Coins of the Realm(s?)

Headline: What is an ICO?

Date: 2/11/2022

Body:  I have been reading a bit about cryptocurrency, and I keep seeing references to ICO.   At first, I thought that it  was an homage to the song from the 80s, then I learned that it stood for “Initial Coin Offering.”  (ICO).  These events appear to be happening much more frequently than countries being added to the globe, so I have to admit; I was a bit stumped.   Maybe you were too.

What is an initial Coin offering?

An ICO is hard to define.   An IPO is an Initial Public Offering where stock in Company ABC is offered to the public for the first time.   In a similar manner, the ICO is a way for an enterprise to raise money, and they do this by selling their particular brand of cryptocurrency.  The general advice for most investors is to shy away from the IPO for 2 reasons:

1.  If the enterprise had such a good start, private ownership could take it pretty far by itself without the IPO.
2. There is often a large-ish drop in stock price just after an IPO.   The ICO seems to work in a similar manner.

At the end of the day, I must admit that some people have made millions of dollars on the ICO.  But, this small herd of unicorns is vastly outnumbered by the mass of humanity who were taken in by slick marketing, and these very optimistic valuations, which are generally unregulated.

How does an ICO work?

Most often, the advisory committee of the entity offering the ICO will issue a white paper (like a special report) which lays out  how the ICO is going to be undertaken.

Question answered	Comment
What is the purpose of the project?	Each ICO should have a real reason behind it, otherwise fraud is a real concern.
Upon completion, what need will the project fulfill?	Related to the question above, will the completed project satisfy a real need in the community.
How much money the project needs?	If the ICO does not raise enough revenue, funds may be returned to the investors.
How many of the virtual tokens will the founders retain?	This is important as a measure of how much confidence the founders have in the project, and how much control they will have over the valuation of the coin.
What types of payment will be accepted?	Perhaps only USD will be allowed, perhaps Bitcoin or another cryptocurrency will be the only allowed medium of exchange.
How long will the ICO run?	The ICO must have a definite end date to determine if funds need to be refunded, if unsuccessful.
How will valuation be structured?	Three options here:  Static supply and static price. Static supply and dynamic price.  Dynamic supply and static price.

Who can start an ICO?

Anybody can start an ICO.    So, it is really important to do a couple of things.

1.  Do your homeworkà Is the entity offering this new currency have the professional competence to complete the project?   Read the whitepaper and look up the people mentioned as central to the entity.  Do they have significant managerial experience?   Do they have the technical know-how  to get the project done?   If not, please think twice about investing.
2. Don’t be overwhelmed by celebrity endorsementsà This has already happened when several known actors and celebrities aligned themselves with currencies later determined to be a scam.   Be careful.
3. Look for transparency.   If the terms are opaque, this could indicate a significant chance of fraud.
4. Really look at the legal documents.  Even if you’re not an attorney.  If any of the terms give you pause, then you might not be cut out for this particular ICO.
5. Look to see that the computer code has been audited by a 3^rd party.
6. Look carefully for typos, when examining the website.   These could mean carelessness, which could lead to large losses later.

Is there ANY regulation at all?

Yes.  The SEC can step in if an ICO is patently fraudulent.  But, this is exceedingly rare, and the case has to be airtight.   When there is no insider source or something similar, this airtight case cannot often be constructed.

Are there different types of ICO?

Yes, there are several different flavors of ICO.  Generally, there are Public and Private ICOs.  In a Private ICO, the company can limit the investors to “accredited investors”, who have a certain level of net worth, suggesting some kind of acumen with respect to investments.   In a Public ICO, anybody can make an investment, at any value.

More specifically, if you are investigating this area of investment, you might happen upon the following terms:

Term	What the heck does it mean?
Security Token Offering (STO)	The coin acts like a share of stock.   These are heavily regulated by the SEC.
Interactive initial coin offering (IICO)	Each investor is limited as to the volume of tokens they can buy.
Initial supply Auction	Think of this as a reverse auction.   The coin is offered first at a price that is WAY too high.   Then, incrementally, the price is decreased until the coin begins selling.
Simple Agreement for Future Tokens (SAFT)	Think of these as rights to purchase tokens at a later date.
Airdrop	To open a new market, the company will sometimes give away some coins free.    Think of this as part of the marketing.

Are there advantages or disadvantages to  investing in an ICO?

Yes, there are advantages.  Chief among them is that you have significant opportunity to make a profit, assuming that that cryptocurrency appreciates.  Also, IPOs are known to be very difficult to find or take advantage of, for the common investor.   In comparison, anybody with an Ethereum wallet can participate in an ICO.   For the company, this is an efficient way to raise a lot of money quickly.

And, yes, there are disadvantages as well.  First, cryptocurrencies often disappear completely when projects go wrong.  So, “high volatility” seems to be an under-statement of some degree.    Related, since there is so little regulation, scams in this area are legion. 

The Verdict

ICOs appear to be a huge gamble.  On one hand, you might hit a base-clearing grand slam.  On the other hand, you might carry the ball directly into the right-outfielder’s glove.  This could lose you the game.  I think the watchword is caution.  Maybe, if you have a few percent of your investable n an ICO, this might be OK.  (Dang, I really don’t like ending these sounding like my dad.)  Be sure to understand your investment choices prior to making a decision.

REFERENCES

https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp

https://www.coindesk.com/learn/what-is-an-ico/

https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/initial-coin-offering/

https://www.thebalance.com/what-is-initial-coin-offering-5182476

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

TikTok Means Business (to some.)

Headline: The Clock is TikToking

Date: 1/1/2022

Body:  OK.   Confession time.   I don’t have a TV.    I also don’t have any Netflix or Hulu accounts.   I do watch probably too much TikTok.   Despite my fears of a shortening attention span… What was I saying?   JK.   I began to wonder about the business model of TikTok.   How do they make money?   How do the content creators make money?  Why does this particular top keep on spinning?   I got some interesting answers.

Who owns TikTok, and is it profitable?

TikTok is owned by ByteDance, a Chinese company, and it is substantially profitable.  In fact, according to an internal memo, in 2021, their revenue rocketed 111%.   Now, Chinese accounting practices are pretty opaque, so these numbers must be taken with a few grains of salt.  But, even if they are 200% wrong (unlikely) the company still emerged more than 50% increased in value at the end of 2021.  They also have just under 2 Billion active users.  By any definition, this is impressive!

Has there been any political pushback against this Chinese company?

In the past administration, TikTok and WeChat were banned within the U.S.   Now, the Department of Commerce will use an “evidence-based approach” to  assess the risk of any piece of software.  At the same time, the Chinese government is beginning to tighten control on TikTok and other similar platforms to prevent “disorderly expansion of capital.”   Cynicism aside, that sounds like further expansion will come at a very high price.

Given these political pressures, does TikTok have the business gravitas to weather such storms?

The answer to this question is yes, definitely yes.     First, TikTok was started by people who have the experience to deftly guide the young enterprise through potentially choppy waters.   Mr. Zhang, president of ByteDance is a former Microsoft engineer and long-time business leader within China.   So, he has the technical chops to see the small picture, and the political/financial chops to navigate the larger picture.  Moreover, he has carefully cultivated some friends and partners from around the world.   Examples include Sequoia Capital, Softbank, KKR and others.  With this vast array of expertise, I think Bytedance and TikTok have the potential of fantastic growth.  At the same time, they also seem to have the financing of their venture locked down.   Advertising is the largest proportion of the revenue stream(about $1.3 Billion), but, the company is also quite innovative, testing whether tipping and subscriptions could be sold to their audience.

Beyond these financial innovations, the company is quite good with the technical innovations as well.  An employee of Andreessen Horowitz in San Francisco, Connie Chan, published a blog post endorsing their effective use of AI to serve up only the content most likely to be useful or enjoyable to them.  I can back her up on this in my own experience.    I began by telling TikTok that I liked seeing videos featuring dogs.   The AI took note of that and served up dog videos.  But then it served up some videos about dog grooming, and I hit the heart button, and sent in questions and comments, and the AI system has since sent me many more dog grooming videos.  It very effectively learned my preferences and does small experiments to see if I react well to related video types.  The AI system they have is VERY good at determining which videos to put on your FYP.

Can I REALLY make money on TikTok?

Yes, and no.   Let me explain.  Yes, there are a few TikTok start who make millions of dollars every year.   Based upon my experience looking at TikTok, a few attributes become clear:

1.  You must post regularly, and to this audience, that means multiple posts per day.   This is a HUGE commitment.  (Some  creators actually apologize when they take a vacation.)
2. You must have a hook.   One lady has 8 huskies in a house.  A few creators have assistance dogs that people become enamored of.  One guy is very colorful (and really smart) and runs a business in the Carolinas, pumping septic systems.  Colorful, wonderful guy, but he works like a demon possessed.  All of these creators have a hook.
3. You must invest the time to respond to individual comments.   A LOT of time.    Your earning money relies upon your ability to engender a real relationship with people you probably will never meet in real life.  But, the interest, passion and care must be on display.  (And fair warning, TikTok users are phenomenal at sniffing out fakers.)
4. You must at least consider offering some kind of merchandise related to your posts.

I am sure that there are more unofficial rules, but these serve the purpose to show that quitting your full-time job is probably not something you’d want to do right away.  Contrary to opinions of some, to make real money here, REAL work is required.  But, if you are interested in making only a small amount of side-income, TikTok might be your thing.  Just be sure that, if filming people, you have their consent to be placed on TikTok.

To be sure, if you desire to make a lot of income on TikTok, you can, but you have a lot of work to do consistently, and the learning curve can be steep.

OK, so now I have a loyal following and been granted permission to do several “live” sessions on TikTok, when do the big checks start rolling in?

Once you have achieved large scale popularity on TikTok, you can start to earn real money. Below are 4 ways to earn that income:

1. You could become an influence marketer.  Assume that you do some wonderful training videos with your Yellow Lab puppy.  (A GREAT hook, for sure), you might want to show how delicious these new artisanal, organic, cruelty-free dog treats are.  So, you clearly display yourself holding the bag of treats, and Woofus is jumping, trying to get to those delicious treats.    Then, you take one and give it to Woofus, and the puppy eats it without bothering to chew it.  Gobble, gone.
2. You could develop and sell your own branded merchandise.  One guy wants to start a dog shelter in Upstate NY.    He has a whole line of shirts, pajamas and leggings with his logo on it.   Each sale goes toward the purchase price of the building for the shelter.
3. You could take all of your TikTok experiences and parlay that into a job as a TikTok consultant.    Remember that TikTok is a relatively new social media, and there are many people who would be willing to pay a knowledgeable consultant.
4. There is yet another option.   This is not “getting paid” exactly, but, there is a functionality where you can put together an Amazon wishlist, and if the individual viewers like your content enough, they could purchase items for you.

Never before has the phrase “Buyer Beware” been more important.  Be aware of what other people are selling and compare that to the resources you have.  Be true to yourself, and then, be true to your brand.  More than any other advice, I think that your content must be able to help somebody do something, if you plan to win friends and influence people.

So, can companies really achieve real world success from things that start on TikTok?

In a word, yes.   In a few words, it takes a lot of effort, but it is possible.    In one instance, one gentleman created a country-type song that  featured products available at Applebee’s.    This started on TikTok and can now be found on network TV,  inculcated into ads for Applebee’s with appealing images of good food and happy families.  In another example, Buffalo Wild Wings has successfully tested commercials on TikTok, and then translated them to TV ads.    Said one industry insider, “It’s an old technology on a new medium, and it’ll be interesting for the traditional agencies of the world to embrace,”

In addition to testing commercial content, TikTok is also developing productive partnerships with companies like Square, Shopify and others.   These partnerships will allow you to buy directly from the retailers thru a link from a TikTok video.

The Verdict

If you are thinking that you can post a video or 2 and instantly be given hundreds of thousands of dollars, I suspect you might be mistaken.    But, if you are dedicated, some real money can be made.   If like most, you just want  to entertain or make a little money, this is actually quite approachable.  But, even within Social Media, there is no free lunch.  So, if you are making funny videos to entertain friends (including ones you didn’t know you had), GREAT!!  TikTok is your very large oyster.  But, if you envision easy millions coming from very little apparent effort, you are probably still dreaming.

REFERENCES

https://www.forbes.com/sites/lizfrazierpeck/2020/08/10/5-ways-people-can-make-serious-money-on-tiktok/?sh=740ef6a35afc

https://www.reuters.com/article/china-bytedance-revenue/exclusive-tiktok-owner-bytedance-to-rake-in-27-billion-ad-revenue-by-year-end-sources-idUSKBN27R191

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Wallets without Walls

Headline: Wallets without Walls

Date: 1/31/2022

Body:  Quite recently, I have found a term called the “cryptocurrency” wallet.   Sometimes called a “Bitcoin wallet” or something similar.   Different from a normal wallet, often made from plastic or animal hide, this wallet is either entirely held on the Web or is held on something that resembles a USB stick.   Different still, your transactions do not “live” on the USB stick, rather, your transactions “live” within the blockchain architecture; This is another way they differ from conventional wallets.  The wallet comes with both private and public keys codes) that allows you to move your cryptocurrency around.   The key is sometimes stored on paper, but this is rare, as it is not very secure.    An app or web-based wallet utilizing 2-step encryption appears to be the ideal, in the spirit of cryptocurrency.   The USB stick solution appears to be a compromise: Keep it locked away 90% of the time and take it out ONLY when you have a transaction to do.

Why are there BOTH Public and Private keys?

I was always curious about this and I found a nice explanation.   The public key is there so that other people can send you cryptocurrency, whereas, the private key is there so that YOU can send cryptocurrency to others.  As an example, now, if you know a person’s name, it’s a straightforward task to find their address, usually.  (Remember phone books??)  But, that address does not let you know that they hide a spare key in a fake rock that lives in the knot of a nearby tree.   The address is the public key, the information about the fake rock is the private key.

What’s the difference between a wallet and an app?

The wallet allows you to make all normal transactions with your cryptocurrency.   But, if you have the app, it allows you to securely save your private key also.

Are there different kinds of crypto wallets?

Yes, there are different types of wallets.   In the main, though, the biggest distinction is between Hot storage wallets and cold storage wallets.  Hot storage wallets are always attached to the internet, like a phone app.  This is handy, but has some tradeoffs in security.  The cold wallet, in contrast, are the USB-looking devices and you are required to physically keep them secure.    You might also see references to custodial v. non-custodial wallets.   In a non-custodial wallet, you are the one who has sole responsibility for your private key, so, you have to setup safety mechanisms to ensure that you don’t lose your private key.   In a custodial wallet, Coinbase or other website holds your private keys.  In addition, there are desktop wallets that sit on your desktop, and once again, security is your province here.   Examples include Atomic Wallet, Bitcoin Core, BitPay and Exodus.

This is an Exodus wallet.   Others tend to be similar.

 Mobile wallets are apps that reside on your smartphone and allow you to make payments in normal retail stores.  Examples include Bitcoin Wallet, GreenAddress and Mycelium.

This is a Mycelium wallet.   The other mobile wallets tend to be similar.

Examples of cold wallets are Trezor and Ledger.

This is a Ledger wallet.  The other cold wallets look quite similar.

Which bitcoin wallet is best for you?

The answer to this question depends upon how you use cryptocurrency.   Most experts seem to suggest that you keep a little in a hot wallet or 2 to pay for some things, and the majority of your cryptocurrency assets locked up in a cold wallet.  This is because the cold wallets (i.e. hardware) tend to be more secure.  I would recommend a hardware wallet, and to my research, they can be obtained for less than $200.   This is a very sound investment.  The wallet itself is usually free but transactions involving your cryptocurrency may cost a bit.

When you purchase and setup a Bitcoin wallet, the software will usually develop a “seed phrase.”    This phrase is a key component of your private key and can be utilized to get to your Bitcoin in case of technical foul-ups.  Guard this seed phrase CAREFULLY!!

Bitcoin Wallet Security Tips

It seems responsible to tell you that all is not well in crypto-town.   There are bad actors, and phishing scams are rampant.  There are even some scammers who have setup sites that look and feel like genuine wallets and are not.  So, before we wind down, a few tips seem to be in line (or online, as the case may be.)

1.  Some wallets have special functions and features that are perfect for certain users.   For instance, Coinbase, a cryptocurrency exchange platform, offers a Bitcoin wallet that has a user-friendly interface that makes it easy for new investors. Trezor sells hardware Bitcoin wallets that are known for their high level of security. Ledger also makes hardware Bitcoin wallets that have stainless steel covers, making them extremely durable for users expecting a bumpy ride. Exodus is a Bitcoin wallet that is optimized for desktop usage. For more advanced cryptocurrency users, Mycelium offers a mobile Bitcoin wallet that provides free cold storage.
2. Consider a custodial wallet, such as Coinbase.   Think of them as a Bank.  When you deposit funds, these don’t go into your account, rather it goes to the general Bank assets, and the Bank now has an equal value obligation to you for the funds.  But, you can bet your bottom dollar that the Bank has a better vault than your locked drawer at home.   Same thing with the Coinbase wallet.
3. Remember the old saw, If it seems too good to be true, it probably is.   Buyer be Aware.
4. If your exchange uses 2-factor authentication, that is good.   But, if one of the factors is Text, be aware that some crooks can spoof your SMS signal that is the architecture of the Text feature.  Consider adding some logical barrier (like a passphrase) to use the SMS architecture.  (I also saw mentions of a hardware component called a Yubikey.  It is a USB device that plugs into your device.
5. Use a cold wallet for the majority of your cryptocurrency holdings.   When analyzing the hacks that have been successful, the vast majority have been from hot wallets.
6. Avoid using Public Wi-Fi, and consider adding a VPN at home for added protection.
7. Have a strong firewall on your personal device at home, and keep your anti-virus software up to date.
8. Change your passwords Regularly.  When you do, be sure to use strong passwords.   (e.g. capital and lower-case letters, numbers and special characters.)

The Verdict

Setting up a wallet and getting into the cryptocurrency markets can be scary.   There is a whole new vocabulary to learn, and a whole new “commonsense” to obtain.  But, with planning and a modicum of research, it can be done safely.    Now all that you have to worry about is that the organization offering that currency doesn’t disappear.  Once again, Buyer, Beware.

REFERENCES

https://www.nerdwallet.com/article/investing/best-bitcoin-cryptocurrency-wallet

https://www.coinbase.com/learn/crypto-basics/what-is-a-crypto-wallet

https://www.investopedia.com/terms/b/bitcoin-wallet.asp

https://money.usnews.com/investing/term/bitcoin-wallet

https://www.cnbc.com/2021/06/11/tips-to-help-keep-your-crypto-wallet-secure.html

https://cisomag.eccouncil.org/cryptocurrency-wallet-security/

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

May the Forks be With You!!

Headline: What the Fork?

Date: 1/25/2022

Body:  I was looking at the information resources for one of the previous blogs, and I found a term that I didn’t fully understand.   The term was “fork”.   Now, I know what a fork is; I use one most days.  But, I didn’t think that this definition belonged in a discussion of cryptocurrency.

What is a Fork?

Technically, a fork is where there is a new set of rules being followed, and the accounting books (now there are 2 of them) will be identical up to the fork, and diverge to follow the now different rules.   Confused?   (I was.)  All metaphors are failing here, but think of a set of identical twins.  In utero, they are exactly the same.   The DNA is the same and their experiences are the same.   Then, they are born, and that is the fork.  Their shared history remains identical, but now, how the world reacts to each twin will be different, and they start to experience that world differently   So, after the “fork” their accounting books are different due to the change in rules.  (Sorry, this is the best example I could think up.)

Why is there a fork?

There is a fork for any number of reasons.  Most commonly, the development team wants to add a new feature, and a fork is necessary to allow them to do it.    There is a current example that happened for a different reason.    In the Ethereum ecosystem, there is a group of investors called the Decentralized Autonomous Organization, and this group is HUGE!!!  There was an equally HUGE hack against them and they lost more than $10 Million.  There was a hard fork put in as soon as possible, and the DAO got back the majority of its Ethereum that had been pillaged.

Are there different kinds of forks?

Yes.   Pitchforks are HUGE, the dinner fork is slightly larger than the salad fork, and the oyster fork…(assistant whispers in my ear.)  Oh, sorry.   The answer is still yes, and in this case, there are soft forks and hard forks.  (Get your mind out of the gutter.)    A soft fork often happens when there is a change in programming, but it is subtle enough to link back up the old programming to form a single blockchain.  A hard fork occurs when this programming change is so substantial that the foregoing transactions are no longer compatible with the new code.  Think of the METRO subway in DC.   A soft fork would be if they had new subway cars that were the same size and shape as the older ones, and only the insides are a little different.    In this example, a hard fork would take place if the programming that schedules those trains (to keep traffic flowing, while maintaining safe distances) then that would require reprogramming of  the entire system.

Most interesting, within cryptocurrency, the existing holders will be given tokens in the new denomination, while miners can continue to verify the chain of their choice.

The Bitcoin Cash Hard Fork

Bitcoin Cash is a hard fork of Bitcoin that occurred on August 1, 2017. It was designed to overcome the problems that Bitcoin was experiencing with delayed transactions and lag.   In essence, the hard fork allowed transactions to be broken up into larger blocks of data that are encouraging more people to transact within the currency.  In the old system, the blocks were organized into graphical units called ASICS and this advantaged some players and disadvantaged others.    The objective, therefore, was to enhance the decentralization that Bitcoin ecosystem was built to embrace.

What is the “London hard fork” that I keep hearing so much about?

No, it has NOTHING to do with a scandal within the Royal Family.  This is within the Ethereum ecosystem.   Basically, until recently they have been relying on a rough draft of a code.    Until now, when the volume has been low, the rough draft worked fine.  But, now, with many people joining up with different metaverses, all of which seem to run on the Ethereum code, the blockchain is suffering bumper-to-bumper traffic, as it is not efficient enough to service the traffic.  In particular, there are 5 new Ethereum Improvement Proposals.   Currently these proposals are invoked as “temporary” but will become permanent when Ethereum 2.0 updates.  Each EIP changes some part of the Ethereum process, with the goal of making the process more efficient.  (For instance, there is a Proposal to change how miners are paid.)  Said Matthijs de Vries, Co-Founder and CTO of Alliance Block.

The new transaction fee model is a big deal for Ethereum: it can further increase adoption as new users will have less trouble figuring out how to execute a transaction that won’t fail,” he said.  It is yet to be seen if the burning mechanism will make ETH deflationary, but it is certainly a step in the right direction and will not hurt the price development of ETH on its own.

It would appear that this is an attempt to make the processes more fair.   After this change takes effect, that block of money awarded to the miner is taken out of the inventory of Ethereum.   Counterbalancing this, now the individual parties to a transaction have the opportunity to “tip” the miner for their work.   The obvious problem with this is that the miner can prioritize the transactions they verify on the basis of who gives the biggest tip.  This is a problem known as “front-running” and seems similar to the front-running problems in the stock market.   (Front running in the context  of the stock market is when a party somehow gets whiff of a large transaction upcoming and gets to the market first, placing an order that will be benefitted by the upcoming large transaction.)

The Verdict

I guess forks are something that grow out of the idea of conventional stock markets.   If there is a spin-off from Company A to now Companies A and B, they have a shared history and will have a differing future.   But, these forks within the crypto markets seem to be very different, and government regulation can’t seem to keep up with the changes.  This makes me relatively leery of making any type of substantial investments in crypto.   But, be of good cheer; there are ways to invest in crypto without directly investing in crypto.   Confused?   Tune in next week and I will take a stab at elucidating exactly what I mean.

REFERENCES

https://www.coinbase.com/learn/crypto-basics/what-is-a-fork

https://www.investopedia.com/terms/h/hard-fork.asp#:~:text=A%20fork%20in%20a%20blockchain,technology%20platform%E2%80%94not%20only%20Bitcoin.&text=So%20when%20you%20want%20to,to%20reflect%20the%20new%20rules.

https://www.thebalance.com/what-is-a-bitcoin-fork-4684459

https://www.gemini.com/cryptopedia/bitcoin-fork-protocol-upgrades-blockchain-changes

https://www.yahoo.com/now/ethereum-london-hard-fork-ready-080059848.html

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

I Never Metaverse I didn’t like…

Headline: As the Worlds Turn…

Date: 1/28/2022

Body:  The word “metaverse” is thrown about with abandon in the media these days.   To some people, it means an immersive gaming universe where they can gather with a group of friends and undertake a quest of some type.   To others, metaverse is essentially the end result of a connected world, where your “to do’ list might cause a store to be labeled with a virtual banner, “Drew, get your milk HERE!!  30% off.” Something like that.  Common to both, whether augmented reality or a completely constructed fictional world, the metaverse seems to suggest the immersive coagulation of a world with virtual components.  In most models, the Metaverse is described as an immersive virtual space that seamlessly combines elements that are planned, and spontaneous elements.  In the words of Leslie Shannon, Head of Trend Scouting at Nokia:

The spatial internet is the culmination of everything that AR and VR is developing today. It’s the idea of taking information about things, locations, or historical events and actually locating that information out there in the world where it’s most relevant.

Right now, Fortnite and Minecraft are games, but soon will likely develop to inhabit their own metaverse, allowing the denizens to interact in their own ways.  This trend was substantially accelerated by the pandemic, forcing people to interact only in ways that were safe and socially distanced.   But, don’t think for a moment that these are all fun and games.   In the future, these immersive environments will allow us to virtually try on clothes, test drive cars and go house-hunting.  Inside these game environments, business possibilities also beckon.   Perhaps you will be able to put up ads for a real-world  business within the virtual realms.   Within games like Fortnite and Minecraft, one might come up with an invention that one could sell to other gamers.    The possibilities are endless.

Is this a big deal right now?

Yes.   Good night.   Oh, you want more?   OK.   A few items really caught my eye:

 Epic Games (the company that birthed Fortnite) has garnered hundreds of millions of dollars (USD) as they exchange this real money for virtual currency (V-bucks).

Roblox (another immersive game platform) was just valued by the Wall Street Journal at $4 Billion.

As of April 2020, there are 4.5 Billion people with internet access.  The vast majority of these people access the Internet via a smartphone; So, the smartphone becomes the entry point into any multiverse created.

In December 2019, an Epic Games official, Mr. Sweeney said, “Fortnite is a game,” “But ask that question again in 12 months.”  Because there are so many subscribers and because the environment is so immersive, this game is seen as an entry port into the concept of the Metaverse.  And consider this: Until now, the concept was to merely create a great game.   Now, the concept has morphed into creating a new way for people to interact with their world.

Why is “gaming” the crux of the development of a very serious social paradigm shift?

In the terms of the judicial system, gamers have the means, motive and opportunity to further this revolution.  Others would seem to agree.  “We’re seeing this advancement of technology and Internet interaction and the Metaverse coming from gaming because it tends to be at the forefront of something designed for many, and who have the highest [technological] needs,” Ball told The Washington Post in an interview.  But this misses a valuable portion of the answer: I also think it is a societal source of risk management.   If this revolutionary technology applies to “gaming” then regular folk can just ascribe it to a small corps of hardcore hackers.   This allows the industry to develop naturally.     Said one official of Epic Games:

“This organic evolution can’t be overemphasized,” Ball writes in his essay. “If you ‘declared’ your intent to start a Metaverse, these parties would never embrace interoperability or entrust their IP. But Fortnite has become so popular and so unique that most counterparties have no choice but to participate. … Fortnite is too valuable a platform.”

Further, I suspect that the gaming context will be important because it allows people to feel the freedom to work hard, together.  CEO of Manticore Games Frederic Descamps made a similar point about broad-based creativity when he opined that people talk about the outflow of the multiverse, but don’t speak of its origin story.   If it is within the realm of gaming, it will likely be seen as non-threatening enough to allow it to come to fruition.

But wait, there’s more!!

Augmented reality is exciting in its own right and virtual reality, even in its current form, is pretty exciting too.   But mixed reality is where things get REALLY tantalizing.  Mixed reality is when the physical person interacts physically with the data.  (Think of the Penseive in Harry Potter.)   When this record is recorded and shared with others, it is called life-blogging. But one might ask, “why is this all-fired important?” 

I am thinking of an example that happened to me.   I used to work in Philadelphia, and I would walk from 30th Street Station to my condo in South Philly, when the weather was agreeable.  I had a problem with one of the outlets in my unit that had a short-circuit, but I was new to the city and didn’t know who to call.   On my walk home, I passed a van belonging to a General Contractor, who could certainly solve my problem.    But, I didn’t write down their number or name.  If I was lifeblogging, I could simply use this available mixed reality, “pull” the right piece, virtually “see” the van pass me again and call the number painted on the side of that van.  This is but one humble example of what might happen if life-blogging and other related paradigms become widespread. 

The World Gone Slightly Mad, Perhaps.

I can understand this sentiment, and empathize with the person who might give voice to this concern.   But, in the future, it seems inevitable, as said by the Borg in Star Trek, “Resistance is futile.  You will be assimilated.”  But, think of the advantages too.  Fire crews can virtually “walk” through a building before they get there, so that they can be more effective when they arrive.   Diplomats can practice with realistic situations when the stakes are less dire than peace or war.    At one of the many conferences and summits convened to discuss related topics there was a report issued.    In the introduction, there was a quote that quite struck me:

To the generation brought up in an augmented-reality world,” the report says, “the metaverse–this ubiquitous cloud of information–is like electricity to children of the 20th century: essentially universal, expected and conspicuous only in its absence.

I think this was very well put.   So, if you don’t mind, I’m going to go to bed where I can put on my goggles, watch simulated golf, and fall asleep (for real) virtually immediately.

The Verdict

This is a part of the world that we are perhaps unfamiliar with.  But, it appears that we would be well-advised to expect this in the future.  As it stands right now, the metaverses that exist are not exactly immersive, especially when considering mobile communications.  But, bet your bottom dollar that in the not-so-distant future, they will be.  Maybe there will be globally-interactive concerts we would like to attend.   Perhaps your employer might have a training session that involves employees from many different areas of the globe, and this requires your participation in a metaverse.  Maybe you just like to hang out there with your friends.   Whatever you like seems possible in the future.  It seems clear though, from our experience with Linden dollars, mana and Ethereum amongst others, each world is likely to have its own currency and we will likely do much better if we understand how that currency works.

REFERENCES

The Metaverse Is Coming And It’s A Very Big Deal (forbes.com)

Fortnite and the Metaverse: Why Epic Games may build the next version of the Internet – The Washington Post

The Technology of the Metaverse, It’s Not Just VR | by Doug Antin | The Startup | Medium

Meet the metaverse, your new digital home – CNET

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Intro to Crypto

Headline: Intro to Crypto

Date: 1/22/2022

Body:  First, I want to say a big THANK YOU to all of my readers!!  My blog has been operating for a year now, and I have the urge to press on, in a slightly more detailed story arc.    I conducted an exhaustively unscientific poll of my Facebook friends (and others) and realized how much interest there is in cryptocurrency.  I also discovered that there is a HUGE amount of misinformation out there too.  So, over the next few weeks, I will be looking at the history of cryptocurrency, how to possibly make money from it, and where it might be headed.

Caveat: I do not believe that ANYBODY should put a lot of their investable funds into cryptocurrency.   Even writing these entries is making me very squeamish.  True, it CAN make you a lot of money if you are exquisitely lucky, but it could also LOSE you a lot of money quickly!!!  Caution is the watchword here.

Why am I so squeamish about this?

There are many risks when investing.  When you invest in a company, there is always a risk of loss of value of your principle.  Said another way, the value of the stock WILL change over time, sometimes to your benefit, other times, not to your benefit.   But, for a certain company, this variation is usually within a pretty defined range, and happens pretty slowly, usually.  When you invest in cryptocurrency of any type, the valuation is likely to fluctuate MARKEDLY.   One day, your investment may be down, and the next day, your investment may be significantly better in valuation.  Truly, “What a difference a day makes,” has never been more applicable.   This volatility makes me squeamish. 

 When you make an investment in stock of a company, there is always the risk they could go bankrupt, and you could lose all of your money.  But, when you invest in stock, even if the company declares bankruptcy, there will usually be some hard assets that the company can sell off to attempt to make their investors closer to whole.  When you invest in a cryptocurrency of any type, they could declare it closed at any point and you lose ALL of your money.   This risk makes me squeamish.

Finally, even if you place your money under a mattress, you do face a risk that inflation will eat away at the value of that money.  But, those $100 bills are backed by “The Full Faith and Credit of the United States,” and regardless of your level of cynicism, this has been proven to mean something significant, over centuries.  If investing in cryptocurrency, they have no real history, upon which to base their trust, so investors are trusting in the trust of millions of people around the world.   Not to say that the U.S. has platinum bona fides on everything we do, but compared to many of the countries around the globe, our “Faith & Credit” mean something significant.

By the way, lest we forget, if you forget your password to your cryptocurrency wallet, you’re out of luck.  Even if you have the equivalent of millions of USD in the wallet.   If you forget your password (and this is VERY easy to do when changing computers, moving and dealing with real life)  you are irrevocably out of luck. 

But, seeing that so many people want to get into this space, I will approach it.  I think the most instructive way to learn about many cryptocurrencies, is to focus on one of them.            Because of this, I will begin with an abbreviated history of Bitcoin.                                                  

The Grand-Daddy of them all.

The introduction of Bitcoin can (and does) fill multiple textbooks.   But the basics are a good place to start

For thousands of years, coinage has been made and usually linked back to an emperor or some kind of government authority, to represent a store of value.   Bitcoin was started to phase out the need for this central authority to stand behind the coinage.    It is known as a cryptocurrency because the use of bitcoin cannot be traced to a particular person, only a digital wallet  Now, to be a store of value, there had to be some way to verify that the transactions were actually done.   So, its backbone is called the blockchain, basically a distributed ledger which is open to all.     They did need people to verify the transactions, and for this service, they were awarded a certain amount of bitcoin in compensation.     Recently (especially as the value ratcheted up) more people are starting to accept trades of USD and other currency, in exchange for bitcoin.  Despite some of these businesses being legitimate, hucksters, bamboozlers and frauds abound, so care must be taken. (Yes, a lot of the history has been eliminated here because it doesn’t seem too relevant.)    Somewhat akin to currency from a government, the amount of currency has been capped.

A quick chronology of headlines might help get some context.

Year	Headlines RE: Bitcoin
2011	The Electronic Frontier Foundation began accepting bitcoin as payment, and then suspended the program until 2013 citing legal concerns.
2012	Bitcoin Foundation was started with a mission to accelerate the global growth of bitcoin.
2013	Coinbase reported selling over $1 Million USD in bicoint within one month.  The entire network was temporarily shut down when two groups used different versions of the software.  FinCEN developed some regulatory guidelines.
2014	Newegg and Dell began to accept bitcoin payments.  Mr. Buffett called bitcoin, “a mirage.”
2015	The number of merchants accepting bitcoin exceeds 100,000.
2016	The Cabinet in Japan formally recognized Bitcoin as having some properties like money.
2017	There is now a law in Japan to formally allow Bitcoin payments in normal commerce.
2018	George Soros refers to bitcoin as “a bubble.”
2020	PayPal announces that it will allow people to buy and sell Bitcoin, but not deposit or withdraw it.
2021	El Salvador now uses both USD and Bitcoin as legal tender.

As can be seen in this brief chronology, Bitcoin has had some very sharp ups and downs in its acceptance.    As volatile as that was, the valuation was even more volatile.

Year	Value as of December 31st of that year.
2011	$4.25
2012	$13.45
2013	$754.01
2014	$320.19
2015	$430.57
2016	$963.74
2017	$14,156.44
2018	$3,742.70
2019	$7,193.60
2020	$29,001.72
2021	$45,819.95

As eye-popping as these valuations are, the variability is even more impressive (read, SCARY.)   In point of fact, sometimes during the overnight period, Bitcoin prices can easily change by $1,000 or more.   If it’s to your advantage, then, Kudos!!  If not, then your potential gain could turn into a very real loss.

How does one obtain Bitcoin?

Well, this is easy, or VERY hard.   Let me explain.   You could go to a reputable buyer/seller of Bitcoin and purchase it directly from them.  Or, you could “mine” for Bitcoin.

What is Bitcoin Mining?

Before we start, I should say that Bitcoin mining is a VERY expensive process.   It is quite likely that it will not be profitable for most people.

OK, Bitcoin mining is a procedure in which new bitcoins are brought into circulation, and it is related to how new transactions are confirmed by the network.    The mining procedure seeks to solve very complex mathematical problems, and the first system to solve them gets the new block of Bitcoin.  In the beginning, a person’s Zenith computer in their dorm room could be left on with software running, and they might occasionally have a shot at some Bitcoin rewards.   But, it is important to note that Bitcoin miners these days have the equivalent of supercomputers working night and day (consuming A LOT of electricity) and frankly, the lone home computer or laptop has more chance of getting hit by lightning than being first to solve anything of consequence.   The bottom line here is that you stand a lot better chance of getting Bitcoin by purchasing it.

This picture is from an article online about police in Malaysia shutting down illegal Bitcoin miners.  (Link to story below.)  But, it does get across the concept that your laptop doesn’t stand a chance.

The Verdict

The verdict on Bitcoin is very much akin to your parents’ ideas on ice cream.   A little might be ok, but a lot and you’ll probably have a terrible headache.  The valuations are out of sight, and as the markets recover normality after COVID, it seems likely that valuations could increase.    The problem I have is this.   What if one large pension firm gets nervous, and pulls their Bitcoin investments.   Then a second.   And a third and fourth will certainly follow.   (all of this could take less than a day, mind you.).   At the end of this very bad day, what is the individual investor left with but dreams of potential glory, and a very upset partner?  Please join us next week when we look at metaverses.  

REFERENCES

https://www.investopedia.com/tech/how-does-bitcoin-mining-work/

https://www.businessinsider.com/malaysian-police-steamroll-1069-bitcoin-mining-rigs-video-2021-7

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

The Sovereign Wealth of Nations.

Headline: What is  a Sovereign Wealth  Fund?

Date: 6/12/2021

Body:  I was enjoying an excellent podcast in a series called “Explaining Economics” and despite the moribund-sounding title, I was enthralled.  (I already postulated that I am confirmed geek.)  But, in the process of explaining the economics of some Asian countries, the host said something about “sovereign wealth funds.”   I had never heard of this beast before, so, I thought this bears some investigation.

What is a Sovereign Wealth fund?

A Sovereign Wealth Fund is a state-held fund where they can store their surplus revenues.   The funding sources of such a fund can be various, but there is usually a targeted purpose of the fund.  Whatever the purpose, the effect is a benefit to that nation and its citizens.  Most often, these can be referred to as stabilization funds or Reserve investment funds.   These funds are often used to diversify the revenue streams of different countries.   For instance, if you live in a country with not too much in the way of development, but you have a great wealth in rare earth metals.  In this case you might take a portion of your revenue from sales of rare-earth metals and place it into the Stabilization fund.   If there is another large discovery of rare-earth metals, you could then depend upon the stabilization fund until the price of rare-earth metals improved.  Importantly, when private enterprises see that the government is willing to make large investments, they are incentivized.  Per one official of the Norwegian fund,

“We think we have a competitive advantage in that we’re a large fund that can write a large check. This [renewable energy] is an area where we see a lot of opportunities going forward. For the fund, we see the diversification it can give us,” Mie Holstad, chief real assets officer at NBIM, told FT.

 Why should you care?   Because these funds can be gargantuan and sometimes the accounting for these funds can be quite opaque.

That’s all well and good, but, can you give us a few examples?

Of course.

Fund Name	Fund Balance	Fund Purpose
Norway Government Pension Fund Global	$1,073,590,000,000	Funded by petroleum sales, it invests mainly in equity positions, with the objective of funding a state-retirement system.  Many of the equity positions are to support development of clean energy opportunities.
China Investment Corporation	$940,604,000,000	This Corporation was setup in 2007 by issuing bonds.  Their current balance comes mostly from currency exchange.  Interestingly, as of January 2021, 45% of this fund is invested in “alternative assets.”  (Think “other than stocks and bonds.)  Also note that this is far from the only Sovereign Wealth Fund owned by China.
Abu Dhabi Investment Authority	$579,621,120,000
Kuwait Investment Authority	$533,650,000,000
Hong Kong Monetary Authority Investment Portfolio	$528,054,000,000

As large as these numbers are (and they are objectively LARGE) the Social Security Trust Fund in the US is another example, weighing in at over $2.9 Trillion.  Some context is always helpful to keep perspective.

The Verdict

Sovereign Wealth Funds are important because they are so immensely large.  If I invest in the market, my $1,000 at a time will not make much of a change in that market.  But, if the Norwegians or somebody else (and there are many) invest their $Billions, that can genuinely move a market.  So, the take-home point here seems to be 2-fold:

1.  Don’t be overly scared of august-sounding names with the word “fund” after them.   You can understand them enough to see how they work within a market.    If you weren’t smart, you wouldn’t have read this far.
2. These are immensely large funds.   This is important in moving markets within the stock market, for sure.   But, perhaps more important, they can serve as potent tools to push forward social change and scientific advancement.   I would argue that these are both items to support.

 REFERENCES

https://www.investopedia.com/terms/s/sovereign_wealth_fund.asp

https://www.thebalance.com/sovereign-wealth-funds-3305969

https://smartasset.com/investing/sovereign-wealth-fund

https://www.forbes.com/sites/palashghosh/2021/04/07/norways-sovereign-wealth-fund-makes-first-investment-in-renewable-energy-infrastructure/?sh=3037d1753f6d

https://www.reuters.com/article/us-indonesia-swf/indonesia-says-new-sovereign-wealth-fund-attracts-10-billion-commitment-idUSKBN29V0UT

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

This bud’s for You?

Headline: Is it a Smoke Show?

Date: 1/1/2022

Body:  Ok.   Once again, I have to separate politics from economics, as much as possible.   One reader asked how she could invest in the cannabis growing economy.  So, please note that the growing, distribution and sometimes usage of cannabis is illegal under Federal regulations.  That said, she is asking a very good question.  And, I’m getting the munchies for information.

Introduction:  Currently, under Federal Regulation, cannabis growth, distribution and use are illegal.   But this is a reality that is likely changing.  Don’t believe me, a few points:

1.  A few states (Colorado amongst them) have legalized marijuana within their borders.
2. Many doctors have publicly told their patients that marijuana is illegal, and then tipped them off as to how to find it.
3. My friend is a leader at a local community college.    He brought in people from all over the state, who are already growers or dispensary owners, and asked these knowledgeable people what a new employee should know before going to work for them.    Together, they fashioned the first cannabis-industry curriculum in the country.
4. Already, it is thoroughly legal in Canada.

All to say, it is coming.   As it does, we must ask the obvious question: Can we make money on this?  And the answer is Yes.  Yes I think we can make some money on this, but one must be strategic.

Before you invest in ANYTHING, and especially the cannabis space, PLEASE do your own research, especially with respect to the following:

Risk	Description
Legal & Political Risks	Please recall that marijuana is still illegal with respect to the Federal Government.   In addition to the inventory being risky, the number of banks that will lend to these entities is very low.  As stated before, legalization will most likely happen, but the timeframe is up for question.
Supply and Demand Imbalances	This is yet to happen in the U.S.  But, in Canada, so many companies poured so much money into cannabis production, the price of marijuana has decreased substantially.   This is also likely to happen in the U.S. once legalization occurs.
OTC stock risks	Cannabis-based companies tend to trade on the OTC market and regulation is quite lacking.   This makes for a potentially highly illiquid market for those stocks, and selling them could be difficult.
Financial constraints	Many companies within the cannabis space are cash strapped, and will offer up new shares to get more money.  This could dilute the shares already outstanding.

Research is ESPECIALLY important when looking at the cannabis space

1.   Research the management team carefully—Ask yourself, “Are they likely to have both the horticultural knowledge and business savvy to pull this off?”
2.   Understand the company’s growth strategy and competitive position—How is this company proposing to grow (manufacture) more product(s) and can they effectively market and distribute this product?
3. Look carefully at the company’s financial statements—Are they likely to get funding from banks or other sources?   Does the bulk of their revenue come from the cannabis-space industry they are supposedly in?
4. Has the company offered several rounds of stock sales?—This could indicate significant dilution of shares, and indicate, in the future, that further dilution is probable.  To understand dilution, think of large pizza.  Cut into 8 pieces, the large pizza will likely satisfy 3-4 people.  But, if you cut the same pie into 16 pieces, when you try to feed more than 3-4, people, they will likely leave the table still hungry.

OK.   How to make money in this cannabis space.  As it strikes me, we have 2 areas of companies  to think of investing in.  They are as follows:

1.  Growers and dispensaries
2. Others.

Editor’s Note:   I have eschewed a couple of the stocks I have become aware of because they either appear on the unregulated OTC market (and may be illiquid) or they just didn’t seem like good candidates for investment.  Your judgement might differ.

Growers and Dispensaries

Firm Name	Ticker Symbol	Description
Canopy Growth Corporation	CGC	On the plus side, they seem to have good financing.   Most of their assets are financial.   On the potentially negative side, only 1/6 of their assets are Plant, Property & Equipment, and I would expect this to be a higher percentage.  Also, a third (or so) of their identified assets are noted as Goodwill, and this concerns me a little.  Their Gross Profit percentage is lower than I would like to see.
Tilray	TLRY	This appears to be a VERY new company.   Once again, the Goodwill and intangible assets represent a VERY large portion of the balance sheet, but perhaps this is par for the course in this space.   Despite their newness, they seem to have a decent handle upon their business model, and the gross profit is more in line with what I would expect to see.  They do seem to carry a lot of convertible debentures which could signal potential for future share dilution.
Aurora Cannabis	ACB	Once again, Goodwill and Intangible Assets are high.   But, in this case, they seem to have a better Gross Profit percentage, and their Inventory account (Which we would expect to be quite high in this industry) represents a better portion of their assets.  They also seem to have some sort of financial arrangement in development with Cronos Group.  (Cronos Group didn’t make my list because they filed some late financials, and this caused me some discomfort.)

Is there any other Kind???

With sincere apology to Jack Nicholson, I try to quote his beloved character from A Few Good Men.   There is a bevy of other companies that make accessories and accoutrement for the growing and enjoying of marijuana.  But I have read many different reports on the subject, and   Scott’s Miracle Grow is a company that always crops up in these discussions. 

Are there other ways to play in the cannabis space that might be a bit safer?

Yes, you could choose to invest in a cannabis-focused ETF, or perhaps invest in a more traditional company that has either taken a large stake in a cannabis company.

What are the ETFs that appear popular?

ETF Name	Ticker Symbol
AdvisorShares Pure U.S. Cannabis	MSOS
AdvisorShares Pure Cannabis	YOLO
Global X Cannabis	POTX
The Cannabis ETF	THCX
ETFMG Alternative Harvest	MJ
Amplify Seymour Cannabis	CNBS

I mention these ETFs in no particular order and have undertaken to do no research into them.   They were recommended within the pages of the following sources.  Please be sure to note that these ETFs could also lose value (just like any stock) and you should carefully research them before you do any investing in them.

Other ways to invest

Anheuser-Busch In-Bev has formed a joint venture (no pun intended) with Tilray to make a cannabis infused beverage.  Slogan suggestion: This bud’s for you?

Constellation Brands (parent of Molson beer) has taken an equity stake (roughly 10%) in Canopy Growth Corporation with a view toward creating a non-alcoholic cannabis-infused beverage.

The Verdict

No matter how you slice it, this is a sector of the economy which is very risky.   If you do choose to invest, please be sure to do this investment with money that you can stand to lose because frankly, it could go up in smoke.  Most of the companies I briefly researched had losses or declining gross profits.   This could be due to the over-saturation of the Canadian market or it could reflect a decrease in disposable income attributable to the pandemic.    Most of the companies had significant assets within the Intangibles and Goodwill sections, and this could lead to volatility in valuation, or come from the buying of significant competitors.  On the other hand, it could blaze white-hot on fire.  One thing that seemed consistent is the volatility.   They are, usually, very young companies, dealing in a very complicated financial and political space, and their stock prices move around a lot.   So, bottom line is: Buyer Beware: There is sometimes a fine line between being Taken and tokin’.

REFERENCES

https://money.usnews.com/investing/investing-101/articles/how-to-invest-in-marijuana

https://www.kiplinger.com/investing/stocks/marijuana-stocks/603072/how-to-invest-in-cannabis-without-buying-cannabis-stocks

https://www.fool.com/investing/stock-market/market-sectors/healthcare/marijuana-stocks/how-to-invest/

https://www.investopedia.com/articles/investing/030515/funding-platforms-emerging-marijuana-startups.asp

Want to Learn How to Invest in the Marijuana Industry? Start Here

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Inflation Concerns, rising?

Headline: What is responsible for the current inflation levels?

Date: 1/1/2022

Body:  Pick up any personal finance or business magazine today, and likely, just under the COVID headline on the cover, there will be an article about inflation.  Normally, the Federal Reserve takes great pride in being able to shepherd the economy along with 2-3% inflation each year.  This has become our bottom line expectation over several decades.  But, the critics appear to be correct.    There IS terrible inflation.  In fact, A LOT of inflation!  We now have an inflation rate of 6.8%, the highest rate since 1982.  The core inflation rate (excluding the most volatile energy and food is 4.5% and this is easily double what it was last year.  What caused this inflation?

Some Sympathy for the Devil, uh, I mean the Federal Reserve?

Before any blame games start, it should be noted that The Fed is  charged to take on 2 tasks, and since they can suggest opposite treatments, one might be excused for having a bit of sympathy for the Herculean job that they do.   At one time, they have 2 charges:

 To get the economy as close to full employment as possible.

To manage the inflation rate and keep it to 2-3% per year.

These goals are often in conflict with one another, and each tweak to the economy must be pre-thought-out as to short, intermediate and long

First, has there been a significant increase in the inflation rate?

The consumer-price index, a key reading of inflation, is up 6.2% from a year ago, according to the Labor Department’s report for October.   Economists often drill down into this number and report the “core inflation” rate.  This rate eliminates food and fuel from the computation based on the  observation that they are significantly more volatile in pricing compared to other goods and services.    (I have always wondered about the wisdom of drawing this distinction because I couldn’t make a decision to forgo food and fuel.  Could you?)  But, even eliminating these from the computation, the CPI is inflating at a rate of 4.6%, a rate more than doubling the target, for the Fed.  (For perspective, we haven’t seen an increase in inflation like this since 1990.)

In an effort to stabilize prices for oil and gasoline, the U.S. Government has auctioned off about 9% of its petroleum reserves.   It remains to be seen if and when the availability of oil will translate to a lower price for gasoline.

Second, is it indeed “Transitory?”

For months now, the Fed Chief  has said that this strong inflation will be a very short-lived event.   Reading some tea leaves (a little bit) we can see the term of this transitory increase in inflation changing from “immediate future” to “intermediate future.”   The Fed seems to currently think that inflation will return to 2-3% in 2023, but other economists suggest that 2023 is the year that inflation will begin to return to its long-term state.   What cannot be controverted is that this inflation is placing the pinch on all consumers, especially in the increase in gas and fuel prices.  (I don’t even drive, and I can see a slight uptick in Uber and Lyft prices, I suspect due to this increase in gas prices.)  The same appears to be true with respect to airline tickets and the purchase of any building supplies.  There appear to be 2 main causes of this rapid price fluctuation: supply chain issues and Labor issues.

Supply chain issues continue to mess with prices.   The prices of new cars is much higher now than before the pandemic.   Per a few mechanics I know, this is largely due to a worldwide shortage of computer chips used in modern vehicles.   During the pandemic, the plants that produce these chips were forced to close and re-starting them is not like flipping a light switch.  People must be re-trained, some new employees might be required, and the raw commodities might also be limited in supply.  OK, you say, so buy a used car.   Yeah, well, people have already crossed that synapse, and used cars (that are worth anything) are very expensive as people try desperately to get just a few more months or a year out of their old car.

Labor issues are another source of concern.   This one is perplexing, but there is a real effect out there.   I belong to a social club, and many people there are entrepreneurs and small business owners.  To a person, they all complain about the difficulty in finding people, and when they do, these people often do not last for very long within the enterprise: they voluntarily leave.  (I have even heard of many interviews being set up and the applicant just doesn’t show up.)  This is especially vexing because there has been a 1.7% decrease in the labor-force participation rate since the pandemic, according to some studies.   Are people retiring early?   Are they going back to school to pursue a new line of work, using the pandemic as a prod to go and do what they like?  The reason for the labor shortages remains elusive, but the effect is VERY real.

Officials of the Federal Reserve have said that they will slow down the buying of bonds.   This will slow down the adding of liquidity of the market.   But, given the drop in labor participation rates, they appear leery of increasing interest rates too much too soon.

Others see the increase in inflation as a Supply & Demand problem.

Ok, demand for goods is up, but this isn’t the whole picture.  In the depths of the pandemic, many people stayed at home, and consequently demand for goods and services dropped dramatically.  (Think about it.   If not going to a workplace, there is less need for daycare of young ones.   If not going out, demand for restaurants plummets.  You get the idea.)   Now, after 2 years of privations and then the government starts opening up the regulations, one can easily understand the immediate impulse to begin to BUY, BUY, BUY.  But, the supplies are not there, so the prices increase, hence we have inflation.  Supply is the other side of this coin, and that supply chain is tangled worse than any string of Christmas lights you have ever had to contend with.   The goods often start in Asia, where they are produced.   Labor has largely not returned to the factories, so output is substantially down.    Further, there is a shortage of truck drivers to drive these goods to the ports.  Then, the goods are shipped to (let’s say) California.  I have seen reports that 170 ships with more than 200,000 containers sit waiting off the California Coast.  After some research, I have reason to believe that this logjam in the supply chain is decreasing significantly.   But, we still have 2 problems:

  There is a perception that there are a lot of ships waiting to dock in California ports.  Doubtless this is true to some extent.   But, the extent is rather immaterial because the perception of the backlog is so engrained in minds of business people.   The perception is that supply is down, so prices MUST rise.

There IS a huge shortage of truck drivers  at the California ports.  What is this due to?   The reasons appear to be manifold.  But, many of the truck drivers are older, and deciding to retire, and the younger people are deciding that being away from their families for days and weeks at a time is unacceptable.   At the same time, federal  requirements are beefing up.   Up to now, truck drivers receive a CDL (commercial Driver’s License) from the state they live in.   Because they are involved in interstate transit most of the time, the federal government is now requiring the schools that train these drivers to meet certain requirements, regardless of state.    Further, there is a federal database being maintained, and if a driver receives an alcohol-related charge, their CDL is at risk.  All of these pressures make drivers far less common than before.

How does inflation affect the stock market?

Surprise, surprise, this is actually a 2-part question because short-term and long-term effects might be very different.   In the short term, inflation might help the stock markets as profit margins will inflate, and this will make the stock appear more valuable.   Valuations will then increase.    But, if the inflation lasts long-term, the Fed will have to increase interest rates.   This will make borrowing more expensive, and the stock prices will probably reflect that by trending down.

The Verdict

It would appear that we might have to get used to higher inflation than we are used to, for at least the next year or so.  Nothing we can really do about this, but realize that any money we have sitting around (under a mattress, perhaps) might keep its value a lot longer if invested in some asset that will appreciate or throw off income.

REFERENCES

https://www.forbes.com/advisor/investing/why-is-inflation-rising-right-now/

https://www.wsj.com/articles/what-is-inflation-cause-stock-market-11637623703

Inflation has risen around the world, but the U.S. has seen one of the biggest increases

https://www.pbs.org/newshour/economy/how-the-supply-chain-caused-current-inflation-and-why-it-might-be-here-to-stay

https://www.washingtonpost.com/business/2021/12/16/amid-huge-shortage-new-truck-drivers-train-some-supply-chains-toughest-jobs/

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

A Hire Power?

Headline: This week our sermon is from the Book of Jobs

Date: 5/11/2021

Body   I realize that this is not the normal format because usually I am adding some form of context to some financial product being extolled in the press.   But, I truly believe that solving this riddle will help us to ignite an engine of sustained economic performance.   So, please bear with me.   Thank you. 

I was trolling my Twitter feed and I ran across a variety of articles about businesses that want to open up (and legally can) but they don’t have the staff to do so, and can’t find them.  This is interesting because we are coming out of a 1.5 year cycle where most economic activity that was not vital (literally) was strictly discouraged.   As a result, many businesses went under and many people lost productive jobs.   So, right now, there SHOULD be a large supply of ready labor, right?   Well, maybe not  Let’s try to square this circle.

To the best of my reading, the reasons break down into a couple of broad categories.  For the record, I am simplifying these causes, many of them interact in complex ways, and that careful reader should understand that we are just trying to parse what is a very complicated economic picture.

 1. Some people are still afraid of catching or spreading COVID.  This is especially true for people in trades that work inside of homes.  Adding to this shortage is the demand bump because people are at home more, and there is more wear and tear on their residential-grade fixtures and systems. More recently, the Omicron form of the virus is scaring people. Though it seems far less damaging, it is far easier to pass to other people.

 2.  Some people cannot find child care that they were doing when at home.  Interestingly, according to Census data, there are nearly 10 Million Americans who are unemployed, and 63% of them didn’t search for a job because they had to provide child care.  It should be said that as schools begin to re-open, the need to provide on-site child care will drop, so, this will likely be a time-mitigated factor. But, it seems an open question as to when we can responsibly open schools.

3.  Some people are economically making out better being on unemployment.  In fact, because of the relief payments in the CARES Act and other legislation, some people are receiving over $700 per week.  Per the National Federation of Independent Business, 42& of its members had job openings that they could not fill.   Most business owners tend to blame the generous unemployment compensation, and they are not entirely wrong.  Per a government study, a 10% increase in benefits lead to a 3.6% decrease in applications. Interestingly, even as these government programs are ending, this shortage of workers persists.

A few other observations seem to be important to this discussion:

There are about 10,000,000 unemployed persons in this country, but many are deciding to leave the workforce instead of looking for that next job.   Some are choosing to retire early, some are choosing to go back to school to train for a new career.  Women (25-54) are especially affected.   The employment rate for this group has fallen 4.5% while the general population declined 3.3%.  In addition to these members of the workforce having to watch their own children, there was a double-whammy effect upon many women.      Many women are still employed within the care-providing professions like teaching and nursing.   Many cannot go back to work because the schools are not open.   Others do not believe that it is prudent to do so because the risk of possible infection is deemed to be quite high still.  

Again, and again in my readings business owners mentioned that even if an interview is scheduled, only 1 in 10 will actually show up.   The business owners suggested that sometimes people will fill in job applications merely to fulfill requirements to retain unemployment benefits.   Further, many of these small businesses simply cannot offer the fringe benefits of larger firms or venture-capital-backed firms that swoop in and take the most promising applicants.   This leads to some unanticipated choices being made.  One bakery in Georgia is short workers and will be curtailing hours to compensate.  But, their online sales have been re-characterized as the engine of the company, and personnel are being re-assigned to continue excellent service in this arena.  Said one of the owners, “That is one thing we don’t compromise on – it’s a priority.”

It is often suggested that whenever anyone says, ‘I can’t find the workers I need,’ he or she should really add, ‘at the wages I want to pay.’  In an industry paper, one economist opined that this is not a widespread labor shortage because wages are not rising rapidly.  This lack of increase suggests that the labor market is still tight with respect to available labor.  But, the generous unemployment compensation being offered does allows workers to be unemployed for a longer period of time, and be more selective about the opportunities that they do select.

All of this has forced some employers to become very creative and somewhat more generous in compensation.   Uber has begun to offer a $1,000 signing bonus to entice some new workers.  Some firms are even offering a bounty for current employees who bring in a friend who stays for a certain period of time.  Many businesses appear to be using the employees that they do have to cover the jobs that are unfilled.  But, there are 2 dangers here.  First, there is the very real threat of employee burnout and the chances of mistakes go up substantially.  Even if there are no accidents due to the extended hours, overtime must now be paid to these workers, and these are financial resources that the small businesses often do not have.

The Verdict

It would appear that as widespread as this recession is, it does not affect all people equally when it comes to employment.  The jobs that can be done remotely are not as affected, but these tend to have higher educational requirements.   Teaching jobs and healthcare seem to be highly affected, and many of these jobs are traditionally held by women, so, they are greatly affected.  The hospitality and travel industries were also heavily affected by the lockdowns and downturn in the economy, and many of these jobs are held by people who  are at the start of their careers.   So, generally, it’s the younger populations that are hit the hardest.  To see where this all leads, I think we might have to wait until schools begin to return to a normal schedule. When that might be, however, seems to be anybody’s guess.

 REFERENCES

https://www.chicagotribune.com/business/ct-biz-covid-hiring-worker-shortage-20210421-iltihx64ejgdbduflqfglewawe-story.html

https://www.cnbc.com/2021/05/06/small-businesses-struggle-to-find-workers-as-pandemic-eases.html

https://www.wbur.org/npr/966376492/millions-are-out-of-a-job-yet-some-employers-wonder-why-cant-i-find-workers

With unemployment high, why can’t companies find the workers they need?

https://www.ajc.com/ajcjobs/employers-are-hiring-again-but-struggling-to-find-workers/VU7GFRW4K5F4JINJFNP5DL3534/

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.