“There is nothing new under the sun.”
I reckon you would have heard the phrase before.
And probably not paid much heed.
Truth is, it’s quite profound.
And I’m hoping by the end of today’s email you’ll feel the same.
Because the truth that will be exposed will, in my humble opinion, once again prove the worth knowledge of the real estate cycle can bring to you.
Long time readers of these blogs will know I don’t look at the world the same as most people.
My burden to bear. One I’m glad to, however.
It’s the lense that a decade of studying the cycle and markets gives you to see what the emotional headlines ensure you DON’T see.
And todays topic is a classic example of it.
So, have you heard of GameStop?
If not, here’s a brief breakdown of what’s going on here.
Firstly, what is GameStop? It’s a retailer of consumer electronics and gaming.
It has about 5,500 stores across the US, Canada, Australia, and other countries.
Very much an old-style retailer, the type that are apparently most under threat from online equivalents.
It’s also listed on the New York Stock Exchange (NYSE) under the ticker GME.
Now here is where the fun began. As an investment, GME has done pretty much nothing.
That is, until about a week or two ago.
Melvin capital, a US based hedge fund, had decided to short the stock. That is, they borrowed stock with the idea of buying back at a much cheaper price.
Because it’s a hedge fund, it then ran stories about just how bad a company GameStop is, how it’s a traditional retailer who are about to all go out of business. Normal behavior for these predatory funds nowadays.
Timing is everything.
A recent phenomenon on social media decided it was time to act.
Using an ever-growing number of commission free online trading accounts, a group of Reddit users called ‘WallStreetBets’ went viral on their forums stoking their members to action.
They decided to ‘short-squeeze’ Melvin capital using options (no commission remember) and raise the price of the stock. The ever-increasing bidding entrapped the big hedge funds which had bet against GameStop.
Cue an astonishing rise of this stock in truly short order.
We are talking almost 5000%. For the holders of options though, it was 10 times as much.
It became the single heaviest traded stock on earth!
Melvin Capital in the meantime needed a $2.75 billion dollar loan to buy back and close its short positions.
The whole thing was summed up nicely by a recent Australian Financial Review article.
“Internet-based insurgency”
Now, why all the fuss? What precisely triggered such a response from a bunch of day traders to decide to bring to their knees one of Wall Streets sacred hedge funds?
You cannot really point to one overarching reason but, it does appear that Reddit and Robinhood (another zero-commission trading platform) users leveraged the power of social media to stir a buying frenzy to “teach” Wall Street a lesson.
They wanted to show how they can interrupt the normal buy and sell mechanisms of the stock market.
But in a way that would hurt financially Wall Street, the root of corporate evil, who they deemed profit the most at everyone else’s expense.
Well, they certainly did that, though I’m sure recent actions were not part of the plan.
The US Federal Reserve, Security Exchange Commission (SEC) and Wall Street’s biggest brokers (including Robinhood would you believe!) have now stepped in to return trading to normal.
And by normal, I mean increases in margin loans by 300%, option trading of certain securities (geez, I wonder which one…) liquidated.
Holders of GME stock were no longer allowed to buy, only sell. Naturally, class action lawsuits are now being filed by Robinhood traders against the company for its actions.
Social media is aflame with calls for the CEO of Robinhood to see jail time for such blatant open manipulation of their customers.
Meanwhile, a group of Reddit silver enthusiasts have released a call to action to their forum members to target silver derivatives in a short squeeze like GameStop’s.
And yet, stop me if you have heard this record played before…
This has happened literally dozens of times in my lifetime.
However, here’s my point.
When you watch and study the real estate cycle like I have for more than a decade now, certain behavioral phenomenon seems to reappear with a regular pattern.
It’s a classic fight between the haves and have-nots.
Between those who write the rules exclusively for themselves and don’t much appreciate anyone other than them from getting in their game.
And in terms of timing, well, the fact this has happened now isn’t a co-incidence.
I have noticed there are certain times within the cycle where raw emotional events like this tend to occur. Two times actually.
When the pandemic engulfed the world in a COVID lead lockdown, it cost many lives and many livelihoods. But it also exposed something less well reported.
The fact that 2020 represented the end of a 12-year stock bull market. The virus lockdowns and the chaos it caused simply reinforced how few winners that bull market benefitted at the expense of the majority.
Hence this opportunity for the little guy to get one back and highlight how hopelessly unbalanced our financial world has become.
This is the hallmark of a mid-cycle recession in full swing. The other time you’ll see anything approaching this outburst against Wall Street and the like is at the inevitable speculative real estate led bust we are expecting later this decade.
The same behavior, the same emotion, the same (pretty much) outcome for the protagonists also. But not so obvious that anyone could have seen this GameStop debacle for what it would become months in advance.
Sounds just like the 18.6-year Real Estate Cycle to me.
The Property Sharemarket Economics (PSE) team study the 18.6-year Real Estate Cycle, 14 years up and 4 down with a mid-cycle recession (MCR) interrupting the 14 years’ expansion.
We have shown our members that we are right in the middle of the mid-cycle recession of the current real estate cycle.
History proves beyond any reasonable doubt the repeating nature of this cycle.
The incredibly accurate forecasts pertaining to the eb and flow of the current cycle made by the PSE team stand as testimony to the advantage knowledge of this history can provide.
But wait!
I said that I would show you what the emotional headlines DIDN’T say?
Using the lense of the real estate cycle.
Oh, don’t worry, I’ve not forgotten.
Take away what I’m about to say and really think about it.
The motives behind the actions of these WallStreetBets forum members speak a darker truth.
It is a direct, tangible, and at times like now, most unfortunate part of the real estate cycle.
This whole GameStop drama was about highlighting the enormous gap being created in the society you and I reside in.
The gap between the super elite and everyone else. And the absolute fact that there has, until now, been nothing that one could do to reverse this.
You can write about it on social media, or in a hardback book, but what would that do, seriously?
On the other hand, the ability to really hit these elites where it hurts the most, in the wallet, was too much to ignore. And it hit hard, to the tune of billions of dollars of lost profits.
Now armed with the tools to do so (online trading with zero commission, social media platforms that can reach out to tens of thousands in an instant) you can bet similar campaigns will be organized.
Trying to land a blow for the small guy, you, and me.
Right?
Nah…
Let me demonstrate to you now something that simply could not exist in our world should governments one day decide the chasing of the rent via speculative lending practices, which ultimately lead to the boom-bust cycle of the land market, should be banned.
A double-edged instrument largely responsible for the haves and have nots in society.
A government granted license.
We don’t generally use such a label in real life which means that most people give little thought to what they mean.
The land title on your house proving your ownership is an example of a government granted license. Should I contest such ownership in court because I wish to own your house, that title, backed by government, says I have no right to ownership whatsoever. Just don’t stop paying your rates on time.
I’m sure you’d agree that this is a good thing. And it is. But then again, the chances of a stranger knocking on your door and stating he or she would rather live there instead of you isn’t likely either.
But this incident with GameStop demonstrates the other side of this. What the government give, they can and will take away.
Once things came to a boil, those same US banks and hedge funds who have benefitted from their security investing license immediately turned to the government and demanded they do something to limit their losses.
Apparently, they aren’t allowed to lose their money. More than happy to see you lose yours, however.
It only took a few hours. In that time the US Federal Reserve and Security Exchanges Commission handed down their verdict. The big hedge funds didn’t have to conform to the rules as they were just 12 hours ago.
But you now do.
And if your broker (Robinhood) didn’t like it their trading license would be suspended. And then you’d have no broker either.
Such is the power of these licenses. Its almost as if governments sole job on earth is to hand out and then protect such licenses? But I digress.
Please take the time to think this through. You will notice that this is not an angle anyone who has recently reported on this news has taken.
Yet this wasn’t done in a bank’s boardroom, it was done in broad daylight. The message crystal clear and unmistakable.
The holder of a government granted license gets to make the rules as they see fit. You threaten that, and you’re dealing with the full weight of said government.
It’s a scary thought. As each boom-bust real estate cycle gets bigger each time, the gap between the haves and have nots will simply widen.
Which was the whole point of the GameStop short squeeze in the first place. A small yet significant chance to even the ledger in favor of normal Mums and Dads and allow them to turn the tables some.
But a bit of knowledge, applied correctly, can ultimately do a world of good too.
Can you find a way to benefit yourself and your family from these government granted licenses?
Actually, yes.
It is easy to allow the emotional headlines about right and wrongs, the big guys versus the little guys on the world stage blind you to a truth you should be aware of.
That if these licenses are a direct consequence of the speculation which causes the boom-bust nature of the real estate cycle, is there a way to get the government on my side and if so, how?
How can understanding the nature of them benefit me and my family?
Believe it or not, there are several Australian and overseas listed stocks which enjoy their own “barrier to entry” via a license granted to them by government.
And with the speculative second half of the cycle about to commence, these types of stocks can outperform during the coming boom.
Stocks exposed to airports around the world and locally are one example. Heavy government regulation and protections mean a virtual moat is built around them, warding off any competition.
It’s not hard to see, give a year or two, as the vaccine for COVID is rolled out, an enormous rush to start travelling again.
Telecommunication companies which are granted the right to use natural occurring frequencies are another. Owning the most common frequencies for 5G internet will prove extremely lucrative once its fully rolled out.
And who sells them such rights? Governments of course, via an auction.
And who protects them? Surely you know by now.
Here are but two examples of how you can actually get the government to work for you. If that’s sounds like something of interest to you and would like to learn more, you need to subscribe to the Boom Bust Bulletin.
As a member of the Boom Bust Bulletin. You will receive the history of the 18.6-year Real Estate Cycle, why it repeats, and how you can take full advantage for yourself and your family.
You will find the information this bulletin provides you nowhere else.
It is 100% exclusive to Property Sharemarket Economics.
And it will cost you less than a single coffee per month. Incredible value.
Join us on this journey.
Sign up now.
Oh, and the title for today’s email?
Go and look up the “Occupy Wall Street” movement of 2011.
Right at the end of the last real estate cycle bust.
Know your history folks.
Best wishes
Darren J Wilson
and your Property Sharemarket Economics Team
P.S – Go to our Facebook Page and follow us for right up to date information on the 18.6-year Real Estate Cycle.