Michael Han



Michael Han is a 34 year veteran of the Global Financial Industry and currently works as a consultant to high net worth individuals helping them manage their retirement funds.


The March retail sales report came out Thursday morning. Up 10%!

Not a Year-on-Year comparison when the world shut down last March but month-on-month. March from February. That’s a nearly 120% annualized increase, a more than doubling of total U.S. spending on retail items. Of course that pace won’t be kept up. But it helps to illustrate just how strong March sales were. Even if you average it out with the decline we saw in February and add in the nearly 8% surge in January, we’re still talking about a 35% annualized spending pace in the first quarter.

Where is this all coming from? Stimulus checks helped but the main force driving sales up was an outsized increase in earned wages and salaries. The U.S. added nearly a million jobs last month. Full-year GDP could be hit over 7% for the year.

The reopening is absolutely gaining traction and with a stronger balance sheet and pent-up demand, U.S. consumption might break records this summer. So, how do President Biden and his free money spending liberals justify spending another $2.3 trillion to “revive our economy” when the economy seems to be recovering just fine. For the first time in recent memory, risks could be tilted on the side of doing too much instead of too little.

The monthly budget deficit for March just hit $660 billion dollars. And that’s before the President’s $1.9 trillion Covid packages since it was only just signed last month. Biden is talking about another $2 Trillion dollar infrastructure package?

Hmmmm… No one in Washington seems to know the word inflation.

Empire prices paid (EPP) is a reliable predictor of inflation. EPP and CPI generally move in lock-step and are a good predictor of where the interest rates might be heading. CPI is at 2.6% which is where the market is BUUUT, the EPP is shooting above 5%. Investors are not ready for 5% YoY inflation growth and there will be negative reactions when CPI catches up with EPP.

Fed’s Balance Sheet printed new all-time highs (Now $ 7.793tn)

Whatever asset you are looking at, Stocks, Bonds, Real estate, if you divide the asset value by the Fed’s Balance sheet, you will find that nothing is all that expensive. That’s what you call the destruction of purchasing power by the fiat currency. This concept is difficult to grasp by most of us but all you have to do is look around you and start looking at your receipts. Restaurant prices have gone up 15%-20%. How about your grocery bill? Utility? Clothes? (I will talk more about this next week)

Bitcoin Corner:

Sophisticated investors are increasingly thinking of bitcoin as the ultimate form of pristine collateral. In an environment of negative nominal and real yields, bonds are looking increasingly unattractive.

Ray Dalio, founder and former head of Bridgewater Capital (World’s biggest Hedge Fund) initially rejected bitcoin as nothing more than a speculative phenomenon of too loose Fed policy

heart. Two days ago at the Texas A&M Bitcoin conference, Ray said: “We’re in the part of the cycle where we’re gonna produce more debt and more money and the time for something with intrinsic value and the limited supply is appropriate. That’s true of gold but also bitcoin has proven those things in many ways. It hasn’t been hacked, programming works, people are holding it and adopting it.”

Larry Fink, CEO of Blackrock, the world’s biggest asset management company was once a skeptic of cryptocurrency but he told CNBC Friday that his company is studying Cryptocurrency, investing, and making money trading it. These guys and other bankers don’t do anything unless their clients are asking and Larry Fink who normally is an eloquent speaker fumbled when discussing this topic which speaks volumes about the increasing interest from institutional investors about cryptocurrency.


Greed & Fear

When an investment we really like goes up in value we say “I’m so smart. I should have bought more. As a matter of fact, in the next pullback, I am going to load up on that investment.” When that investment pulls back aggressively, the Greed turns to fear. The inner dialogue says “OMG! What’s going on? Why is the world selling my stock? Shit! Why did I buy it? I should have sold it at the top and bought it back here when it’s down 15%…”

When investment you don’t own keeps going up your inner dialogue looks for all kinds of reasons to make you feel better about missing the opportunity. You conclude by saying “When there is a big pullback, I will buy it.

When that investment you were watching all of a sudden falls 20%, instead of seeing it as a buying opportunity, Greed turns to Fear, and once again your inner dialogue justifies your inaction. “I knew this was going to happen. I’m so smart.”

Bitcoin fell as much as 20% Saturday nite on the back of a rumor that The Treasury Department will be announcing banks that used Cryptocurrency for money laundering. The concern here is that the government will use this as an excuse to “regulate” the crypto market. There was also a power outage in China that caused prices to fall triggering margin calls and forced selling. So, will you take this opportunity to step in? Who will you listen to? My bet is, 99% of you will listen to “Fear.”

All major cryptocurrencies use Blockchain to record all transactions. Blockchain makes it impossible for anyone to get away with money laundering. You can stay anonymous but authorities can track anyone down. Cash on the other hand is impossible to track. Government watchdog to weed out the bad actors is not a bad thing.

The main attraction for cryptocurrency is “Decentralized peer-to-peer transaction” and a limited quantity of coins. Total opposite of fiat currency. Centralized, unlimited supply of currency with numerous intermediaries in between two transactions making the transaction costs unnecessarily high.

Also, when I say Cryptocurrency, I am only talking about Bitcoin and Ethereum. There are thousands of cryptocurrencies and 99.9% of them are “shit-coins” and should get crushed. Too many “investors” that have no idea what they are doing is in the market and that’s not healthy.

Growth vs. Value debate

David Einhorn of Greenlight Capital is one of the smartest Hedge Fund managers. He is convinced that the time for value stocks to shine is here. This is an excerpt of his thesis.

if the tide has finally turned from Growth to Value, noting that “after a very tough decade, we have only just begun a recovery as shown in this 45-year chart from Goldman Sachs research:”

When the time comes, we will have to figure out how to perform better in deflationary periods. But for now, we believe inflation is only going one way – higher – and we are optimistic about our prospects. The wind is now at our backs. The economy is in full recovery mode. Household balance sheets are stronger than they have been in a long time and household income growth was up 13% in February compared to last year. And this is before the latest $1.9 trillion – with a “T” – pandemic relief stimulus. Corporate capital spending is booming. There are shortages and bottlenecks everywhere. Last month nearly one million jobs returned. There are signs of an emerging labor shortage.
As for the Fed, the Greenlight boss writes that “it fundamentally changed its framework last August. It no longer seems to care that monetary policy works with a lag. Actually, it has embraced an asymmetrical inflation policy: The Fed wants to be ahead of the curve on the downside to the economy. Behind the curve is fine on the way up no matter how frothy the stock market the recovery is. Now, it says it is only going to react to actual inflation that exceeds its 2% target for a period of time.”

The letter then goes on to muse how the Fed will know when it is blowing the next bubble, and to stop:

… the Fed has indicated that it believes any abnormally high inflation will be transitory. We wonder, how will the Fed know? Do price increases come with a label that says “transitory”? Our sense is that no matter how hot inflation gets in the coming months, the Fed will continue with zero interest rates and large-scale asset purchases. After all, the U.S. Treasury has a lot of debt to sell and it isn’t clear who, other than the Fed, can absorb the supply.

Einhorn’s response is simple: “Though one can debate whether the official government statistics are contrived to avoid capturing inflation” – and as we have repeatedly noted, inflation is now decidedly a political measurement, one which has been gamed for decades to make it appears as low as possible “shortages and bottlenecks accompanied by rising demand can only be solved through increased capacity and higher prices. We have also reset the baseline income for non-working adults; it will take higher wages to bring those marginally attached to the labor force back to work.”
While the Fed says it has the tools to fight inflation, it remains to be seen if it will have the stomach to use them when the time comes.

I will come back to you with a counter-argument to David Einhorn. Those who believe inflation is indeed transitory and that once the economy opens, the constraints that are causing prices to rise will abate and structural deflationary forces will keep the lid on prices. At the end of the day, persistently strong demand will pull the prices higher and that’s just not there.