The pandemic has altered the behavior patterns of many Americans. It has also forced states to re-examine their thinking in several areas, especially in taxation and spending. One of the biggest winners in this process appears to be gambling.
Clearly, with most of the nation's leisure activities shut down, more and more Americans are looking for something to occupy their time. At the same time, thanks to massive losses in tax revenues, states are scrambling for ways to make ends meet. Sports and other forms of online gambling are an easy answer to shoring up state budgets, while satisfying the consumer's demand for more action in this burgeoning leisure market.
The trend toward legalizing gambling both on and off the internet has been around for the last several years, but the pandemic has added momentum to that process. Back in 2017, the U.S. Supreme Court ruled that states have the right to decide the status of sports betting for themselves. As a result, more than 24 states have legalized betting either online or at casinos or both.
Sports betting is only the latest offering in a field crowded with other gambling pastimes. Whatever your poison — poker, slots, sports betting, or live casino games — you can increasingly access it online. More and more Americans are doing just that.
For those veteran gamblers who enjoyed the excitement of the brick-and-mortar atmosphere of established gambling casinos, it took the pandemic to lure them onto the internet side of things. They found that online sites offered their own brand of adrenaline rush. Slot machines, for example, tend to be much more fun than the traditional, one-armed bandits of yesteryear. If that is not your cup of tea, you can access live studios where the game and dealers are in real-time and the light shows are often dazzling.
Another benefit of online sites is safety. Gamblers can feel safe because there are plenty of reliable websites that have been licensed by the state. They offer a transparent and fair game with high-security protocols. They are also open 24 hours a day, and you don't need to wear make-up or comb your hair to gamble. In addition, there are no lines, social requirements, expensive dinners, hotels, or worries about costly transportation to the casino.
The nation's attention was drawn to sports betting last weekend thanks to the Super Bowl. Wagers on the game were expected to break all records in legal sports betting. The American Gaming Association predicted that as many as 23.2 million people would be wagering bets on the outcome of the game. That would be a 62 percent increase from last year's wagers, totaling $4.3 million.
The nation's media featured a Texas businessman and owner of a furniture store, "Mattress Mack" Jim McIngvale, who placed a $3.46 million bet on the game and won $6.18 million. It was thought to be the largest bet made at the game.
Mattress Mack placed the bet on his smartphone through DraftKings (DKNG), a public company that is one of the top betting platforms in the nation. The publicity has been good both for the furniture store as well as for the price of DraftKings. The company's stock price has climbed substantially over the last few months as investors became aware of just how large the betting public has become.
Worldwide, the online gambling market is valued at $59 billon, according to Statista, a data research firm, and is expected to reach $92.9 billion by next year. That has investors excited. And like so many other areas affected by the pandemic, gambling could become even bigger in the future with online betting leading the way.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: The Business of Space
By Bill SchmickiBerkshires columnist
Space! It holds the promise of riches beyond our wildest dreams -- solar systems bursting with precious resources ripe for the taking. Just the idea of such prizes has set off a frenzied rush by global business entrepreneurs to claim stakes in this new frontier.
The private sector has increasingly pushed aside governments and their contractors in a frenzied bid to develop commercial space exploration. At the same time, using all their cost-cutting prowess to reduce the cost of putting people and objects into orbit, and that is only the first step.
This year, for example, there are three separate missions to Mars, which are scheduled to arrive in February. The Emirates Mars Mission is due to arrive next week on Feb. 9. Its task is to study weather cycles and the Mars atmosphere overall. A Taiwanese spacecraft will touch down two days later. Its orders are to map the surface of the Red Planet, do atmospheric tests, and launch a rover that will search for signs of life. Finally, a week later, on Feb. 18, NASA will land another rover on Mars' Jezero Crater to collect soil samples, rocks, and hopefully return to earth with its treasures.
While all of this may send our blood racing and hearts pumping, the more mundane business of turning a profit in this fledgling industry is centered on the transportation side of commercial space. The budding business is built upon the bet that more and more companies will want to fill the skies with much-improved, (and cheaper) nanosatellites constellations, that will allow greatly expanded communications, imaging, and the use of scientific instruments to measure everything from temperature to energy consumption.
Over the next few years, an entirely new fleet of private sector rocket companies with names such as Virgin Galactic, SpaceX, Blue Origin, Alen, Astra, and Rocket Lab, are hoping to launch daily rockets laden with thousands of pounds of satellites into orbit for commercial and government use.
SpaceX, the company founded by electric vehicle pioneer, Elon Musk, is the front runner in this race for space. Last year, SpaceX launched astronauts to the International Space Station twice and is scheduled to do it again this year. If all goes as planned, expectations are that SpaceX will become the successor to the U.S. government's former space shuttle program.
The company also planned to fly a mission for a Texas-based company that has purchased a trip for a crew of four tourists to the space station. Could this be a forerunner of a sort of private sector cruise line into space?
Although none of these ventures have yet to make a profit, stock investors anxiously await their debut as public companies. Virgin Galactic, the only pure play in space, has seen a doubling of its stock price in the last six months, but it is not the only public company involved in the industry. Aerospace giants Boeing, Lockheed Martin, and Northrop Grumman are also major players in this arena. Additionally, there is also an exchange traded fund (ETF), the Procure Space ETF, (symbol UFO) that is widely traded, which has gained 33% in price during the last three months.
Another space rocket startup, Astra, is planning to go public using a blank check company, or Special Purpose Acquisition Corporation (SPAC), in the near future, worth a $2.1 billion valuation, according to the Wall Street Journal. Space tug company, Momentus, founded in 2017 by Russian-born, Mikhail Kokorich, is also planning to go public via a SPAC, Stable Road Acquisition Corp, in a $1.2 billion transaction this year.
In addition, Ark Investment funds CEO, Cathie Wood, is also planning to launch a new space-focused ETF to join her stable of seven successful disruptive technologies ETFs.
Critics of the space boom point to the fact that all these companies are losing money. The likelihood of profits, they say, could be years away (if ever). Space bulls argue that early investments in electric vehicles was derided with the same arguments, and look what happened to those with the courage and vision to risk their capital.
For the people attracted to investing in some version of tomorrow's Starfleet, be forewarned that it will require an enormous amount of patience, an extended time horizon, and possibly as much volatility as the Millennium Falcon's frequent jumps into Hyperspace.
As for me, color me Buzz Lightyear, since I am already convinced that "infinity and beyond" could be the future of space investment.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Make Way for the Retail Investor
By now, you may have realized that this is not your father's stock market, nor will it ever be again. An entirely new army of investors have arrived on the scene with different attitudes, values, and beliefs. You can either hop on this train or be left behind.
Back in the day, burnt by the Financial Crisis of more than a decade ago, many investors decided to forsake the stock market, embracing bonds instead. Over that time, Americans amassed a $3 trillion in savings and 94 percent of that money went into bonds. Those bond buyers have had a good run, but all good things must come to an end.
Most fixed income investors are scrapping the bottom of the barrel if they are hoping for further increases in bond prices. Interest rates are less than one percent, and there isn't much room to fall further. Dividend-paying stocks are yielding more than most bond investments. Plus, the chances for price appreciation appeared to be much greater in the equity than in the bond market. The retail investor is waking up to this fact.
Last year, while Main Street suffered under the black hand of the coronavirus, the stock market roared higher, after a big correction in March 2020. That pullback was just the excuse many investors needed to dip their toes back into equities. After all, what better way was there for the unemployed worker or small business owner to supplement their income than in a market that was suddenly 30 percent cheaper than it had been at the beginning of the year?
Americans of all ages, spurred on by the pandemic-induced, stay-at-home trend, took a new interest in the financial markets. The government's stimulus checks provided the capital they needed to get involved. For those working remotely, there was also a lot more time to trade with no boss watching over their shoulder. The commission-free trading and ease of execution also helped. The rest is history.
It would be too easy for old timers like me who have witnessed doubles and then triples in stocks of fledgling companies in mere days to warn of the excesses that this is causing in the market. It may be, but the fact that Google or Apple have done the same thing is perfectly acceptable because that happened over a longer period. Who is to say that what has happened in the past must happen in the future?
Others might scoff at these newbies who know so little about markets, earnings, and the trends that make a difference. The mantra I hear most is that this will end badly, so just wait for it. Talk of bubbles abound.
In the meantime, these new traders continue to invest in areas where they see a future. Electric vehicles, solar power, ESG investing, the Cloud and more. While seasoned investors point to the fact that many of these companies earn nothing and won't for years and years, Robin Hood traders ignore them. They are buying what they know, and so far, they have been right. If price talks then these new traders are walking the walk, in my opinion.
Check out what has happened to Bitcoin (or "digital gold" as investors are calling it). A year ago, high-paid strategists and analysts were still writing off crypto currencies as a fad with no future, while retail buyers ignored them. And well, they should, because they were already using Bitcoin to make purchases and pay their bills.
But what of the excesses, surely there will be a time when some of these traders will hit a brick wall? I am sure there will be a reckoning of some sort. For example, this week's craze is to buy stocks with heavy short interest, bidding up prices and forcing the "Big Guys" to cover their shorts. Thousands of retail buyers converged on this week's phenomena, GameStop, a console and video game maker, to do just that. The price of the stock has been climbing by almost 100 percent per day and where it will end no one knows. In the meantime, other heavily shorted stocks are rising in sympathy. It won't last forever.
The point is that the markets are changing. And like with all change, there is good and bad. I have no doubt that the excesses will be dealt with in due course. Some traders will get burnt, but many more will continue to profit. I for one, encourage these young bloods to experiment. Their participation helps me in my own investing and has taught this old dog a whole bag of new tricks; so I say keep it coming.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: The Reflation Trade
By Bill SchmickiBerkshires columnist
Over the past six months, an increasing number of investors have come to believe that a rise in the inflation rate is inevitable. That appears to be a sound bet from where I sit, even though the present data doesn't support that wager.
The argument for increased inflation centers around money. The world is awash in the stuff. Central banks have been printing money for years to stimulate their economies. Last year's pandemic only opened the monetary flood gates even further. And the trend is not over.
During the next few months, here in the U.S., the Biden Administration is proposing another $1.9 trillion in federal spending, which will then be followed by yet another multitrillion-dollar spending program for infrastructure. Wherever you look — China, Europe, Japan — it is the same story. And while governments spend, central banks print money.
Why, then, you might ask, is the inflation rate so tame? If you look at our Consumer Price Index (CPI), over the last twelve months the increase was just 1.4 percent. That is and has been, far below the Federal Reserve Bank's target of 2 percent. It is so far below their inflation target that the Fed has said they would be willing and happy to see inflation rise above that rate for some time into the future.
And yet, wherever you look on the commodity front, we see accelerating prices in soft, as well as hard commodities. Corn, soybeans, wheat, sugar, copper, lumber, oil, precious metals, and most other material prices have climbed well above the 1.4 percent year-to-year increase in the CPI. How can that be?
Because the CPI and many other inflation measures like the Producer Price Index (PPI) are heavily weighted in such things as services and rents. Inflation by mundane variables, like commodities, are usually not much of a concern. That is largely because commodity prices fluctuate, and (over the last decade or so) were in downtrends.
However, that period appears to be coming to an end. Some economists argue that the declining dollar after years of strength may have something to do with it. Since most commodities are priced in dollars, for foreigners, commodities have become cheaper to purchase in their currencies, sparking additional demand.
At the same time, after years of lower prices, mining and exploration companies reduced their spending budgets. Why produce more of something worthless and less? As a result, a large number of commodities are in short supply. We have to go back 10 years to the spring of 2011, to witness the kind of price increases we are seeing in at least 35 different commodities.
All of this has been occurring while most of the world's economies are struggling to remain above water, thanks to the coronavirus pandemic. But now we are in the midst of a worldwide vaccination program. If successful, we can expect a turnaround in economic growth. What will happen to commodity prices once global economies begin to grow again?
Demand will increase quickly, while supply will take much longer to revive. That is a recipe for rising prices. Inflation, therefore, is all about expectations. If buyers of copper, for example, expect prices to increase in the future, they will gladly pay the going rate today to avoid higher prices in the future. I believe we are experiencing just such a change in sentiment when it comes to future inflation.
By the time this trend shows up in the CPI or the PPI, which could take many more months, inflation will be marching higher along with economic growth, so be prepared. If I were you, I would think seriously about putting some money to work in this area.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Asia: The Investment Case
By Bill SchmickiBerkshires columnist
Investment managers have spent the last decade buying and selling U.S. equities largely to the exclusion of the rest of the world. That made a lot of sense, since the S&P 500 was the best performing index in the world during that period. But times are changing.
While our U.S. stock averages did well again in 2020, Asian stocks did equally as well, and in some cases, they did better. Some of that performance can be attributed to the declining dollar. A weaker dollar benefits U.S. holders of foreign equities, and most analysts expect the greenback to weaken further this year.
However, that is not the only reason for investing in Asia. Overall, valuations are cheaper, much cheaper, than the lofty prices of many of America's stock market darlings. I know that many investors believe that valuations don't matter in this environment. They argue that as long as the Fed has our back, and the economy re-opens, company earnings will grow into these sky-high valuations.
I say they don't matter, until they do. Buying Asian equities at a reasonable price in 2021 removes much of that valuation risk, in my opinion. But valuation is only part of the story. I agree with Credit Suisse that says Asian stocks are entering an "earnings super-cycle" that could last for 3-5 years. They expect Asia's economies to come roaring back from the demise of the pandemic this year, thanks to several life-saving vaccines.
While America wrestles with a winter surge of cases, deaths, and shutdowns, most of Asia is already rebounding from the COVID-19 pandemic. Their economies have suffered less than the U.S., thanks to more enlightened governments and populations that have worked and sacrificed together.
Another big change is the importance of China to the region. China has replaced the U.S. as the principal engine of growth in Asia. While a Trumpian America has turned inward, eschewing regional trade agreements and erecting barriers to free trade, Asia has done the opposite. I have already written about some of their cooperative trade agreements such as the Asian Regional Comprehensive Economic Partnership (RECEP), which includes China, Japan, South Korea, Australia, New Zealand and others.
There are also some interesting trends in countries like Korea, China, and Japan that offer lucrative opportunities for the astute investor. Progress in clean, renewable energy, something lacking in our own country over the last four years, is making leaps and bounds overseas. Asian countries, backed by governments that are fully on board with the concept, continue to invest in solar and wind energy, various environmental initiatives, as well as in areas such as electric vehicles (Evs).
It is one of the reasons that Tesla, the number one player in EVs, is building an enormous new facility in China.
These changes will have enormous benefits for the Asian auto industry. Japan, for example, is planning to phase out gas guzzlers over the next ten years, which will revolutionize their massive auto export industry. China, not to be outdone, is already fostering several start-ups in the EV business as well.
Over the past three months, the trend toward "value investing" has caught fire, as a way to play the re-opening of the U.S. economy. Investors are buying up bank, consumer discretionary, natural resource, and industrial/materials stocks. I would rather look in the Asia Pacific region, and in India, where just about every investment is a value play.
You want mines and metals, look no further than Australia. Banks and real estate, try Singapore. Consumer stocks, what about investing in companies that sell to the billions of consumers in China?
Also, remember that technology is just as big in countries like Korea (DRAM chips) and Taiwan as it is here. Big foreign semiconductors, digital data centers, and internet companies are listed and readily available for purchase on our own stock exchanges. In fact, just about every country in Southeast Asia, India, and Indonesia are easily available through the purchase of exchange traded funds (ETFs).
One big criticism on investing overseas has always been the questionable accounting of overseas companies, along with the risk that various governments often have a track record of meddling with individual companies for political purposes. We can point to companies, such as Luckin Coffee in China, as a dishonest accounting case in point. However, today, recognizing this investment pitfall, most countries are cracking down hard on inaccurate company reporting and those executives at the helm. This week China sentenced to death a banker convicted of taking bribes.
As for government meddling, over the last several years, the U.S. government has done as much as China or any other country to influence and alter the fortunes of public companies. Just think about the Congressional hearings and White House meddling in companies such as Twitter, Facebook, Apple, and Amazon (to name a few).
In any case, the combination of a declining, dollar, reasonable valuations, and higher growth prospects makes Southeast Asia, including Japan, a much more attractive bet, in my opinion, than just sticking with the U.S.A.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by OPI. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
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