This Blog Will Make You 10x Smarter on Finance

Estimated read time: 3 minutes 55 seconds

In this week’s market recap email

1. Economics in one lesson

2. Simple definition for inflation

3. SaaS Valuations in 2019 (glory days)

4. My portfolio

Economic Reality

This blog will make you 10x smarter than anyone you know on finance and economics

I recently re-read a book called Economics in One Lesson by Henry Hazlitt

The one lesson I learned? Nothing is free (from the gov’t)

Author's one lesson? Look at the long-term effect of policy, not just immediate, and for all groups of people, not just one group

I think it’s important to understand this in today’s day and age

Why? Because millennials (like me) constantly bicker about things being free or getting another handout

Here are the key takeaways:

Narrative: The gov’t gave us a free stimulus check

Hard Truths:

1. The gov’t isn’t a business they don’t make $

2. The gov’t doesn’t have a product or a service it sells for $

3. They reallocate your $ via taxes

So in economic reality, someone else paid for that check via higher taxes

Narrative: The rich need to pay their fair share!

Hard Truths:

1. The wealthy pay almost all of the taxes in the US

2. What is a fair share? Who gets to decide?

3. The rich have the ability to move (to Florida) to avoid tax

The top 10 percent of earners bore responsibility for over 71 percent of all income taxes paid and the top 25 percent paid 87 percent of all income taxes

Narrative: “Our new infrastructure plan will create 1000 jobs and stimulate the economy”

Hard Truth:

What you see is 1000 new construction jobs, what you don’t see is the people and businesses who now pay higher taxes, so they

1. Buy less goods and services

2. Fire people from their businesses

So no.. sorry politician, we can’t create jobs like that

Inflation in 1 sentence

The simplest way to think about inflation: if there is more money chasing the same amount of goods and services, prices go up

Example: Think about what happens to the price if 100 people are bidding on the same product on eBay versus 2 people

Why is there more money in the system? I'll let my friend Jerome Powell, Chair of the Federal Reserve explain

SaaS Valuations

As we have discussed in the past few newsletters, valuations of private companies are starting to feel the impact of the public markets

In 2019, SaaS companies were able to raise money at hefty valuations without a problem

Now? Investors want to see free cash flows generated from startups more than growth

Here's a good diagram of SaaS fundraising in 2019

In The Account | my top holdings

1. Still HODLing the US Dollar via $UUP ETF

2. Still continuing to buy CHINA on the DIP but removed one ETF you will note below

On The Radar | positions I want to build / sizing up

1. Eying investment grade credit (fixed income) $LQD

Off The Grid | removed positions / short selling opportunities

1. I personally have shed Gold ($GLD) and $KWEB (China ETF)

   1. They don't look as good as they used to from a volatility stand point and so I sold them and am sitting on cash

2. Some of my FAVORITE put options right now: $UNG (natural gas) and $HYG (high yield / junk debt)

Until next week....

-DJOB

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.