ROUND BY ROUND VOLUME 1
Updated: Oct 19, 2022
October 14, 2022
It's a beautiful winter day, there’s a cool breeze in the air, playoff baseball on the horizon and a new publication just burst onto the scene. A publication that is more magic pill than words. A mysterious pill. One that enables the user to access 100% of their brain's abilities and transform a struggling writer into a financial wizard…
Welcome to The First Issue of the Round by Round Newsletter!
Okay you caught me. That last line about the brain is straight from the 2011 movie “Limitless”, starring actor Bradley Cooper. Obviously nothing you read is going to give you that much power. Not at first. But staying curious will help you evolve towards your perfect version.
Have you ever wondered why some people can enter a room and capture everyone's attention? Is it something they’re born with? A talent they developed?
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The plan is for (usually) quick market updates, as well as our spin on Sports and Business stories. We’ll also include updates on the growth of Doc Rounds and what we’re up to personally.
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Market Update - 10/10/2022
The Stock Market is down 25% since January and is at the lowest level since November of 2020, giving back the last 2 years of gains. If you haven’t checked your 401k recently, you might want to grab a stiff drink before you login.
The question is, are the markets bottoming, or can there be more downside?
WHAT THE PROS ARE SAYING
Experts are calling this the most interesting time in the history of the markets.
Most crashes have a few sectors that remain positive, between equities, bonds, alts, housing or crypto… but not this time. Everything is down. Lucky us! JPMorgan CEO Jamie Dimon warns of another possible 20% decrease amid inflation concerns, rapidly increasing interest rates, and the escalating Russia-Ukraine war.
What You Need To Know
The possibility of nuclear escalation, energy shortages in Europe as winter arrives (who are reliant on Russia for nearly 60% of energy), and rising global food insecurity have been discussed for months. As horrible as these issues would be, the markets have had 6-7 months to prepare and won’t see them as unexpected events.
A stock’s value is based on a forecast of a companies’ future cash flow. Since it's forward looking, in theory a lot of these concerns are already priced into stock prices. Similarly, the Fed has been forthright about wanting to control inflation (which is stuff like gas and food getting more and more expensive) even if it means forcing people out of work (more below).
MY THOUGHTS - The Vacuum
This volatility isn’t fun, but a sign the markets are starting to normalize after a decade plus of “cheap money”. The financial markets have been flooded with cash since 2008, as borrowers were incentivized to borrow, borrow, borrow with interest rates at nearly 0%. That cash eventually spilled into our broader economy and led to irrational behavior, I.E. meme stocks, NFTs, excessive Amazon purchases, etc. There’s only so many items available to be bought. Both on Amazon and in the stock market.
Easy Money + Inventory Shortages = Price Increases and Supply Chain Issues
You may have heard The Fed is raising rates in an effort to suck all that money out of the system like a vacuum. Raising rates is only the first domino:
Higher interest rates causes decreased borrowing, especially for businesses, which slows their growth, which leads to hiring freezes & layoffs, which means more unemployed people with less money to spend, which reduces their demand, which increases supply, which eventually lowers the price of items and therefore lowers inflation.
Yes, the Fed wants to create unemployment to lower inflation. At least in the short term. What they really want is for prices to reflect reality, which includes wages.
Sorry Googlers, this probably means the end to perks like unlimited food, lunch massages and being paid to sit around. Engineers are valuable, but with money being so cheap, tech companies happily overpaid to consolidate talent - even if there was no work for them to do! (Coined as “rest and vest” at Google, it also helped Google kill potential competition by literally paying them to do nothing, burying them in offices to “think”.) Wages ballooned to 300k for engineers, with stock packages that could clear $1milion+.
This recession will reset the industry to a sustainable level. We should also probably expect this for other high “skill” jobs that have been over-hired. Especially those with bloated upper management that need to be gutted (I’m looking at you universities and hospitals). Service jobs, however, do not have enough humans to fill all the available jobs as it is. So you can expect wages to stay firm in industries like healthcare, education and restaurants.
I think that's a great sign that wages will start representing the actual value given to society.
WHAT I WOULD DO
This is not financial advice, it's simply information on how I’m managing my portfolio through this stress. I promise you nobody knows what will happen. Anyone screaming on TV or a podcast about having any idea is a liar and/or con artist…
We could very well be bouncing along the bottom, if you’re interested in tax loss harvesting, this would be a great time to lock in losses before the end of year.
Long-Term
I believe in the old adage that the market always goes up in the long-term, but what does long-term mean? We’ve had stretches of lost decades where returns are flat or negative. As long as you don’t need the money (and if you do need it, it shouldn’t be invested anyways) play the long game and use this as an opportunity to pick up great companies at cheap prices.
Short-Term
If you need the money in the short-to-medium term and just want a parking space to try and keep up with inflation, Treasury Bonds are attractive for no-risk investors. Corporate Bonds could also be a great option if you’re looking for more return. I would only look for top rated companies like Amazon or Apple, that you know won’t go out of business. Look for something like a 4-5% return for a 9 month hold. (If you’re comfortable with corporate debt, High Yield is more attractive than it's been in years with returns at 8-9%, but these will have bankruptcy risk).
Final Thoughts
Remember the stock market is just a collection of companies and seeing all this red probably means a few of those will go bankrupt, or get close to bankruptcy as funding freezes. As an investor, this will be a great opportunity if you can remove the emotion. Evaluate things like management, market power, great business economics, predictability, and price.
Similar to the 2001 Dot Com Crash and the 2008 Great Recession, resilient companies like Google and Amazon and then Uber and Tesla, will be born in this downturn. Technology always marches forward and the winners will have less competition for talent and the opportunity for cheaper advertising and accelerated growth.
How do we find these winners? Easy. Just go to where the nerds hangout on the weekends…
Crypto & NFTs
The tide set and we’re seeing who's been swimming naked. Many projects made big promises with no ability to deliver. When prices keep climbing, it’s no big deal, but now that people have lost money, the lawsuits inevitably follow. Kim K was paid $250,000 for an Instagram post of cryptocurrency EthereumMax, which crashed. The SEC fined her $1.26M for her role in misleading followers, which she happily paid without having to admit culpability.
Strangely, SEC commissioner Gary Gensler broke protocol by going on CNBC to announce the fine, which he accompanied with a weird YouTube video with a Jake Paul look-alike warning investors about influencers. Rumors are he’s trying to position himself to be Janet Yellen’s replacement if she steps down as Treasury Secretary. Basically, even the rule enforcers want to be influencers.
WHAT DOES IT MEAN?
There are 2 main ways to evaluate an investment: quantitatively vs qualitatively. Numbers vs Narrative. The numbers don’t look great, with the big 2 coins each down ~60% year to date. If you only listen to the news, you probably think crypto is already dead. That’s the Narrative.
The truth is there’s still a lot of money being funneled into the ecosystem. Legacy brands are still jumping into the NFT wave, new companies are still popping up all the time, and more importantly, startups building actual useful products are being funded. However, demand has cratered in a lot of areas, particularly NFTs.
Decentraland, a metaverse that at one time sold digital plots of land for up to 7 figures each and is currently valued at $1.3Billion, reportedly only has 38 daily users. 38! The company disputed the figure, saying they have thousands but it's still not a big number. The narrative was built around this being the next online playground, the reality is the demand was always from investors, NOT users. This Crypto Winter should help focus the industry around true builders who have products that might actually be useful.
THE FUTURE
I’m still extremely bullish on Crypto and NFTs. The technology works, the space is fun, we just don’t know what the final use cases will be.
I think NFTs will be the infrastructure of the internet moving forward, like pipes under a house. We have a huge problem with fake news, digital content (blog posts, YouTube videos, etc.) released as NFTs will give us a verifiable record of the original sources. Tickets to events, legal documents, proof of status will all be converted to NFTs, as we continue to move society digitally. Even video games will be built with NFTs, allowing users to buy and resell in-game items.
Unless you’re the kind of person who thinks the internet will disappear, it's logical to assume it will continue to expand. Crypto and NFTs can be thought of as “more internet”, tools to help that expansion. The same way seat belts changed the auto industry, NFTs added to the internet will help shape and legitimize the space moving forward. I think we’d all agree the current form of the internet isn’t working. I’m hopeful verifiable content plays a big role in bringing civility.
Housing
Any potential first time home buyers in the house? You might be f*cked!
I’ll have a longer blog post on the current housing environment, but we’re going into a period where affordability is deteriorating at record paces. There are 4 legs to housing markets:
Supply,
Demand,
Affordability, and
Availability.
The last 2 factors determine short term home prices.
AFFORDABILITY
Affordability looks at home prices and what the average person can afford. Mortgage Rates have increased by 3-4% since January, adding thousands of dollars in potential interest to new buyers:
These rates will kill a lot of people’s affordability. There were a record number of mortgages opened in 2020 and 2021, with over 90% locking in fixed rates between 2-4%. That’s a great deal. Maybe too great. These people won’t be selling anytime soon with the prospect of paying double the interest on a new mortgage.
AVAILABILITY
There’s already a housing shortage, estimated at 2M, possibly as high as 6M. Assuming a lot of these homes with locked-in low mortgage rates are off the market for the foreseeable future will only cause (more of) an inventory shortage. On top of that, the metric ‘Months of Supply’ (the # of months for all existing inventory to be sold at current prices) is currently at 4. Historically when that number is <6, we can expect home prices to increase for at least the next 6 months.
CONCLUSION
Homes are getting less affordable, while becoming less available. During the 2008 market crash, most people had variable interest rates. When rates spiked, the variable rates also spiked and made a lot of mortgages unpayable which led to mass defaults. That is not the case this time. Unless we have another influx of supply from mass non-economic sellers, inventory will continue to decline. Sadly, the housing market may be in short supply until the baby boomers reach their life expectancy and/or start going to retirement homes.
Draymond Throws Haymaker at Teammate
File this away under things you don't see everyday. One teammate throwing an absolute haymaker at another.
We’ve heard of teammates fighting before, but the usual assumption is both guys are aware of a pending
skirmish. Draymond decided to walk over to Jordan Poole, get in his face and then lunged at him when he was pushed away.
Someone from the Warriors side leaked the video and for good reason. Draymond and the Warriors initially tried to downplay the punch, but video always tells the full story. Even Draymond said he was taken aback by the footage, saying it was worse than he imagined in his mind.
Who knows what’s going on in his head, but I’ll bet even though the Warrior reportedly begged him not to speak on it, we’ll probably find out soon from his podcast!
Cheaters Running Wild
Over the last month, we’ve had 3 stories of cheating in niche sports: fishing, chess and poker. I made a video breaking down the details below.
POKER
UNCONFIRMED. Over a live stream at the Hustler casino last weekend, there was a hand that left one player accusing another of cheating. Garret bluffed and went all in on a bet with nothing and was called by Robbi, who also had nothing. It was a great call, but left Garrett thinking she knew something she shouldn’t have. He confronted her off camera, she returned the chips to him and he left the casino. A couple days later, an employee of Hustler was arrested for stealing $15,000 from Robbi’s stack that same day. She decided not to press charges saying she didn’t want to ruin a young man's life.
The (conspiracy) theory is that she had a spotter who signaled she was good to go during the hand. Some think it was the Hustler employee who sent the signal, and after she returned the money to Garret, took it upon himself to take his 15k cut as commission. She claims she misread her hand and thought she had a bottom pair. That still wouldn’t explain her calling his raise after the flop, before the bottom pair hit on the turn. Most poker players think she cheated, with players putting up bounties that reached 300k for info confirming the theory. As of now, there’s no proof she cheated, so all we have is his her word vs the internet.
CHESS
UNCONFIRMED. The greatest chess player in the world is Magnus. He’s been on the scene for many years and is as respected for his character as well as his skill. A few weeks ago he played a tournament match vs up and coming 19 year old American hanz. Hanz surprisingly beat him and after the match Magnus posted cryptic messages on social media that seemed to accuse cheating. Hanz had been caught cheating online as an amateur, but this was an “over the board” match, face to face, which would seemingly be impossible to cheat.
That’s when the internet went all internet on this story. Someone on Reddit claimed he could be using an electronic anal device and boom, we had another Queen’s Gambit type Chess renaissance. Magnus had an online match with Hanz a few days later and he logged in right when the match started, made 1 move and resigned and logged off. It was a clear message that he wasn’t going to respect Hanz. Days after chess.com released a report citing 100s of games where Hanz had cheated. They ran all his games through a simulator and matched his moves to A.I. that has developed machine learning to chess. The best human ever, Bobby Fischer, scored at best around 70% and Hanz’s online games were routinely in the high 70% range. The theory is no human is capable of that without cheating.
Again, he hasn’t been confirmed as a cheater and he was able to beat the best in the world in person. As long as he didn’t have the help of an electronic device or spotter, he should be able to keep winning and clear his name in no time.
FISHING
CONFIRMED. God dammit Jake. In the most blatant act of cheating, fisherman Jake and his partner were caught red handed with weights buried inside of the fish. The pair reportedly stuck weights down the fish’ throats and hid them using store bought fish filets. The pair has won some serious cash too, hundreds of thousands as well as a boat. They now face criminal charges.
The Next Great NBA Player Has Arrived - Tank SZN
If you’re a basketball fan, or a fan of human beings that don’t look like human beings, get ready for the next great prize!
Victor Wembanyama arrived on American soil and did not disappoint. Standing 7 feet and 4 inches, the 18 year old from France dominated the 2 games against a G League team that featured the projected #2 overall pick. In 2 games, he scored 73 points with 15 rebounds, nine blocks, shooting 9-of-18 from 3.
He’s going to be the #1 pick in next year's draft and is already affecting the NBA this year. Teams like the Spurs and Jazz gutted their rosters in an attempt to tank for better odds of winning the lottery for the first pick. And they certainly won’t be the last. At a certain point, owners who know they don’t have a chance of winning the NBA title will demand losses.
Looking at the effect Lebron had on the city of Cleveland, and Giannis on Milwaukee, it’s reasonable to assume that a player of his quality can easily add $1billion in value to a franchise. From jersey sales to tv contracts, winning the #1 pick will be the equivalent of winning the lotto for the everyday person, even for billionaires who have all the money they will ever need.
And that’s it! Thank you so much for checking out Volume 1.
Please don’t hesitate to reach out with any questions, comments, or concerns.
Feel free to contact me on Twitter @AlexDocRounds and check out our brand page for more updates @DocRounds
