Will More Companies Seek Bankruptcy As Opening Up Continues?

Before the COVID-19 pandemic hit and the U.S. vs China trade war, JIT (Just in Time) or also known as the Lean Manufacturing method was the way to finish up production of a product line that is fast to bring the products to the market. JIT was made popular by Toyota in the 1930’s “The Toyota Way” production method. This method allows any company not to stock up raw materials and be overburdened with materials and parts in the production chain inventory, but instead, any company that uses JIT can just rely on an overseas or local third party to quickly deliver whatever stuff that a company needs to finish up production of a product line. JIT saves time, cost, and improves the efficiency of manufacturing. Unfortunately, the pandemic hit in early 2020 led to the shutdown of most parts of the world, and JIT isn’t viable as before. Shipping became more difficult, and shipping costs were rising tremendously. Furthermore, companies rather cut costs and shored up cash to protect the business during the uncertainty of the pandemic COVID-19. This pushed the JIT supply chain to the brink of collapse since companies weren’t ordered raw materials and whatever parts so freely as before.

The U.S. vs China trade war is still an ongoing thing, and JIT won’t be taken up favorably by the United States. The United States doesn’t want to be overly dependent on China for crucial and mission-critical materials and parts. One perfect example of this is rare earth minerals. China has cornered the rare earth mineral market, and with such influence, China could always use its power to subdue the United States to China’s demand by not selling rare earth minerals to the United States. Rare earth minerals, although the market isn’t big, these minerals are the absolute must for most electronic stuff that every country needs. To produce an electronic vehicle, smart TV, or just about any other electronic thing — rare earth materials must be present for such a thing to be successfully made. JIT is all about relying on a third partner/country to provide the raw materials and parts, but this could become a security nightmare for the United States in the rare earth mineral example. The pandemic has had only increased the divide between the United States and China in regards to how a global supply chain should be reformed onward.

As the United States and China try to promote different supply chain routes and methods for the globe, locally located companies aren’t yet weaning off the crisis of shortage of materials and parts such as microchip shortage — due to shipping difficulty and countries’ shutdowns across the globe — due to the pandemic is still an ongoing thing since many countries have yet to adequately allow the populations to be vaccinated with COVID-19 vaccines. While the shortages of everything are on the menu, companies are trying to alleviate many shortages as possible by hoarding raw materials and parts. Some companies are trying to overproduce the finished products as these companies have seen the demands of goods rising to an unseen level since the pandemic hit. Thus, rising demands produce rising inflationary prices of finished goods. Shortages of raw materials also push the prices of raw materials to be more expensive such as lumbers. As raw materials get expensive, the expense would pass on to the customers in the finished goods. In general, finished goods are more costly as the demands are high and raw materials’ shortage. With high demands come shrewd business sense, and so companies would go overdrive in producing more finished goods, The question is then when the COVID-19 pandemic slowly goes away and the world is opening up again just like how it was in 2019, services will come back to life, and customers would spend less on goods but more on services — how are the demand bubbles of physical goods would fare in such a scenario?

I think as the opening up roaring back, the inflation would collapse into deflation in how physical goods are being priced — while innovation would continue to drive the costs down of stuff such as electronic — and so many companies that overly produce the finished goods will face the glut of inventory. This could be so inefficient that these companies may wish JIT would become fashionable again. Thus, I think the future earnings of such companies will be way less impressive than most investors would have liked to see. The service sector may pick up again, but companies that are in this sector may still have to face bankruptcy since these companies borrowed a lot of debts during the pandemic COVID-19 service shutdown across the globe. Thus, I don’t think we will see the normal as how we had gotten used to before 2020. Companies with heavy debts should be valued less even if these companies fall into the value investing category. This could be an opportunity or a value trap kind of thing. We could not know an overly burdened indebted company is a bargain or a value trap since such a company could file bankruptcy easily.

Is There A Disconnect Between The Reality and The Stock Market?

Investing can be fun, but it can also be bloody scary. I guess it all comes down to your temperament when bad things hit the fan. For example, I notice that I tend to sell a stock too early. By selling a stock too early, I had experienced missing out on huge gains. Also, whenever I get greedy in playing stock options, I would get slaughtered. Sometimes, the stock I invest in heavily would go way down. I tend to get slaughter when I buy puts of stock in thinking that stock would go down.

2020 is the year in which I think the stock market is acting incredibly weird. Out of nowhere, the COVID-19 pandemic spreads throughout the globe, causing the weirdness of the stock market to go on steroids. For example, in March of 2020, everything was going way down. In November of 2020, everything seems to be skyrocketed and unstoppable. Now, in December, somehow, I feel the stock market is somewhat sluggish. Still, the weirdness has yet to go away because I notice that a lot of retail investors push the valuation of newly minted SPACs out of proportion. For example, QuantumScape won’t produce solid-state batteries until 2024, and yet the market cap for this company is now above 20 billion dollars.

I feel like we’re revisiting 1999 when the Dot-com bubble burst. Nonetheless, this time I think it’s somewhat different since many SPACs are trying to merge with private companies that do have decent revenues. There always will be exceptions, and Nikola is one of these exceptions. Nikola has yet to produce a functional vehicle for the mass, but the retail investors at one point pushed Nikola stock over the moon. In September of 2020, a short seller known as Hindenburg Research targeted Nikola with a ghastly bashing report and got Nikola’s founder, Trevor Milton, fired. Nikola stock is now plunging steadily down.

As we speak, the interest rates are all-time low, the gold price is way high (around $1,800 plus), and the COVID-19 pandemic is still raging. President Trump is about to step down to allow president elected Biden to take over the administration in 2021. The dollar is slipping in strength. Unemployment is way high! Parts of the United States are in a lockdown state so people could have a social distance to fight the pandemic. Vaccines that could take on the COVID-19 pandemic is about to roll out soon. Things seem to be in limbo, and it could get worse. Somehow, the stock market is shooting way up! Is there a disconnect?

In the video right after the break, Deadnsyde Youtuber mentions that MicroStrategy’s stock price plunged so hard in 1999 might had been the reason that the Dot-com bubble popped in the first place. The surging of unfounded stock valuations of today’s stocks could also be the catalyst in which it may take only one over-valuated, well known stock such as Tesla to pop that could lead the bubble of today’s stock market to pop hard.

What do you think?

What Is The Future Market?

Don’t you hate to hear the future market this and that when you read or listen to the news?  Well, if you understand what future market is, you probably don’t mind hearing news on it.  Some people though, they may not know what the heck is the future market.  Thus, future market seems like a big mystery that will forever be a mystery into the future for these people.  Nonetheless, if you are one of those people who wants to understand what the future market is, then just check out the video right after the break.  In short though, future market is gambling, because you are betting on a contract price that represents for whatever it is in the market.

A Fiat Standard Hell May As Well Revive Gold And Silver As Unit Of Account

Not ever before that our world is so connected, because technology allows us all to trade and travel in seconds.  Just imagine this, before the Internet age, we were pretty fast, because we could travel the world in hours and very few days through flying on airplanes.  Nonetheless, age before the Internet is pretty slow comparing to now, because traveling around the world is no longer requiring us to be physically there.  Instead of just flying around the world, we can simply utilize the Internet to interact with various parts of the world in seconds.  Why traveling in the first place?  Sight seeings and trading and get to meet people and tasting different cultures and foods are probably on the todo list for many people, but the Internet allows us to do most of the stuffs I mentioned in seconds.  Of course, without physically traveling, we cannot use the Internet to have firsthand experience.  Nonetheless, with technology improves we might just as well be able to use virtual reality to somewhat attain the firsthand experience of physical traveling.  Trading is obviously done in seconds in the Internet age, and this has let the physical retail stores and what not to become almost obsoleted.  Fortunately, it’s that, nothing has yet to beat the firsthand experience of whatever, thus the physical retail stores might be able to retain the customers who prefer to have the physical feel and touch of things.  Too bad though, the trend is that many people rather go to physical stores for showroom experience, and then they go home to purchase the products they want on the Internet.

With being so connected as how we are now, it does seems that a small hiccup in the market would not be able to stir any storm and damage the wealths of many people.  Unfortunately, since we are so connected, a huge hiccup might churn out a firestorm that is huge enough to bring down the world market.  If this happens, the whole world will be in depression.  This almost happened in 2007-08, but China was holding up really good and stopped the whole world’s market from collapsing even more.  Nonetheless, I feel that, it is possible for a scenario such as a whole world’s market to really collapse and destroy all economies at once.  This is possible since we’re so connected and using only fiat currencies.  Never ever before in our human history that we have all countries using fiat currencies.  Some wise homo sapiens once said, the strongest link could also be the weakest link.  By being so connected, our economies could affect each other fast and furious, and so this would allow change to happen fast and furious.  When positive things are happening in the world market, this contributes as the strongest link.  The opposite could happen, and this would be the weakest link for the world market.  At the strongest link, positive effects would echo throughout the world at fast and furious speed.  At the weakest link, negative effects would also echo throughout the world at fast and furious speed.

Nowadays, we are using several main currencies that are known as reserve currencies.  The Dollar is the prominent of them all at this very point in time, but we never know how long can the Dollar hold this prominent reserve currency status.  If the world isn’t so connected, the multiple reserve currencies might be a panacea for world economic structural problems, because one economy can always spread foreign reserve wealth into multiple reserve currencies for diversifying.  Unfortunately, our world is so connected in a way that all reserve currencies’ hosts can be taken down, consequently rendering the reserve currencies themselves to be on the fringe of uselessness.  This has me thinking that perhaps gold and silver and other valuable metals are still very much the sort of wealth that us people may need to turn to if a perfect storm does hit the world market and bring down the world market in one fell swoop.

Just like fiat currency, gold and other valuable metals are backed by nothing.  Intrinsically though, gold is being used practically.  This means gold does have industrial applications.  Let me list a few gold’s industrial applications here.

  • Dentists can plant new gold teeth for patients.
  • Gold can be used to prevent rust and corrosion of important components within electronic devices.
  • In the medical field, gold can be used for various purposes such as treating patients with arthritis (gold salts reduce swelling, bone damage, joint pain, and stiffness).
  • Architects and builders can use gold to design beautiful structures.
  • Space devices can use gold to reflect radiation and cool temperature.

Besides gold’s few industrial applications, people like gold for its shininess and immune to rust qualities.  Before the well known use of gold in several modern industries, gold was being used as money since the early period of the entire human history.  Gold was minted into coins and so forth.  Since the dawn of human history, gold was used as money then was replaced by whatever and then it made a comeback, rinse and repeat kind of event really.  In our modern history, president Nixon of the United States abandoned the gold standard, thus he was effectively allowing the Dollar to not be redeemable by gold.  Since the Dollar was the most prominent (and still is at the moment) reserve currency in the world, Nixon’s gold standard abandonment was effectively put the world on fiat based standard, only.

With the knowledge of how humans tend to turn back to gold in hard time to hedge against paper currencies, it’s not too hard to see how people like us nowadays see gold might play the role of hedging against the possible collapsing of the fiat based standard.  Silver is considered to be a lesser quality metal than gold, but silver does have practical industrial applications too.  Nonetheless, I won’t elaborate on silver in this blog post.  With gold and silver and other valuable metals around, I think people and governments alike will use these metals in hard time as money.

To summarize everything up, what makes fiat currencies valuable is that people around the world see them as valuable.  Regardless fiat currencies are backed by anything, as long people of the world think fiat currencies are good enough as a unit of account, the fiat currencies can go on being the monies.  Unfortunately, people are usually illogical.  This is why if the so connected world market like ours stops functioning somehow, people aren’t going to wait around for the consensus that the fiat currencies will be OK.  Instead of waiting around, people may have a run on the fiat currencies and hoard golds and silvers.  This is when people will see golds and silvers as monies.  Perhaps, some people may argue that if the dollar collapses, the market will turn to IMF’s SDR (Special Drawing Right) or China’s Yuan as the reserve currency.  Since nobody knows the future, they maybe right, but I argue that none of those so called possible reserve currency replacements can hold water to gold and silver.  After all, gold and silver do have industrial application values and these metals have been used as unit of account over and over again in our past histories.  Moreover, I question the ability of IMF’s SDR or any other single fiat currency can be confident enough to rescue the fiat standard from hell.  By this I meant if the fiat standard does go to hell, by then it’s way too tough for any other fiat currency to be able to rescue the fiat standard system.  People may just as well turn to gold and silver as a change!

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