In the movie Ghostbusters, Egon Spengler tries to describe the amount of psychokinetic energy currently in the New York area using an analogy – a Twinkie:

Egon Spengler: I’m worried, Ray. All my readings point to something big on the horizon.

Winston Zeddemore: What do you mean, big?

Egon Spengler: Well, let’s say this Twinkie represents the normal amount of psychokinetic energy in the New York area. Based on this morning’s reading, it would be a Twinkie thirty-five feet long, weighing approximately six hundred pounds.

Winston Zeddemore: That’s a big Twinkie.

I have been trying to get my head around the size of the national debt of the United States, which, at the time of this post, stands at $34.8 trillion. First, I developed an abbreviated number line in order to see what the number one trillion looked like.

So, one trillion is a one followed by 12 zeros. Thus, $34.8 trillion is $34,800,000,000,000. That’s a big Twinkie.

To further my perspective, if the debt magically stopped growing and the U.S. government committed to paying down the debt by a very modest $1 every second of every minute of every hour of every day ($86,500 per day), how long would it take to repay $34.8 trillion?

Continue reading →

The chart below shows the growth* of the national debt of the United States from 1929 through the end of the 2023 fiscal year (September 30, 2023).

As shown, U.S. debt was relatively flat until 1971, the year the U.S. abandoned the gold standard.  Shortly thereafter, U.S. debt levels began slowly creeping up, gaining serious momentum through the 1980s, 1990s and 2000s.  In 2008, the year of the financial crisis, the U.S. adopted ZIRP, or “zero interest rate policy”, a policy designed to provide liquidity to an economy on the verge of financial collapse.  ZIRP allowed the U.S. government to run ever bigger deficits, knowing the debt issued to cover those deficits would be virtually interest-free and purchased with freshly-printed money from the U.S. Treasury.  Thus, it should be no surprise that 70% of total U.S. debt has been issued since the 2008 financial crisis.

In Ernest Hemingway’s book, The Sun Also Rises, two characters, Bill Gorton and Mike Campbell, have a conversation:

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually and then suddenly.”

By untethering the U.S. dollar from any tangible value, the U.S. has been on the road to bankruptcy, at first gradually and then suddenly.

_____________________________________________________________________

* – NB: The growth displayed is a function of the debt level at the end of the most current fiscal year of $33.17 trillion.  Each year’s debt total is a percentage of $33.17 trillion.  For example, U.S. debt for the year 2015 was $18.15 trillion and is shown on the chart as 55% (i.e., $18.15 / $33.17).  Further, the U.S. debt for 2023 is shown as 100% ($33.17 / $33.17).

BigTech has been a big driver of the stock market for the past decade. The names are familiar – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta, Oracle, Cisco, Salesforce, AMD.

Others, past and present, have included Netflix, Uber, Lyft, Peleton, Shopify, Spotify, Airbnb, WeWork, Workday, Bookings, PayPal, and Adyen.

I have two questions: (1) are some of these companies really “tech” companies and (2) why would it matter if the answer is “No”.

Through the convergence of the internet and smart phones, many companies have arisen that use this convergence to develop new services to the public. How we hail cabs, rent videos, buy used cars and shop for food and booze, just to name a few, have been radically altered. With this technology, we can book a flight to Dublin as well as the place to stay, grab a table for dinner in the Temple Bar district, split the check with our traveling companions and summon a ride home after one too many pints. This technology has truly changed the way we live our lives.

Continue reading →

If you’ve been following my posts about Peloton (PTON) and taken my advice, you’ve done quite well for yourself. Just to recap, back in December 2020, I explained why, at $161 per share, Peloton was grossly overvalued and, therefore, recommended shorting the stock.

Then, in May 2021, I followed up with another post detailing how correct the prior advice had been. At the time of that post, Peloton had lost about half its value, falling from $161 per share to $83 per share. I said, however, that there was still time to profit from selling this stock short, as I thought the proper valuation for Peloton was about $28 per share.

Well, here we are. Peloton right now has broken through my $28 valuation, falling to $24 per share. My advice now is to close out your short position and take your profit. While the stock may continue to drop a bit more, that’s simply investor panic and/or price momentum.

In summary, had you purchased $1,000 of June 2022 deep out-of-the-money puts back in December 2020, you’re sitting on a tidy profit, upwards of $200,000. If you listened to me and are cashing in, well done! And if not, shame on you.

Back on December 22, 2020, I detailed why Peloton Interactive (PTON), with a market capitalization of $42.2 billion was ridiculously overpriced at $161 per share. I recommended selling your shares if you were an owner or shorting Peloton if you weren’t.

Today, Peloton closed at around $83 per share, with a market cap of $24.3 billion. So had you taken my advice and shorted 100 shares, you’d be sitting with a $7,800 profit representing a whopping 145% annualized return.

While some of Peloton’s price decline is attributable to recent issues with defective equipment requiring a product recall, the decline in price began much earlier, as savvy investors began selling their positions to less sophisticated investors who were jumping on the Peloton bandwagon.

Continue reading →

Peloton Interactive (PTON), the innovative company that pioneered gluing an iPad to the handlebars of a stationary bike, this week was added to the NASDAQ 100 stock index. Based on a market cap of $42.2 billion, Peloton became one of the 100 largest non-financial companies traded on NASDAQ.

With only a market cap of $5 billion prior to the pandemic, in the past nine months Peloton’s market cap has soared past much better-known companies, such as Marriott, Mitsubishi Electric, General Mills, Fiat-Chrysler, eBay and the Ford Motor Company.

With the size of the home fitness market currently at $11.5 billion and Peloton yet to generate a profit on $1.8 billion in revenue, one wonders about the company’s valuation. I always view things from the perspective of a buyer or seller. So, if a buyer purchased Peloton for $42.2 billion, what would their return look like? A simple, “back-of-the-envelope” analysis would look something like this:

If the buyer instead bought 10-year Treasury bonds, they’d get a 0.9% return. Pretty poor, but very safe. If the buyer bought a high-yield junk bond fund, the return is about 4.5% and high-dividend ETF returns are in the 5% to 8% range. Thus, an investor writing a $42.2 billion dollar check to buy Peloton, a high-flying company who’s growth has been driven by a “once every century” pandemic, would want a return in excess of 10% as compensation for assuming such huge risk.

Continue reading →