Currently the USA is entering into a second lock-down in major areas and crypto currencies are growing rapidly in value. Easy to say that this means wealth inequality will increase. Meanwhile, high-tech stocks are flying and Tesla bears still exist (half joke). All of this adds up to the same high-level concepts explained earlier this year: divide between rich and poor grows, slimming of middle class and acceleration of technology/healthcare. Now that we’ve seen those concepts play out it’s time to prepare for 2021.
Crypto Currencies: We remain positive on the industry long-term, the recent price rise is likely a bit overheated and when Bitcoin and other crypto assets get back to their previous highs, the prices may drop rapidly for a short period. If we look back to 2016-2017, the same phenomenon occurred. When the price of Bitcoin got to just over $1,000 it went down to $800-850 or so before starting its large upward movement to a peak of just under $20,000.
That aside, we have to zoom out. Right now the value of gold is approximately $10 trillion while the value of Bitcoin is around $350B, this represents 3.5% or so. If you look at this from the eyes of an institutional investor (or even lowly accredited investors), 10% is a reasonable target if major firms believe in the asset class. This would take you to a price of ~$55,000-60,000 or so (depending on where the market cap of gold is at the time).
Also, the reason why we’ve stated that everyone should own at least a small portion of it (not legal/financial advice) is the devaluation of currencies world wide. If you’ve seen all the free loans and all the direct stimulus checks… this has to come from somewhere. That “somewhere” is the government printing money. Crypto currencies act as a hedge against items priced in fiat currency terms. It is also the only asset class with no carrying cost (ie. if you attempted to hold onto $10M of real estate or $10M of physical gold, you’d have to pay money in taxes/upkeep/storage fees for that type of scale). With crypto currencies, you simply need to memorize a few words and purchase a cold storage wallet.
Heading into 2021 this space should see additional interest. It is unlikely going to go away and the software (other crypto assets that act as platforms) is being upgraded to make decentralized finance a real possibility (no need for middle men when it comes to obtaining or giving out loans). In the future a deeper post will be needed but if you look up Ethereum proof-of-stake you’ll get good feel for the scale/speed improvements (no we’re not saying all other platforms will fail, we’re simply saying that Ethereum is going through an upgrade that may be successful).
Before moving on, if you search for gold inflows and outflows, you’ll see that the commodity is experiencing large amounts of outflows lately. While we think they are trading this in to purchase crypto, no one can be 100% certain. Gold has been used as a form of money for hundreds of years and we don’t think it goes away or goes to zero any time soon, we’re simply pointing out that crypto has a lot more upside in our opinion.
Invest in Your Home Set Up (even more): In 2020, there was a massive separation between knowledge workers and standard brick and mortar/retail workers. If you were in a knowledge based field, your quality of life probably improved. Being allowed to work from home let you spend time with your families, reduced long-distance work/travel trips and gave you a chance to catch up on reading while simultaneously opening up more time for your health. Insanity. (Note: for those at entry level positions in knowledge work fields, your quality of life may have actually declined as your micro-managing bosses were able to squeeze more out of you by monopolizing your time).
The point of this paragraph isn’t to dwell on the difference in outcomes but to offer a clear solution for 2021. Invest in your own home technology set up. If you were “considering” an online business, it is now time to “put up or shut up”. If you already have a small/medium/large internet based business, you should upgrade all of your hardware/software. You’re not going to spend much money in 2021 partying/going out since the USA is stuck in a work from home environment for at least half of 2021 (feel free to disagree, that is where we’re drawing the line for now).
Beyond hardware and software, you should take a serious look at two basic items as well: 1) a real work chair and 2) an upgraded bed/mattress. Sitting in a chair that is not designed for long-periods of idle time will cause real back issues. In addition, we’re guessing that many of you are taking naps during the day or laying down to read documents. This is also going to cause back issues if your mattress is older.
The last item doesn’t apply to the vast majority of our readers (young working professionals) but if you happen to live in a home you should really consider building an at home gym. Gyms are suffering and many will likely go bankrupt/be forced to shut down by government regulations/laws. The good news here is that you can accomplish the vast majority of your exercises with an adjustable dumbbell set and a barbell with some clips – if you’re in a small apartment simply take the adjustable dumbbells to a park. All of these items were hard to find when the pandemic started but now you can acquire everything you need.
Consolidation of Restaurants/Bars/Clubs: There is just no way around this. When you force small businesses to shut down, they end up being purchased by bigger players most of the time. When Los Angeles announced a curfew and killed in-person dining (even outdoors) they shut the door on the lower-middle and middle class. Not fun to talk about, also a true statement. Businesses with 5-10% operating margins with “25% capacity” are not going to function due to high fixed expenses.
For 2021 as an “investment” outside of technology and healthcare, it would be wise to look up the largest and most defensive brick and mortar companies. We’re doing that research right now. For example, REITs with exposure primarily to hospitals should not trade at the same valuation as a REIT with exposure to commercial real estate. Similarly, massive restaurant chains with an ability to survive 2-3 years of pain, will be the ones profiting (only place to go when the economy reopens some time in 2021).
As a note, it’s important to take a long-term view of retail, brick and mortar etc. It’s unlikely that technology and healthcare go “up and to the right” every single year. There will be a rebound when the economy opens up at some point in time. And. You should not be interested in investing for the “long-term”. We won’t enter the age old “trading vs investing” debate. Our point here is that the brick and mortar business model won’t be dead any time soon and there will be a recovery at some point (even if it only lasts a few years before returning to long-term slow declines).
Government Employment to Increase: Considering that the government is in charge of a lot of the issues today (hard to debate this) we’d expect a large infrastructure bill or another program to help the structurally unemployed. While nothing has been announced, it would offer a solution for the government. Create jobs that offer a steady paycheck – rebuilding roads, education, police/military etc.
In fact, this may be a useful avenue for readers of this blog. While we focus on young working professionals, the age band is on the lower end (20s primarily). So if you’re looking for a way to fund your business ideas (or simply need a job), the government may be a real and sustainable opportunity over the next 5-years or so. No this won’t be a fun way to make money, but… it will offer steady income while you work on your actual dreams/projects. The environment is slower and you may not enjoy the people you’re around (for now) but it is a real opportunity for you if you’re in desperate need for cash flow. In fact, government jobs are ideal in many cases as you won’t be stressed out with hard deadlines and overbearing workloads. (If they are processing unemployment checks for dead people… You can safely assume that the systems are not efficient).
The above is absolutely crazy. 10 years ago if someone told us the government would be forced to create a chunk of decent paying jobs to help unemployed people, we would have laughed. Yet… here we are. It makes complete sense and offers the newly unemployed an avenue to get back on the right track.
China/Asia Wins: We know the political debate is still out there so we won’t comment on it. One thing is for sure, you cannot simply “pause” a major economy like the USA for 9 months or more. Asia has been open for a long period of time and this is causing them to capture more and more market share. European companies are shutting down (due to COVID restrictions) which means China has to pick up the manufacturing slack… the USA already relies on Chinese manufacturing and the general economy (in Asia) is simply better there due to limited COVID-19 cases. They successfully contained the virus.
Now we know that there are a lot of theories for the “why”. And. Those theories don’t matter much. The reality is that Asia is largely open and the USA/Europe is half open at best. This means accelerating *relative* GDP growth in the East.
For those that have followed the blog for a long time, we’re not happy about this. The USA has been the best place on earth to get ahead: opportunities are boundless, limited regulation and a high standard of living. That said, Asia certainly wins in a scenario where the other two major world economies are halted/half-halted while they are not impacted.
US Opportunity: To end on a positive note, there is certainly an opportunity in logistics. If you’ve tried to send packages/products lately, you know that costs are sky high. If you agree with our premise (move to online sales vs. retail), this will drive up demand for storage/warehousing. If you can find a way to offer storage/warehousing at a low cost, you have a long-term viable business model. If sales are online, the “brick and mortar” play would be warehouses (particularly in low-tax jurisdictions).
Similar to our opinion on working from home being more permanent, this should drive up demand for home renovation/improvements. We’re sure you’ve seen all of the new HVAC installations, roof repairs and paint jobs in a middle-upper middle class neighborhood. The problem? Those companies are already soaking up all the demand and it’s not smart to jump in after people have installed a product with a 10-year replacement cycle. Instead, think about the next steps. The next steps involve car purchases, gym equipment, home cooking items and furniture. We’re sure we’ve missed a million other ideas. The point is the same.
If we can agree that a huge portion of the population will work from home, they will invest more money in 2021 (albeit in a different way if they recently upgraded their HVAC system and gardens).
We’ll go ahead and end with that and announce a Q&A on Friday the 27th for questions on two topics: Crypto Currencies and 2021 business ideas. While we originally said we’d wait until the election is officially over, that seems unlikely near-term
Newer Readers: For those that are unfamiliar with our blog we have three high quality products in order: 1) Efficiency, 2) Triangle Investing and 3) Spending for Maximum Return. In order, you learn how to make a good amount of money (a million liquid within 10 years or so), how to correctly invest it and finally how we’d avoid blowing it all with intelligent spending and PED use to improve quality of life. We hold Q&As 1x a month for purchasers only.
Agreed.
Decided to upgrade from a studio to 1 bedroom plus added a home gym set up in early Q4. Had anticipated that the WFH situation was going to be dragged out and my company has enforced that we won’t be going be until H2 2021.
Socially it sucked. I should capitalize the alone time on going all in on ecommerce.
Warning, the crypto currency QNA is going to be a shit show. It’s going to be endless questions asking if “I should buy now or wait for a dip”
As someone who has been investing heavily into crypto all year at dirt prices, I tried to tell friends and family to get in now back in April and May, and they just shoved it off. Now everyone is asking me how to buy crypto, buying, and getting “burned” and selling on a 10% retrace (as if that’s not normal in crypto) …when 1 month ago they could’ve bought XRP for example and today be up 100%. Masses only FOMO and it’s honestly a waste of time in my opinion to to and “save” anybody.
If XRP hits 2018 ATH (it’s going well past that, the crypto environment has had so much maturity in the last 3 years, this is not the same environment as 2017..it’s much better)
I’ll be up 6 figures…off a 4 figure investment.
No lambos, no models, it’s all going to residential properties and funding my online business. I’m only 25, the bottles and models can wait.
Hahaha yeah we’re ready for the low quality
Great post. Looking forward to the q&a.
On REITs, I have long held a position in vanguard’s vnq.
It’s started to pick back up again and if you look into it you can understand why. The top holdings are no longer the Simons and Westfield’s but telco and data centers. Similar to the rotation we’ve seen in s&p (fang dominating). Part of the argument of why indexing works I guess.
VERY Interesting to see you recommend government jobs as it’s something I have been thinking quite a lot about recently. More specifically – joining police.
I am not US based and it works probably a bit different here, but overall it seems like a good idea when you need a job and a ways to fund your side projects.
Also a lot of benefits coming from it (additional money for housing, more working holidays than in other jobs – meaning more time to work on your business, etc.). Also our country is not really a dangerous place so it isn’t that high-risk as in other places.
Good to see you recommend it, gives me more confidence in it.
I’ll see how my 2021 goes and it won’t go as I have planned right now, I will consider this road for a few years a continue building my business…
Thanks for everything you’re doing here guys.
Cheers!
It’s worth considering. In California, especially the Bay Area, it’s very lucrative (sadly). You can easily make $200,000+ while working on side ventures. Good luck.
It’s unlikely that technology and healthcare go “up and to the right” every single year. There will be a rebound when the economy opens up at some point in time. And. You should not be interested in investing for the “long-term”.
Seems you’ve changed your tune from DCAing for long term rather than short term gains.
No, we have not. Read it again.
“while the value of Bitcoin is around $350M, this represents 3.5% or so.”
should be $350B
Fixed thx
Tactical point on office chairs… if you’re in a city that is seeing a mass exodus (SF, NYC, etc) there are tons of companies liquidating nice office furniture on Craigslist, Facebook marketplace, etc. search for a good herman Miller, all steel, steel case or other chair. Lots of standing desks too, great for the back
Should be able to pick them up for 10-30% of MSRP lightly used
To clarify – 55-60k bitcoin price next year and capped at that price?
Or capped at that price i meant
Another way to corroborate your comparison of BTC vs Gold is to compare BTC to M1 and M2 money supply, and think about would would be implied if BTC had value equivalent to the cash and near-cash of a small but advanced country.
Take Belgium, for example: M1+M2 is about EUR850b, if you add in M3 too you get to EUR1.4T.
Thus you’d think of the primary cryptocurrency, as people gradually around the world own it more and more, could ultimately reach a value comparable to a (very) small but relatively wealthy country. With BTC at $350b, this could imply 2-3x from here, more or less triangulates with what you’re saying re BTC compared to gold.
Obviously all these numbers are minuscule compared to the overall *global* supply of M1/M2/M3, not even a zit on a gnat’s ass.
Thanks, you guys are doing god’s work here. Keep it going.
Great post as usual
Government jobs becoming norm are interesting. Decent pay, unbeatable security, and a ladder any idiot can climb if he simply exists long enough.
More people fall into this, the more people will get comfortable and stop trying. Think public school, 90% go through motions and convince themselves they’re ahead of the game.
Less competition from next gen is a likely outcome. Good news for those in early 30s getting a late start!
For medical REIT’s look at MPW.
people use the % of Gold argument as a potential target for BTC price and i think it is a very valid argument especially from the institutions’ point of view (as you point out),
but i wonder if there is only as much capacity for a non Fiat currency at any given moment and Gold and Bitcoin compete for that, like X trillion of total. in that case if BTC mkt cap goes up by X$ Gold mkt cap has to go down by X$, we are not there yet but we starting to see some inverse correlation
Senior Machine Learning Engineer at Facebook.
Most of you aren’t big enough nerds to understand productive technology so let me do the work for you.
Online Business no Graphics Work: Buy the fastest CPU in terms of clock speed –
number of cores doesn’t matter, buy the best possible WiFi card or WiFi adapter Ethernet not necessary, buy the best possible internet, buy 2 4K monitors 27” minimum 32” preferred. Laptop is only ok if you connect it to an external display. You cannot be productive on 15” it’s just not an option. M.2 SSD for storage you need high end storage for your OS please stop buying anything else, additional storage not necessary.
Graphics/Rendering Work – Buy AMD GPU to save money, maximize your core count rather than clock speed on CPU, 2 4K monitors 32” minimum, best WiFi if needed but you should strongly consider Ethernet since you are downloading large files. Laptop is not an option but get a Mac Air if you need to display things to someone remotely.
Machine Learning + Math: Do not buy AWS until you are ready for it. Buy the same setup as online business plus Google Colab Pro. Store your datasets in AWS not locally so no need for local storage.
If you’re already rich just show this to some PC part builder off of Thukbtack and they will pick the parts and build it and ship it to your house.
Tech matters and if you don’t understand it you are just rekt.