boy people can lose a lot of money.

Trillions of dollars in economic value could be wiped out that will have significant trickle down effects to people in other countries. Humanity did so well prior to Covid with bringing hundreds of millions of people out of poverty. However, the whole world shut down. People in poor countries had to look for businesses to stay open in their backyard with little government support. These countries don’t have a central bank and government to back up their finances. They have to manage on their own. Because some of these countries are heavily reliant on tourism, people are not visiting as much and spending in their local economies. Poor people in poor countries are getting hurt badly.

If trillions of dollars disappear, as they have before in history (more billions but the same proportion to the value of the market), people become more careful with money. Savings rate go up significantly. It happened after the great depression. Listen to people’s stories of grandparents who grew up in America during the great depression. They were penny pinchers. They made sure to save money whenever they could. Once the correction happens though, it means people don’t spend as much money.

The counter argument is that this summer, more US cities are getting back to normal. You’re starting to see more and more people getting vaccines. Tens of millions of people have either got Covid already or are vaccinated. Eventually they’ll reach herd immunity and the US will get back on track. For the last 12 months, the ones who can afford to stay home have saved money. They’re going to want to go out spend that money. That should help the real economy, what my dad likes to call ‘Main Street’.

The stock market is not the regular market. It’s a legalized casino. It is hedge funds with tons of money manipulating the price action of certain stocks to decide how to make more money. Now they have robots doing part of their job as well. The introduction of algo trading with quants and AI is all price action. Robots learn by watching and taking data from human behaviour. If hedge funds decide to buy a stock, they sometimes have a put option on recovering the downside. But with Gamestop and AMC, they have to cover their short positions. This is how the short squeeze works, but it's for multiple stocks.

History happening in front of our eyes. A bunch of people on Reddit could take down the entire market. People around the world banding together using the power of the Internet. They have the access and ability to coordinate in the thousands like we’ve never seen before. This is what equalizes the market is people coordinating in unison against the market makers.

The interesting part about all of this is the second and third order consequences. They are more significant. This could cause a much wider crash that could trickle down for the next several years. This is how market crashes sometimes work. It’s a black swan event. You could lose 10%+ in a day, but it slowly trickles down. Market crashes in 1929 and 1987 were huge double-digit losses across the entire market on one day. The decline towards the bottom happens over time. It takes discipline to invest at the right points because you’re never going to time it. If you do your due diligence, you will get great companies on sale. If you’ve kept enough cash on the sideline, you can effectively execute what the best investors do. It’s what Michael burry is doing.

Inflation is coming. He knows it. Buffet knows it. The smart guys know it. As Buffet and Michael Burry starting buying commodities, you realize what’s happening. They understand history. As Mark Twain said, ‘history doesn’t always repeat itself, but it definitely rhymes.’ It really rhymes right now. It looks different because of technology and ETFs and Cathie Wood and Bitcoin and crypto and all these new tools. But the signs are still there.

The introduction of the digital decentralized tools is a complete transformation from the current system. It’s about making everything anonymous and allowing people to make transactions with completely decentralized platforms. Any one government can’t control it and early adopters know there’s a massive opportunity out there. It will take long periods of time, potentially decades for the world to come on board.  This could open up huge opportunities in poor countries. They could have the ability to transact with the world with a centralized currency. That takes decades and generations to get behind but it equalizes the playing field. You don’t need access to money from your current country if you can modernize the amount of money online and make it the standard. It’s easier than dealing with US dollars and banks.

It’ll take time as governments will want to build their own infrastructure, but it’s going to take brilliant minds to see the opportunity. You’re seeing it with Janet Yellen and Powell, the treasury secretary and leader of the fed, saying they’re thinking of a digital American currency. China is already doing that with WePay and AliPay. Hundreds of millions of people have adopted technology like no other country.

‍

This is why Asia is so much more advanced in certain aspects. The average person in those countries have better lives than if they lived in the US. The average American person, number 155 million on the money spectrum, is obese, watches too much TV, can’t afford healthcare, lives in a town with a local economy from generations ago (coal for example), has a terrible public education, low municipal budgets, and people with major drug and alcohol issues. A big generalization for sure, but that’s who the average American person is. It’s not the Forbes person or the people at any of these big companies. It is people whose stories are not being told. The problem right now, if not implemented effectively by the Biden government, is they’re going to be much worse off before it gets better.

As the US prints even more money and interest rates go up, the bond yield goes up. Investors in today’s market don’t know a time when rates were 20%. They don’t listen and learn of the stories of people who lived through those times. They don’t look at history. Most people in the market now don’t know what those environments look like.

Covid made everything worse, especially for the poor in America. People lost jobs through no fault of their own. They can’t afford healthcare. Their local school is closed so their kids are at home with terrible wifi. Meanwhile rich kids have had no interruption to their education. Although some people may think a year is not a long time to interrupt a child’s education, it can be extremely significant. If kids ditch school and turn to vices like social media addiction, drugs and alcohol, suicide rates start to go up. Crime goes up. The inequality gap widens because those kids are less likely to return to school.

We underestimate the value of education. Giving every kid in a country similar access to quality education is how you get people out of poverty. People learning how to learn. They create businesses. They create art. They convert their ideas into something tangible. They do things they never considered. The Internet economy has opened up that ability for people to be their own businesses selling their talents to the world. But only for the people with access and who understand it well.

The average kid in the middle of America is hurting. The average kid in Korea, China, or Japan is much better off. They have access to quality education. They’re pushed to work hard on education by their parents and culture. They can afford healthcare. The infrastructure is really good. No one murders anyone. It’s super safe. That kid has a much better chance to succeed at life compared to the American.

This is why I think this could be the demise of America as the superpower over the next few decades. Their citizens are not as educated. People are using their phones and social media like never before. The political divide and instability is rising. Murders are going up. People are shooting people for dogs (Lady Gaga situation in LA). Hate crimes against Asians are going up considerably. Jeremy Lin got called ‘coronavirus’ on the court while playing someone. These are not very good signs.

Meanwhile, the rich made TRILLIONS OF DOLLARS LAST YEAR. TRILLIONS. Concentrated in a very small portion of people, and they are not distributing it. It’s not getting entirely reinvested in the country, particularly in the areas that need it most. Rich people are using their power and wealth to create the lives and environment they want to live in. The average person in America is not seeing that money. Sure, they’re the customers. But are those profits being reinvested in those communities? Amazon will argue they are with distribution warehouses, but is that helping kids education? Is that helping their local town budget? I don’t think it is.

Don’t get me wrong; the American government has been a complete disaster the last four years. Thank god they voted Biden in. If Republicans were to be in power with Trump leading them, there could have been an uprising. I mean it happened on Congressional voting day with Trump’s insurrection. Those people wanted to kill the people inside. They wanted to kill politicians.

That’s terrifying for what’s supposed to be the ‘Global Superpower.’ America, the country that has led the world with competence, leadership and good policy since World War 2. That same country had thousands of people overrun the house of congress to stop a vote to allow Trump to remain in office. That’s some revolution stuff. That’s dictator stuff. It could have happened if Trump won again.

I’m just scared if I’m looking at the US situation right now. Yes, the innovation economy is doing incredible things. Look at the vaccines. To get a vaccine approved in 9 months through mRNA technology is absolutely incredible. One of humanity’s great achievements. This came from people around the world. It became a problem that brought the world together. But America is losing its place as its leader. Trump ruined that on the world stage.

China, Russia and India are now giving doses to other countries. Poor countries are not relying on America anymore. America’s foreign policy over the last 4 years has been a disaster. They didn’t have ministers in certain places. People get jobs they’re not qualified for and have no idea how the politics game works like people on the other side. Look at Jared Kushner. He was responsible for Middle Eastern policy. Are you joking me? What does he know about Middle Eastern foreign policy?

Trump got played by Russia. Had over 10 people go to prison because they took foreign money, all connected to Trump. Putin saw Trump for what he was: A narcissist who had no idea how to run a country with a bunch of other incompetent people all around him. Power hungry people. Old rich white people. Meanwhile China and Russia know this is an opportunity to completely flip their standing in the globe and they’re doing it with vaccines.

These long essay type reads are fun because it’s literally just tracking what I think. I think the market is going to collapse soon because of the Gamestop situation. I think inequality is going to get demonstrably worse. When that happens in history, there is always an uprising. Unless there is a clean distribution by government of wealth for people across the wealth spectrum, political instability will happen. Ray Dalio keeps talking about it and it’s not looking too great right now. Meanwhile Asia is thriving. I think China will be the dominant global super power in the next century. No question about it. The US is still doing relatively well on innovation, but the catch up of not investing in your citizens education and wellbeing will catch up to you.

America is the land of excess. The land of making people fat in the name of profit. The more people buy more fast food - the fatter they get – the worse they feel about themselves - the more health problems they get. Only they can’t afford healthcare. So they’re barely surviving.

Diabetes is expensive to live with in the US. Look at the price of insulin. It’s ASTRONOMICAL relative to the rest of the world. People in the US pay way too much money for drugs. I know that’s how my industry survives, by charging extremely high prices for certain medications but the off patent drugs should be available to everyone at a reasonable price relative to the rest of the world.

I’m so grateful I discovered writing again. I can look back at these thoughts one month, six months, one year, and two years from now and see if I was right. See if what I was seeing in the world was actually happening. Putting pieces together. Taking bits of information and seeing the patterns. Remember though, you can’t be stuck in that set of thinking.

You will learn through experiencing failure over time. But by learning from people ahead of you talk about how they see the world, you can learn from them. You can expedite your understanding of the world. You can position yourself in a similar position if you do your homework and understand the rules of the game. It’s all one big game. Life is a single player game. No one else plays that game but you.

Keep betting on yourself. Keep improving yourself. Keep making yourself better. Keep gaining more knowledge. Keep learning. Keep being open minded and open to opportunities. Keep looking for asymmetric upside bets. Keep writing. Keep being you. Keep being present. Keep remembering how lucky you are. Keep appreciating what you’ve been given. Keep understanding that a lot of this isn’t earned. Keep remembering that a lot of it also is. Keep working hard.

Keep Going, You’re Doing Great.