Amazon acquires Whole Foods

When I first heard this news, it felt really huge. Like big changes are coming supermarkets and retail in general. Huge changes.

Wall Street (collectively) had the same feeling. Normally when there’s a corporate takeover, the stock price of the acquiring corporation goes down. But this time, stock price of Amazon went up, and the stock price of every other supermarket and retail company went down. This reaction to a corporate takeover is unheard of. At least, I don’t ever recall such a thing happening before.

It should be noted that Whole Foods is the most SWPL of all big supermarket chains. The future of retail is divided into prole or SWPL with nothing in between.

Also, it seems to me that supermarkets are the only type of retail which I don’t see being replaced by online sales. You can’t buy meat and dairy online. They will spoil by the time they get to you. Unless you have fast delivery using refrigerated trucks. Which requires a large physical local infrastructure. And Amazon is buying part of such an infrastructure with its acquisition of Whole Foods.

I was totally wrong about a post-election stock market crash

Yes, I am not always right about things. But unlike the smug left-wing mainstream media, at least I admit when I was wrong.

I wrote this post about the possible stock market crash if Trump wins. So what is the market doing today? It’s soaring.

At least I have good company. Last evening, Paul Krugman wrote:

It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Wrong, wrong wrong. It took the markets less than 24 hours to recover.

I may have also been wrong, but I don’t have a Nobel Prize in Economics and don’t get paid a lot of money to write a newspaper column in the world’s most prestigious newspaper. And I don’t expect Krugman to apologize.

Today I sold all of my stocks

Last month I sold half (on a poorly timed day) and today I sold the rest, so I now have no money invested in stocks.

The financial markets scare me with the S&P 500 Index being close to its all-time high (which was in August) and the presidential election coming up. My conspiracy theory is that the Illuminati are holding the market together to help HRC win the election, because everyone knows a market crash hurts the party in power: McCain had no chance after bad financial stuff happened in September.

If I turn out to be wrong, well here’s a public record, so you can make fun of me later.

Will the stock market crash if Trump is elected President?

To start, let me point out that the stock market is near its all-time high. The S&P 500 index is significantly higher than where it was at its previous 2007 peak (before the crash in 2008). Stock markets crash when they are near all-time highs, so even without the Trump factor, the market is in danger of crashing.

Then there is the observation that when the stock market does crash, it tends to happen in the fall. There’s no way of knowing if this is mere coincidence of if there is something to it. But the historical accident of previous crashes happening in the fall could cause the cycle to repeat itself again because the stock market is based as much on psychology as it is on the logic of financial valuations. If traders think that other traders will sell because it’s the fall and they think the market is risky in the fall, then they will want to sell before the other traders, leading to a cascade effect of selling.

And finally we get to Trump. The mainstream media has been pushing the meme that if Trump is elected president, it will be a “disaster” for the economy. For example, using the word “disaster” in the headline, Business Insider reports:

Willem Buiter, the chief economist at Citi, said in a note to clients on Thursday that a Trump win would weigh heavily on financial markets, and that his policies would deter global trade and economic growth.

Brian Klaas says in a Newsweek op-ed:

The second problem for Trump’s Frankenstein economics is that his seemingly contradictory proposals would be a disaster if they were enacted. Moody’s economic forecasting conducted a nonpartisan analysis of Trump’s proposals and concluded that they would lead to a loss of 3.5 million jobs. And they would cost the U.S. economy trillions of dollars of lost growth.

If Trump wins, some people actually believe the disaster predictions and will sell before everything goes to hell. And then there are those traders who may not believe the anti-Trump propaganda, but they believe that other people believe it and will want to sell first, because no one wants to be the last man holding the bag (that’s for Joe Sixpack holding mutual funds in his 401K).

Also, I think that some people will want the stock market to crash if Trump wins, in order to punish the stupid voters who elected him and to be able to say “see, we smart liberals told you so.”

Right now, everyone believes that Trump has no chance of winning, because he’s just too low class too win, and polling throughout the summer has shown a huge lead for Hillary. But if polls start showing that Trump is in the lead, this could trigger the stock market crash before the election even happens.

Or it might not happen that way at all. Predicting the stock market is beyond the power of most mortals. No one should buy or sell any securities based on this blog post which has been written strictly for entertainment purposes.

How’s the FTSE 100 doing?

June 23: 6338.10 Last close before Brexit vote.

June 27: 5982.10 Low after Brexit vote. Commetentators in mainstream media saying “see, Brexit destroyed the United Kingdom’s economy, you stupid voters are getting what you deserve.”

August 15: 6941.19 Today. Up 10% since June 23, up 16% since June 27. Maybe the stupid voters were right and mainstream media commentators were actually the stupid people?

What’s up with the stock market?

New highs again today. It’s almost as if my Illuminati conspiracy theories are true, that secret groups are pumping up stocks and everything else going into the presidential election.

A Bloomberg article from last week:

Over the last year, Federal Reserve officials have dramatically curtailed ambitions for interest-rate increases, even as inflation has risen and unemployment has declined.

So what gives?

Perhaps just as important as the increased attention being paid to headwinds from abroad are the changing attitudes of Fed policy makers toward inflation. That suggests more confidence they can afford to keep borrowing costs lower for longer, because there is less concern that price pressures will get out of hand.

Maybe the real reason they are keeping interest rates low despite it being almost 8 years since the asset crash and banking crisis of 2008 is to ensure Hillary gets elected?

With interest rates already at rock bottom, how will the Fed deal with a future crash?

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Richard writes in a comment:

What sucks about righties having no control over the media is that questions that would embarrass liberals never get asked. Are the lefties who were howling about the damage Brexit had done to the U.S. stock market a few months ago issuing any recriminations? If things had been reversed the top outlets would be running news stories mocking those people, or at the very least calling them to account, forcing them to defend themselves with the weapons they chose to fight with. But it’s just going to be forgotten because it’s too much reality for the reality-based community to account for.

Looks like the market has recovered

I thought maybe the Illuminati would take advantage of Brexit to cause the big crash and then say “look, this is what you get for voting racist.” But it was up yesterday and up again today as of 9:12 AM.

So maybe the market decline was just traders who believed the propaganda about Brexit being horrible for the economy and not Illuminati controlling everything.

Capital Asset Pricing Model and libertarianism

To quote Wikipedia:

In finance, the capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset’s non-diversifiable risk. The model takes into account the asset’s sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. CAPM “suggests that an investor’s cost of equity capital is determined by beta.”

The CAPM was invented in the 1960s, and became popular among finance people in the 1970s. It was taught in the most basic corporate finance class when I was a college student at Penn in the 1980s. It’s a fine model for valuing stocks and bonds, but what does it have to do with libertarianism?

Libertarians take it as a matter of faith that the amount of money someone earns is exactly equal to the value they create, but they have a tough time explaining exactly why some people earn such massively more money than other people. Thus they picked up on the part of the CAPM which states that more non-diversifiable risk equals higher returns, chose to ignore the “non-diversifiable” part, and applied to this to every rich person. So why is Bill Gates so rich? Because he took more risk. Why is Warren Buffett so rich? Because he took more risk. If you only stopped being lazy and took more risk, you too would be rich!

Carly Fiorina is considered one of the worst CEOs ever, yet she walked away from HP with approximately $200 million more than when she walked in. How was that risky? The regular employees of HP had much riskier jobs, because approximately 30,000 of them were laid off during Carly’s tenure, and they walked away with not much money at all.

Because entrepreneurial risk is mostly diversifiable and not correlated with systemic risk, the CAPM actually teaches us that there would be no return for such risk. And, of course, CEOs and other high-level corporate executives don’t take any risk at all. The higher your job level in corporate America, the all-around better and less risky your job is.

Regarding entrepreneurial risk, because people tend to have an optimism bias and the longshot bias , it’s more likely than not that people are taking too much risk rather than not enough risk. Entrepreneurial risk may be like the risk of the roulette wheel, where 38 people go in and one person wins 35 times their investment while the other 37 lose. (It should be noted that people play roulette despite the fact that it’s known to be rigged in favor of the house, and the same with the massively more popular lottery, but people have an optimism bias and a longshot bias.)

No profit in individual investing

Commenter Hermes writes:

Lion, with your ability to predict the future, why can’t you become independently wealthy through investing?

I am not entirely sure if Hermes is trying to insult me, or if he genuinely wonders why someone as smart as me isn’t rich.

People become rich from having a good career track, and become super-rich by having a monopoly. No one becomes rich from investing their own money. Even if, because if my superior insight, I would have a long-run rate of return that’s 3% higher than investing in index funds, a 3% excess return does not making anyone rich if they only have their own meager money to invest, and in the short run the ups and downs of the market can kill you if you try to make big bets and they fail. I still predict that oil is a good long-run investment, but in the short run I lost money on that during the last two years. Ouch. Very painful. I also predict that robots are the future, but in the short run I lost money in IRBT the only pure-play robot stock I could find to invest in.

The people who become wealthy from investing are investing other people’s money. That’s how Warren Buffett became a decabillionaire, and it’s how Al Gore became rich and how thousands of lower level Wall Street types have become decamillionaires.

As I previously explained, investing is less profitable today than it was in the past, because of value transference. That is, the money you invest in corporations is being transferred to wealthy CEOs and other highly compensated senior management and consultants, and to Wall Street types such as investment bankers and hedge fund managers.

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You can also get rich from having inside information, as Gordon Gekko explained in the movie Wall Street. And commenter Curle says “you can get rich on inside deals,” but that’s a sort of monopoly power being one of the few lucky people having access to insiders, and you usually get to such a place by starting out in a good career track.

How to profit from Ebola

If a global Ebola pandemic is coming, what can we invest in to profit from this event?