Biden, big tech and bitcoin
As I write this, the House of Representatives is debating an unprecedented second impeachment of the 45th president.
The fact that the current administration will officially be in the nation’s rear-view mirror by this time next week is of little consolation to the people whose safety was in jeopardy last week or to the country that watched violent threats to our democracy.
Still, while seeking justice, it’s imperative to look ahead: With every ounce of optimism I have, I hope that next week’s transition goes smoothly and safely and ushers in a time of relative stability, predictability, progress and healing.
If that’s the case, here’s how I think things will look during Biden’s first 100 days:
Continued positivity in the markets, based on confidence in the Biden administration to deliver actionable plans regarding the pandemic, strategies to get the economy back on track and overall stability in governance.
There are bubbles in several asset classes including tech and real estate, but I don’t see significant long-term damage if and when they pop; instead, I see a return to some semblance of normalcy. And there are a few areas worth watching for potential opportunities, too, including changes in residential real estate slots. On the other hand, I am concerned about digital currency (in general) and Bitcoin (specifically).
We should also keep an eye on “Big Tech” to see how calls to increase accountabilities -- including social media and hosting sites -- could impact performance.
Markets and the Biden administration
Remember what I’ve said before: Historically, markets reflect investors’ forward-looking sentiment about our economy and broader national and international concerns. And after chaos, President-Elect Biden and his administration are like a cup of hot cocoa on a winter’s day -- since his election in November, the markets have demonstrated significant optimism.
And as this New York Times article illustrates, Biden is a centrist at heart -- he wants as many people as possible to be happy. So, while people on either end of the political spectrum are bound to be disappointed, I think that the vast majority will come out well, which I find remarkably reassuring. And the Biden administration brings the potential for significant investment in our nation’s infrastructure -- physical and digital -- along with health care and green tech.
Investments = jobs and jobs = growth.
Still, the positives -- such as the likelihood that the Biden administration and Democrat-led Congress will push through more federal stimulus funds (which I believe is a necessary action to help the lower end of the “K” rise, which signals that industries on the edge and their employees are gaining strength) -- will also have some negative consequences.
In this case, with the flood of federal dollars, we’ll likely see higher taxes (eventually, and not on lower- to middle-income Americans, Biden says) along with a higher probability of inflation.
Blurring real estate lines
The pandemic, the buying frenzy, skyrocketing home prices and the continued commercialization of homes -- all have led to what I see as a “blurring” of real estate lines via the trend in home improvement that’s leading to massive investments. As a result, many “nice” homes are becoming more luxurious, if not exactly “luxury-market” status and even more “meh” homes are outfitted with high-end kitchens, in-ground pools, renovated basement “rec” rooms and home gyms.
People are holding onto homes and improving them because in the current market, that’s a more affordable option than trying to trade up, given the steep increase in sales prices. For some time, then, this will put homeownership even more out of reach for those in the middle- and lower-income brackets who are looking to enter the market. In terms of investments, the businesses that support home improvements will continue to be good bets, in my opinion.
Still, while I think inventory will stay tight for a while and thus prices will stay high, I believe we’re at the ceiling -- at least for a while. And in my opinion, that’s how housing will play out: Not a rapid deflation, as with 2008’s foreclosure disaster, but more of a settling in or, at worst (or best, depending on whether you’re selling or buying) a slight deflation of prices.
SOURCE: National Association of Realtors
In addition, I believe we’ll continue to see growth in secondary markets, where affordability is key. Here’s how this played out in 2020 and is predicted to continue, per this National Association of Realtors map.
What are the ethical responsibilities of “Big Tech” companies?
Moving on to Big Tech, I bring this up this week because the events of last week (and as far back as several years) have been enabled, many say, by Big Tech. More specifically, that companies like Facebook, Twitter, Google and other giants have had little-to-no accountability for the deluge of misinformation on...just about everything.
And this is important now because legislators are discussing revisions to a critical piece of past legislation that could fundamentally challenge and change the internet.
In a nutshell, Section 230 of the Communications Decency Act of 1996 essentially absolves search engines and social media sites from liability for postings on their sites.
Now, though, nearly 25 years after it was enacted, this rule has enabled the unprecedented spread of misinformation, with no culpability. In addition, Big Tech’s algorithms play a significant role in what each of us reads -- and, ultimately, believes.
Given this, is it time to hold them accountable to higher ethical standards for truth and facts, similar to our expectations of journalistic integrity?
Interestingly, Big Tech did step up to tie Trump’s tweeting wrists for a bit -- but was it too little, too late? Or was it simply that they tried to protect his right to free speech?
I’m absolutely and completely for the First Amendment -- but it was never intended to protect violence against other people and our nation’s democracy. And clearly, the one person who should operate with a level of informational integrity should be POTUS. Does overturning or otherwise modifying Section 230 equate to a mitigation of free speech (or could it lead to that)?
I don’t know the right answer, although I do believe there has to be accountability and we have to figure out solutions.
A quick look at Bitcoin - (of course this is only my opinion)
From Forbes.com, “As Bitcoin Smashes Through $40,000, Data Reveals What’s Behind the Huge 2021 Bitcoin Price Boom,” by Billy Bambrough, January 8, 2021
So, there’s one last head-scratcher this week. While my predictions of stability under the Biden administration will, I hope, come true, there are still some things that defy all logic, thanks to the magic of human emotions and behaviors. At the top of the list, in my book, is Bitcoin.
In last week’s post, I included a link to a CNBC video illustrating how emotion drives market frenzy and in my opinion, nothing showcases this better than the absurd valuation of Bitcoin (which is valued around $40,000 as I write this).
Let me say up front that I’m a Bitcoin denier -- I can’t understand the feeding frenzy around something with no tangible underpinnings (like gold), no governmental regulation (like the U.S. dollar) and relatively limited ability to trade for goods or services, which is the basic tenet of currency.
I understand that “digital” has value, but I don’t understand how Bitcoin has value, especially such outsized value. I see it as fool’s gold, frankly. Granted, a U.S. dollar is only worth what you believe it’s worth, but that dollar is usable currency in our multi-trillion dollar economy and valued around the world because it’s backed by the full faith of the U.S. government.
My question to you is, what’s backing Bitcoin? Even with their surging valuations, Amazon, Zoom, Tesla and Alphabet/Google all have “whys” behind them -- the underpinning goods or services and long-term potential that they represent. If there’s no clear answer and if you don’t know your “why,” then to me, there’s ultimately no investment strategy. (And I’m happy to admit that I’m in the same camp as Warren Buffet).
Investors and analysts seem split on digital currencies -- on the one hand, they agree that Bitcoin’s outrageously overvalued and nebulous. On the other hand, many of them are invested.
So when people ask me what I think, it’s this: To me, Bitcoin -- with its huge daily swings -- is the epitome of the gamification of the markets. It’s a toy of the techies, many of whom have the money to play, while average people have far more at risk. It’s all volatility, no stability. I don’t see any analysis or logic behind it. And if alternate currencies proliferate, how will values be benchmarked?
Still, many people have made money. A lot of money.
So, if you choose to invest in Bitcoin or any other digital currency, I have only this advice: Remember your password.
