Editor’s note: This article began as 19 pages. So instead of sending it to you all at once, I’ll be breaking it up into a series over the next few days. Stay tuned for a LOT more on this topic.
There’s not going to be a “new normal.” What was so great about “normal” anyway? This newsletter is for people who don’t really want to go back to “normal.”
The Great Reset is happening. A different world is being created.
Trillions of dollars have been airlifted into this economy and it’s going to change everything you do, every opportunity you think you have, every news event that has cast its light onto society.
The goal of this newsletter is to find the signal in the noise and provide important new information about the Great Reset. What is going on in the economy? What skills do you need? And step-by-step tutorials on getting those skills. Business opportunities and step-by-step how to execute on them. And fun.
SHOULD WE CARE ABOUT THE ECONOMY?
The U.S. economy normally spends $4 trillion a quarter, give or take.
Because everyone was ordered to stay home for 3–5 months (and many still forced to stay home), the number being discussed privately by the Federal Reserve — maybe $2 trillion that normally would’ve been spent — has not been spent.
Hence why the CARES stimulus package was $2.2 trillion. Replace the money!
Unfortunately, they did not replace it so well. Some notes on the stimulus package:
Money that goes to large companies (sometimes called “bailouts”) does not get spent. That money is used to pay down debt, or is just put in the bank.
Money that goes to wealthy people does not get spent. Sending $10,000 to someone worth $10 million just goes into the bank and never gets spent.
So probably 2/3 of the stimulus package was put in the bank and will not hit the economy for a long time. It will hit the economy eventually, due to the way banks operate (will explain at some other point), but it is not being spent TODAY.
The money that does get spent is the direct stimulus: the $1,200 checks. And only the $1,200 checks that were sent to people with less than a few thousand in savings in the bank, which is most people (the average American had $400 in savings BEFORE the pandemic).
Combine this money with some of the unemployment insurance that was given out and we see that about $500 billion, give or take, is actually being spent during this time.
This is much less than needed to restore the economy quickly, despite what pundits are saying.
The rest will be spent, but over the next 12–18 months, as banks get more comfortable using the extra money in corporate bank accounts to lend mortgages, small business loans, and so on. But that is a slow process and has not begun yet.
In a few editions of this newsletter, I’ll conduct a basic economics class so one can see what is really going on behind the scenes.
But today, the important thing is: The money has not yet been spent. And with one out of three people laid off during this period (although many coming back to work now), people are filled with uncertainty.
People ask me, “Why is the stock market disconnected from the economy?” In other words, the economy feels like a wreck right now. Why are the markets over or near all time highs again?
REASONS THE STOCK MARKET IS DISCONNECTED FROM THE ECONOMY:
A) BIG vs. SMALL
Example: Starbucks is two blocks away from my apartment in NYC. In between my apartment and Starbucks, there used to be three or four mom-and-pop small cafes.
These cafes did a vibrant business for years. Now… they are gone. Out of business. When the dust clears, it will be seen that Starbucks has gained market share and increased profits for the long run.
(As of June 25. The final numbers could be worse but they won’t be better.)
Across the United States, bigger, well-financed companies (i.e., the companies on the stock market) are crushing smaller “Main Street” companies.
At first glance, this is horrible. Millions affected. We all agree with this. But we must start interpreting every piece of data with, “Where is the opportunity?”
One opportunity is to buy stocks that will gain market share. But this has been happening.
And bit by bit we will explore other opportunities (restaurants vs. commissary kitchens, for instance, or ecommerce, fitness, fashion, etc.).
Walmart, for instance, remained open this entire time because it was deemed “essential.” But small clothing stores were closed down and about 30–50% of them will remain closed and out of business forever.
So the big companies have won, crushing the small. The stock market indices are weighted by the biggest companies, the ones that have done the best during this period, so the indices are not quite a measure of the economy during this period, but a measure of how well the big companies have crushed the small.
Hence, the market goes up. For our purposes, this is neither good or bad — just something to note. Eyes must be open to the truth and not to the mindless banter in the headlines or on social media.
B) ANTICIPATION
The market is often correlated to how much money supply is in the economy. With an extra $2 trillion coming from the stimulus package, that money will eventually find itself in the markets.
Also, there is anticipation of inflation. Inflation drives up the price of everything that is bought with dollars, including stocks.
There currently IS ZERO inflation. Below is the current inflation index. Since the beginning of 2020 it has gone negative. We are experiencing massive deflation.
Many people ask: Won’t there be massive INFLATION?
Again, I will save the reasons for a future “Economics for the Great Reset” edition of this newsletter. But at the moment, people are more worried about inflation than actually exists.
We often see that often the “smartest” and the “wisest” are busy with their computers and their theories and ignore actual reality. But people who are taking action quickly realize the truth.
When you get an email that says “40% off clothes at XYZ.com this weekend only!” this is not really a special sale. These are the ACTUAL PRICES of those clothes.
Rents in New York City right now are 30% down, the largest decrease in maybe forever.
Warren Buffett has called deflation the worst thing that can happen to an economy. Because when people realize prices are going down, they stop buying. Why should I rent in NYC today when it will be cheaper next month? And this creates a deflationary spiral down.
The Federal Reserve would LOVE for there to be inflation again but there are many reasons why there isn’t. In fact, we were probably in a deflationary period even before this pandemic hit.
The only two times in the past century where there was deflation in the U.S. was in 1930–1933, the beginning of the Great Depression, and in 2008, during the Great Recession.
And, of course, we are there now, during the Great Reset.
C) UNCERTAINTY
The market is not a measurement of the economy but a measurement of uncertainty.
On March 23, the market hit a low because Congress rejected the first version of the stimulus bill.
(S&P 500 over the last six months.)
The economy wasn’t the worst on March 23. It got worse in April and May. But the world had the most uncertainty that day.
The economy was shut down for who knows how long? No money was coming. How deadly was this virus? And so on.
The next day, the market shot up because the stimulus bill was passed. So that created a bit more certainty about the finances of the country.
And after that, by mid-April, it looked like virus cases and deaths had peaked (which is still the case) and that created a lot more certainty.
Then earnings reports started coming in — the first since the pandemic had started, and regardless of good or bad news, at least we got some certainty. And, also for the reasons above, the markets started to go up and have yet to come down.
D) UNCERTAINTY, PART TWO
I’m normally very bullish and optimistic on the stock market. But I do think the market will take a pause and perhaps (it’s impossible to predict) have another dip down.
There’s a lot of uncertainty:
How long will things be closed? Originally the U.S. wanted to “flatten the curve.” This meant that the same number of people would be infected by the virus but over a long period of time so as not to overwhelm the healthcare system.
But now the definitions are moving around. Again, there is no point in determining if this is hypocritical or not. Often in society, goals, objectives, data, opinions change for many reasons. We cannot fight them (believe me, I’ve tried — and that will be another story for sure).
Much of America wants to lock down until the virus is essentially gone.
What effects does the virus have on people, even children, who are asymptomatic? Do they get other issues in life? We don’t know but there are many rumors being reported.
Will there be a vaccine? Some say yes. Others say COVID-19 is a variation of the common cold, which is also a coronavirus, and we’ve been working for 50 years on a vaccine for the common cold and we aren’t even close.
Will the world eventually hit herd immunity?
Are people immune after they get antibodies? We actually have no clue. Again, look to the example of the common cold. There does seem to be some immunity but it lasts about 2–3 months.
Are there any good prophylactic medicines? The answer is that there certainly are, although the search for a vaccine has taken precedence, perhaps for political reasons. We just don’t know.
How many businesses are truly gone? Since much of the economy is still closed, we don’t really know. Yelp has suggested that about 50% of restaurants are permanently gone. I believe this. The average restaurant had only two weeks of cash on hand when the pandemic began. The PPP loan helped somewhat but now we are over four months later so there has been much uncertainty. We do know that many chains have announced either bankruptcies or store closures. Here are a few:
- Victoria’s Secret filed for bankruptcy.
- Zara has closed 1,200 stores.
- La Chapelle has closed 4391 stores.
- Chanel stopped production.
- Patek Philippe stops production.
- Rolex, too.
- Nike has a total of $ 23 billion in debt preparing for the second phase of layoffs.
- Gold’s gym filed for bankruptcy
- The founder of Airbnb said that because of the pandemic, 12 years of effort were destroyed in six weeks.
- Even Starbucks also announced that it would be closing 400 stores forever.
- Nissan Motor Co. may close in the U.S.
- The largest car rental company, Hertz, filed for bankruptcy. It also owns Thrifty and Dollar.
- The largest shipping company (Comcar, with 4,000 trucks) declared bankruptcy.
- The oldest retail company, JCPenney, filed for bankruptcy and will be acquired by Amazon for a penny.
- The largest investor in the world, Warren Buffett, has lost $ 50 billion in the last two months.
- The largest investment company in the world, BlackRock, is signaling a disaster in the global economy.
- The largest shopping center in America, Mall of America, has ceased to pay mortgages.
The following are major retailers that announced the closure:
- The Gap
- Victoria’s Secret
- Bath & Body Works
- Forever 21
- Walgreens
- GameStop
- Pier 1 Imports
- Nordstrom
- Papyrus
- Chico’s
- Destination Maternity
- Modell’s
- Bose
- Art Van Furniture
- Olympia Sports
(h/t Hanson So)
Additionally, isolation and anxiety has bred more uncertainty:
The “Black Lives Matter” protests: These are often peaceful protests and demand well-needed reform. But the ensuing violence and corruption of some of these protests for other agendas has created uncertainty. In NYC alone, there has been the greatest increase in shootings and murders in decades.
And there is great uncertainty about these protests. What will happen if there is more police brutality? What will happen if one of the officers in Minnesota doesn’t get convicted?
China / India tensions: Including shots fired between opposing armies and people killed.
The elections: The headlines on both sides of the fence are disturbing. Again, ignore the headlines but study the reasons for those headlines.
Some newspapers say Joe Biden is in serious cognitive decline. Others say Trump will refuse the results of the election and try to stay in office.
Neither of these headlines is likely true, but this is how polarizing the Great Reset has pushed world events.
Cancel culture has spiked: Again, not interpreting, just noting. But it has created a culture of fear in corporations, media, academia. Solutions and reforms are needed. But there also needs to be discussion where people are not afraid.
The people who are ready for the Great Reset are not arguing about these points. They are noting them, they are staying creative, they are staying healthy, and they are looking for opportunities.
How far will cancel culture go? We don’t know. It won’t go forever. Because once you cancel everybody you will have succeeded in canceling nobody.
There are reforms needed (and I will discuss in a future edition) but my point is that great uncertainty still exists and will eventually pause the markets.
The election might relieve us of some of this uncertainty, but we’ll see. In every poll and in the prediction markets, it’s looking like Biden will win.
What we do know: Every industry will change…
- Content creation
- Fashion
- Food / restaurants
- Consulting
- Video conferencing / events
- Manufacturing / supply chains / logistics
- Education
- Healthcare
- Ecommerce / automated commerce / live commerce
- Social media
- Sports
- Travel
- Big Data
- Telemedicine
And so on.
Tomorrow, I’ll go into how to build a business for this new abnormal.