Silver Banana goes to...
Oh baby, it just keeps going up! Two days in a row with decently sized gains across the U.S. indices must make your portfolio happy. The Dow jumped 1.48%, the S&P rose 1.21%, and the Nasdaq lagged with a 1.04% gain.
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Let's get into it.
Macro Monkey Says
Housing Market - Having a place to live in is pretty cool, but apparently became less cool last month. The adrenaline in the U.S market wore off slightly in August with existing homes sales dropping slightly to 5.88mm while the median sale price of these homes fell slightly as well. Presumably, the already insane prices discouraged some buyers from shelling out much too pretty of a penny for their new home, but don't think the U.S market is alone in sky high prices.
When we talk about an overheated housing market, it's easy to be hit with flashbacks to 2007, but like anything, other factors need to be considered. Home prices on an income-adjusted basis in the United States are actually decently low by historical standards, seen in the chart below. Meanwhile, other developed economies are seeing similar appreciation in home prices without the income growth for support. Interestingly enough, residents of other nations see U.S housing as comparatively cheap. I know, I couldn't believe it either.
Debt and Productivity - In another huge victory for the would-be 198 year old economist Adam Smith, privately owned corporations really are more productive than their state owned counterparts. This not-so-revelatory revelation comes after an IMF study dug into the weeds and discovered that in companies with at least 1/3 of the ownership pie eaten by the state, productivity dropped substantially. State owned firms are less efficient investments, generating only 50% of the revenue per unit of capital that private companies can expect to see. And who's the king of state owned companies? China.
Despite the relatively reduced production, a debt obsessed economy is one of the main catalysts for the monstrous growth the country has seen. If you're going to be in an assload of debt, at least have the productive capabilities to pay it off. The combination of state-owned enterprises fueled by huge amounts of debt (did someone say Evergrande?) likely can't be a winning long-term strategy. Put another W on capitalism's belt.
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salesforce.com ($CRM) - Despite being arguably the purest WFH play around, Salesforce struggled for much of 1H'21, on account of what investor's apparently see as an "overpriced" acquisition of Slack. Yesterday, shares surged 7.2% on updated guidance. The CRM firm, whose ticker is a bit too on the nose, expects to earn $200mm in top line while increasing it's profit margin by close to 17%. Finally, only one year after WFH took over the world, one of the biggest WFH play is seeing the benefits.
BlackBerry Ltd ($BB) - Okay, maybe BlackBerry isn't dead. I mean, I guess you could do better than a 32% YoY drop in revenue, but who the hell cares when it was expected to drop way more? Apparently an IoT / AI / cybersecurity company now, they certainly know how to toss around buzzwords to get investors hyped. In fairness, the AI and IoT business units delivered much stronger results than expected, sending shares up 10.9% on the day.
Eargo Inc ($EAR) - "It's not a lie, if you believe it." This apt George Costanza-ism may have worked for Eargo until now, but it seems they no longer believe it...or at least, the DOJ definitely doesn't believe them. A probe against the hearing aid manufacturer has been instigated, related to fraudulent reinsurance claims as of Wednesday's close. Shares tumbled 68.3% yesterday on the news, as well as Eargo pulling existing financial guidance. Oof.
Vale SA ($VALE) - Brazilian mining and logistics company Vale learned the hard way that nice guys really do finish last, at least in the stock market. The company fell roughly 9.7% yesterday on news that might make your heart warm, but will certainly make your portfolio cold. Vale decided to withdraw claims on mining prospects that fall within the land of indigenous Brazilian peoples. Given that Vale needs properties like this to grow and expand, this is not ideal for the top line. Choosing this route surely made the Natives happy, but as you can see by yesterday's performance, it also made the market throw up.
Fiscal Side - JPow had his time in the sun already this week, so let's give the other side a look. Spoiler: it's not good. The semi-double whammy includes a potential government shutdown as well as the risk of defaulting on U.S national debt. Something tells me the market wouldn't exactly love either one.
Just this week, the House approved extension of the debt ceiling to 2022 in order to keep the Federal government solvent. As the bill heads to the senate, Republicans are threatening to block it. This would force Democrats to either have the government default on its debt for the first time or come up with another way to avoid a budget funding lapse. Senate Republican leader Mitch McConnell, the ol' rabble rouser that he is, literally said "the GOP is voting to f*ck the fiscal system...at least for now" or something along those lines. Granted, the U.S hasn't been the best budgeter, but choosing insolvency seems a tad bit overdramatic. Former Goldman Sachs execs and Treasury officials Hank Paulson and Steven Mnuchin basically begged Mitch to chill with that, to which they were met with a fat middle finger. Praying for your portfolios.
"There is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again." - Jesse Livermore