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stonk: A term to express a financial decision that resulted in financial gain. Mostly used ironically.

For those of you not familiar GameStop is a brick and mortal video game retailer. Its stock had been heavily shorted by hedge funds. I heard that hedge funds were at one point short 150% of the GME stock in existence. How that is legal or possible is beyond me. That was the background. If the hedge funds had not been so short GME, this would not have happened.

But that is just the scene. Enter the main actors: a group of people on the reddit forums decided, for various reasons, to buy GME. The result triggered a massive short squeeze and stock price melt-up. In the course of 10 trading days GME went from around $30 to as high as $513 per share. It has cost hedge funds a lot of money as they’ve been forced to cover their short positions and buy the stock at the higher prices.

Several brokers halted GME trading or placed restrictions on the types of trades that could be made, angering (rightfully so) their “customers”.

I don’t know the reason reason why trading was halted by some of these brokers. It could have been for very innocent and good reasons on the part of the brokers to limit their risk. Other theories alleging nefarious intent abound. Did some of these hedge funds call in a favor? Was trading halted to tank the price so the hedge funds could cover their shorts? Who knows?

The volatility seems to have spilled into other markets as well. Major indices were down on the week–seemingly because hedge funds had to liquidate other holdings to cover their short positions.

It’s been a crazy week.

Here is an anecdote: I was in a company meeting (at my day job which has nothing to do with finance or investing) and the CEO was talking about GameStop. One employee mentioned a friend who was up over $100,000 in GME gains.

I hope they know when to sell.

Is the GME situation an extreme example of the broader trend?

While the GME stock melt-up, and even the other “reddit stocks” like AMC are extreme examples, I think they are indicative of the times: a lot of unemployed people at home, bored, angry, frustrated, armed with stimulus checks, low interest rates, and margin accounts buying up stocks. I think that is a bad sign. The rampant speculation devoid of fundamentals isn’t a good thing. A large number of unemployed people isn’t a good thing. Rampant speculation isn’t a good thing.

Of course it isn’t just retail investors. Institutional investors have low interest rates, are seeking returns, and have driven up asset prices beyond what I think the fundamentals would otherwise warrant. Sure, the institutional investors are supposed to be the “smartest folks in the room”. But they were also behind the dot com bubble and the housing bubble. So don’t tell me they don’t chase returns or make irrational decisions.

I have many reasons for believing assets are overvalued. I’ll just share one at this time, the Shiller PE ratio for the S&P 500 (shown below). The only time it has been higher is at the peak of the dot-com bubble in 2000.


I do think this short squeeze is a healthy thing. Some of these hedge funds are getting beat at their own game and getting taught an important lesson in risk management. It’s also got to be humbling for these hedge fund types to get beaten by the retail investors that they seem, in general, to have a lot of contempt for.

The GME Price Rocket is Still Absurd

On the flip side it is absurd. As of writing this GameStop now has a market capitalization of $22.6 billion. The market cap was just $1.3 billion on December 31, 2020.


The rapid increase in market cap has nothing to do with GameStop as a company. As billionaire hypocrite Warren Buffet once said: “In the short-run, the stock market is a voting machine. Yet, in the long-run, it is a weighing machine.” So what we’re seeing right now is many people voting for GameStop. But the “weight” of the stock has not changed.

Maybe people start buying more video games at GameStop. Maybe GameStop issues more shares at these high prices to raise capital, revamp their business model and they become a company whose fundamentals support a $22 billion or more valuation. I think this is unlikely.

But maybe none of that matters. People can subjectively value whatever they want. I don’t think that Bitcoin’s market cap of $645 billion makes sense but the market disagrees with me. Those buying into bitcoin back when it was just a few bucks and held to this point are sitting on tremendous profits. Bitcoin means a lot of different things to different people and as long as there is demand for BTC the price will be what it will be. If there was a special kind of dollar bill, people might be willing to pay $2 for it. Maybe GameStop will represent sticking it to the man and people will buy it just to participate in that movement. Maybe people will just buy it “for the lulz”.

As long as people value GameStop it can stay high.

What Does it All Mean?

In the short term fundamentals don’t matter. GME is exhibit A. People can subjectively value whatever they want. But in the long term I believe fundamentals do matter. What we are seeing, and have seen, is a lot of price action devoid of fundamentals. GameStop is an extreme example of this price action, but I think the same principle applies in a variety of markets and assets.

But for someone blessed enough to have assets to invest, what can you do?

Cash and even bonds are going to get destroyed by inflation over the long term. I like gold and silver as an asset and I think having a 10-20% allocation to these assets makes sense but they don’t provide growth or income in the way stocks do. Real estate, particularly residential and farmland, could be a good play, but there is a high cost of entry. There are REITs, but a lot of the tax benefits from investing in real estate come from directly owning the property and you can’t buy $10,000 worth of an apartment complex. (Although if there is a way with WITH the tax benefits please let me know!)

I think there is a place for cryptocurrencies although it is still a very young and volatile market segment.

The “big three”: S&P 500, Nasdaq and Dow Joes are all negative for 2021. There is reason for caution. But I’m looking for opportunities to buy into stocks. I think stocks are overvalued. But I don’t think avoiding stocks is a viable option. If stocks do tank, I believe the Federal Reserve will print as much money as possible to prop up prices, even if it means it destroys the value of the dollar.

Although it might sound trite, the best investment might be in yourself and those around you. There is a lot an individual can’t control but you can do a lot to learn, grow, and take care of your physical, mental, and emotional health.

Five Reasons Why You Can Own Too Much Gold

Five Reasons Why You Can Own Too Much Gold

I previously wrote an article, “I Own Too Much Gold” and I’ve gotten several replies on twitter such as, “Impossible” and “No Such Thing”.

I strongly suspect (although I can’t prove it) these folks didn’t read the article. But in case they did and still aren’t convinced here are five reasons why you don’t want to own too much gold as a percentage of your asset allocation:

Reason 1: Lack of Tax Benefits

In the US, gains on physical gold are taxed as ordinary income, which could be a lot higher for you than the capital gains rate.

Even if you were an uber-gold bull and thought it was going to $100,000 per ounce would you really want to pay all your taxes on those gains as ordinary income?

Why not invest in some gold mining stocks (which would certainly go up as well if gold skyrocketed) and pay the capital gains tax rate? Why not hold some of those gold mining stocks in a Roth IRA so you pay zero capital gains taxes?

Reason 2: Diversification

too much gold
Sometimes less is more

It’s important to be diversified in non-correlated assets. If I owned no gold, it would be important to own some, as gold tends to be less correlated with stocks and bonds. However, for the same reasons why you don’t want to be all in one asset class, you don’t want have too much of your assets tied up in gold.

If all you own is gold you don’t own any silver! Some speculate that silver will go up in value even higher than gold. If that’s the case you’ll want to diversity your precious metal holdings into the gray metal as well.

Reason 3: Liquidity

If you’re like most people, you need to buy food, clothing, energy, and the staples of living. You want to have some money in a more liquid format so you can pay for these things. If all your money was in gold, how are you going to pay your taxes or buy food?

Reason 4: No Cash Flow

If you invest in a business or a rental property or a dividend paying stock, there is cash-flow. If you own shares of a company, that company has employees trying to grow the business and increase shareholder value. Gold doesn’t do anything of those things. This is okay, gold doesn’t need to do those things (which come with their own set of risks), but if all your money is in gold then you are by definition missing out on opportunities to invest in cash-flow producing assets.

Reason 5: Charity

Wealth is a good servant but a terrible master. Ultimately you can’t take your gold with you and one of the great perks of having extra money (or wealth) is giving it away to those in need!

Do you want to gift your gold to a charity and have them have to deal with selling it?

If you keep some money in local currency it is easier to donate to a good cause. My favorite charitable organization is Children of Hope and Faith they help feed, clothe and educate orphans in Tanzania. I know the founder and board members personally and I know they have very low overhead which means it is efficient and there is more money going to the kids who need it. You can’t get any better than that!

Of Course You Can Own Too Much Gold

I’m a big proponent of having precious metals in one’s portfolio. Please stop saying you can’t own too much gold because you can.

Here are just a few ideas of investments including and apart from gold.

We are In an Negative Interest Rate Environment

We are In an Negative Interest Rate Environment

The United States is in a negative interest rate environment. Bank accounts essentially pay zero interest but price inflation is at a minimum 2.2%. That is if you believe the CPI.


I don’t know what the actual rate of price inflation is, however, I think it is rather closer to 5% than 2.2%.

If the CPI were calculated the same way it was in 1990 it would be 6%.


I like to save tweets like this for posterity

The tweetist above is wrong about us not being in a negative interest rate environment. Are nominal interest rates negative? Basic math tells us of course not.

Are real interest rates negative? Definitely. Real interest rates are what matter. If the rate of inflation is greater than the rate of interest paid then real interest rates are negative. This is the situation we find ourselves in.

While we are already in a negative real interest rate environment I do think there is a good chance that we will see overtly negative interest rates in the future in the US. If the Federal Reserve starts buying bonds again, the price of bonds in dollar terms will go up and yields will drop, as anyone who knows anything about bonds knows.

However, bonds are paid in dollars and if the Fed were to restart Quantitative Easing what would that eventually do to consumer prices? Would the market wake up and realize the Fed can never shrink it’s balance sheet? What would that do to the value of the dollars the bonds are claims on?

Buying the 10 year right now would be a winning trade in dollar terms if the Federal Reserve adopts negative interest rates but I think the dollar would tank.

The Fed is raising interest rates. So bond prices naturally fall as yields rise. Does it make sense to buy bonds in a tightening cycle? No.

And if you think everything is fine and you believe the CPI then you wouldn’t want to own bonds anyway since they pay a very small yield relative to the official rate of price inflation.

In my view treasuries are reward free risk and I see no point in owning them.

Where to Put Money when the Stock Market is Overheated

Where to Put Money when the Stock Market is Overheated

Over the past few weeks I’ve been writing about the faulty wiring in the United States economy that will eventually result in an Economic Conflagration.

The faulty wiring that will ultimately lead to this economic firestorm includes the fact that the real economy is weak, the economy is crushed by profligate debt and that stocks are overpriced and due for a significant crash.

One of the reasons why candidates such as Bernie Sanders and Donald Trump were popular in the last United States presidential primary and general election is because people know that the real economy is weak. They know how much debt they have and they want someone to make radical changes and do something about it.

Unfortunately government has never been particularly good at creating wealth or prosperity.

Some people might choose to rely on politicians to fix things. This website is not for those people. is for people who want to take some common sense steps to grow and protect their wealth.

Given the faulty wiring the economy it is more important than ever to grow and protect one’s wealth. It might take a while but this faulty wiring will eventually result in a fire that will burn uncontrollably.

I realize this isn’t necessarily very cheery stuff but fear not! There is plenty of room for optimism.

I’m not a doomsday “prepper” or perma-bear and I’m sure that entrepreneurs, if free to do so, will rebuild the economy and usher in greater prosperity that will not be funneled to the politically connected.

I’m also cognizant that the stock market has gone up nearly 300% since the great recession, there hasn’t been hyperinflation in consumer prices and on the surface the crisis seems to have passed long ago. I don’t have a crystal ball and being right early sometimes looks like being wrong.

Despite the relative calm there is faulty wiring in the economy and sooner or later it will spark and ignite blaze that will, to quote Peter Schiff, “will make the financial crisis of 2008 look like a Sunday school picnic.”

The politicians, if they even realize that there are systemic problems in the economy, simply aren’t willing to endure the short term pain and inconvenience of ripping out the faulty wiring in order to fix the underlying problems. So they will continue to kick the can until the economic house burns down.

The bright side is that this will present an opportunity to rebuild the economy based on a strong foundation as opposed to what we have now, a phony economy based on debt, cheap money and consumption.

There will be winner and losers. I’m very optimistic about the future and I want to be counted amongst the winners.

So where am I putting my money?

My asset allocation falls into three main areas. Value stocks, gold and cash.

Value Stocks

Most people love buying things on sale and getting a great deal, expect when it comes to investing. When it comes to investing people want to buy expensive things and hope they go higher. Value investing takes that same common sense, buying things when they’re on sale and applies it to stocks and other asset classes.

The stock market as a whole is overvalued by a variety of metrics. But there are still good deals out there especially in non-US markets. I don’t doubt that value stocks will also go down in the event of a stock market crash but I think they will go down less and they will recover with more strength.

I could write entire articles on value stocks and I have. I’ve written about the value investing metrics I use when evaluating a stock and I also have my own value stock picks based on these metrics.

I share my value stock picks publicly. But I only share if I would buy them today or if I would hold or add to my positions with members of my free email newsletter. I will also let me email subscribers know when I buy or sell a stock first, before I publish that information to this website.


I don’t think you will get rich buying gold but it could prevent you from getting poor. Under relatively normal circumstances the demand for gold is fairly steady and the supply is fairly steady so for the most part the price of gold will rise with the level of inflation.

Gold is a way to save purchasing power. It’s a way to opt out of the financial system and wait for sanity to return.

If the dollar tanks loses it’s reserve currency status gold will still be valued.

I also think there has been significant effort to suppress the price of gold and depending on how much downward price manipulation there really has been, the price of gold could go up significantly from where it is right now.

If fiat currencies collapse that could very well induce a flight to the safe haven asset of gold that this influx of demand would be very bullish for gold.

Because of the absurd expansion in central bank balance sheets and artificially low interest rates I like gold presents a fantastic value at current prices.

What I write about gold applies to silver–another asset I think will do very well in a downturn. Silver has the added benefit of being an industrial metal that is more widely consumed.


Long term, like every other fiat currency, I think the dollar will go to zero. So why would I want to hold dollars?

First, I own a month or two of expenses in physical cash in a secure location in case there are capital controls. If there is a panic and people start withdrawing money from the banks the banks might in turn say, you can only withdraw $500 a week or something like that. Withdrawal limits could also be imposed if the US implements negative interest rates and people (very rationally) decide it is better to hold dollars in physical cash so they don’t have to pay interest to their bank for the privilege of loaning their money to the bank.

I reside in the United States and everything is priced in dollars so I need dollars to buy things. If I lived in the eurozone I would hold pounds or euros, if I lived in China I would hold Yuan. If I lived in the socialist paradise of Venezuela I would probably hold dollars (and try to get out).

Secondly, apart from physical cash I also hold dollars in a money market fund as a war chest. If stocks tank I expect there will be bargains to be had. I want to be buying stocks (if they are high quality free cashflow producing companies) when everyone is panicking and selling.

Now I fully expect the United States Federal Reserve to do what it has done in all other crises it has created–it will lower interest rates and buy assets to prop up the markets.

With interest rates already low once they cut rates to zero they will only be able to do things like Quantitative Easing and Negative rates. This is very bearish for the dollar and very bullish for gold.

But in the highly unlikely chance the US Federal Reserve does the right thing and lets the stock market collapse and lets the US government default on it’s debts this could be very bullish for the dollar. So holding some dollars is a hedge against deflation as well as a war chest to draw upon to buy undervalued stocks post crash.

What are some other possibilities?

While the bulk of my holdings are in cash, value stocks and precious metals I also dabble in some other alternative investments.


I’ve been a skeptic of cryptocurrencies for many years. I’ve also owned them for many years.

If there is a dollar crisis or collapse in the faith of central bankers then more people could turn to cryptocurrencies and could see it rise. Demand for cryptocurrencies could also rise for other reasons pushing the price upwards.

While I think blockchain technology is here to stay the value of any one specific cryptocurrency or token could very easily tank to nothing. Cryptocurrencies are very risky and 90% swings (both directions) happen.

You need to have an iron stomach but having between 1-5% of your liquid net work in cryptocurrencies isn’t the most outlandish idea in the world.

I would only speculate on cryptocurrencies with what you can afford to lose and I don’t considering buying cryptocurrencies investing in a technical sense since I am simply betting on the price going up.

I’ve shared with my readers my Group of Six cryptocurrencies that I’ve chosen to own and speculate on.


Net I’ve actually lost money trading options. I traded options while unemployed and failed to remain dispassionate and objective. I was so focused on making money that I opened positions when the conditions were not ideal and took risks I should not have been taking.

I do believe if you are disciplined and follow the appropriate rules, you can do well trading options.

During a stock market crash volatility spikes and selling options could be a good strategy. When the VIX (a volatility index) spiked up in early February I sold a few options and those positions are doing well as volatility has dropped and the market has recovered. Markets don’t move straight up or down for very long so even if the February selloff portends drops to come, the market doesn’t drop as fast as people think in the midst of the drop.

Real Estate

Unlike all the other assets mentioned above I do not and never have owned any real estate.

Lots of people have made lots of money in real estate. I am working to learn more about this asset class and hope to own my own rental property at some point.

What I like about real estate is that it is easy to use leverage and the tax benefits are ridiculous. You can effectively pay no tax on investment property income and borrow a lot of the money you need to get started.

You of course need to know what you’re doing.

My goals for owning real estate involve owning a multi-family apartment building. The key for me is a cashflow positive property. I don’t have any interest in trying to buy and flip, although some people are very successful doing this. There are lots of ways to make money in real estate and I recommend to learn about them.

I think cashflow positive real estate will do okay in the event of a crash. If you’re in an area that has stable employment prospects those workers will always need a place to live and have the money to pay for it. Of course real estate won’t “always go up” and there are a lot of risks and headaches associated with managing property (if you don’t outsource property management).

This is part 5 of 5 of what I’ve decided to term The Economic Conflagration series where I discuss the faulty wiring pervasive the global economy:

Part 1: A Deadly Electrical Fire you Need to Know About
Part 2: The Real Economy is Weak
Part 3: Crushing Debt in the United States Limits Economic Growth
Part 4: Stocks are Overpriced and Due for a Significant Crash
Part 5: Where to Put Money when the Stock Market is Overheated

Stocks are Overpriced and Due for a Significant Crash

Despite the pullback over the past few trading days, the S&P 500 is still far beyond the highs during the dot-com bubble and subsequent bust as well as the housing bubble and subsequent great recession.

If the fundamentals supported the S&P 500 at these elevated prices it would be great but the fundamentals do not…these elevated stock prices are one of the faulty wirings running through the global economy.

Up until the last few trading days, using the Shiller PE ratio*, there has only been one time in the history of the S&P 500 when the Price to Earnings level was higher, and that is the peak of the dot-com bubble.

*Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10


While imperfect (I tried in vain to find a Price to Free Cashflow chart for the S&P 500), the price to earnings ratio is essentially how much a stock (or in this case the S&P 500 index) costs relative to it’s earnings. A lower PE is better because it means you are paying less for a stream of income.

Price to book is another metric we can look at and the price to book ratio of the S&P 500 is at a level not seen since the 2008 financial crisis.


Netflix: A Specific Example

I want to pick on Netflix as an example of an overvalued stock.

One of the most important metrics for evaluating a company is free cash flow. Earnings can be a little suspect because of accounting gimmicky but it is tough to hide free cash flow numbers. It’s one of my value investing metrics.

Netflix (NFLX) has not had positive free cash flow since twenty-thirteen. In 2016 the free cash flow was in excess of negative $1.5 billion and the trailing twelve month free cash flow amounts to over negative $2 billion.


So they are bleeding money and yet as you can see from the chart above, apart from this last week Netflix stock continues to climb.

What is Causing the Stock Market to Rise?

The United States Federal Reserve has bought bonds to lower interest rates and has also bought other toxic assets (like mortgage backed securities “backed” by mortgages that had defaulted).

In the wake of the 2008 financial crisis the Federal Reserve balance sheet has swollen to over $4 trillion. The chart below shows the Fed’s balance sheet in millions of millions (aka trillion).


This has driven down bond yields and driven up bond prices.

This makes it cheaper to borrow money to buy stocks. It also forces income focused investors to forsake bonds (which have little to negative real yield) and instead pour money into dividend paying stocks.

Companies can also issue bonds at lower rates, and use the proceeds to buy back their own stock.


The Stock Market is Overvalued

Stocks are overvalued and as bubbly as can be due to reckless US Federal Reserve monetary policy. Last Thursday the 8th the stock market closed in correction territory. It rallied back Friday.

I don’t know if this is the start of a larger selloff into a full on bear market or if this will be contained to a correction.

Since the lows of the 2008-2009 financial crisis there have been several corrections and even a 22% drop in 2011. Those were in an ultra accommodative monetary environment and not in a tightening cycle.

This probably *should* be the start of a bear market but the bulls and the Fed might be able to bid the market back up as they have several times before.

I don’t recommend trying to short the market or (if you own stocks) sell. If you know how to time the market I want to get advice from you because I don’t know how to time the markets.

I do know that stocks are overvalued and due for a correction. If the Fed does step in to prop up the markets it will be more negative news for the dollar. The Fed also doesn’t have much room to cut rates and would either have to sit by and do nothing (unlikely) or restart quantitative easing and negative rates.

This should be positive for foreign value stocks and precious metals. From the lows in 2009 the S&P 500 is up 293%. Even if you bought the S&P 500 at the peak of the 2008-2009 bubble you’d be up 80%. The dollar hasn’t tanked so dollar denominated stocks have been a winner. However, if prices and fundamentals mean something, eventually stocks will correct or the dollar will implode. When that happens it will be critical to your financial survival to have alternative investments in place.

This is part 4 of 5 of what I’ve decided to term The Economic Conflagration series where I discuss the faulty wiring pervasive the global economy:

Part 1: A Deadly Electrical Fire you Need to Know About
Part 2: The Real Economy is Weak
Part 3: Crushing Debt in the United States Limits Economic Growth
Part 4: Stocks are Overpriced and Due for a Significant Crash
Part 5: What you can do about it

Part 5 will be release in the coming weeks. Subscribe below to ensure you don’t miss it.