Trading for HOOD begins Thursday on the NASDAQ Stock Exchange. The price will be set on Wednesday. The company is currently looking for $38-$42/share, which equates to a market capitalization of about $33-$35 billion.
 
The first meme stock brokerage is going public this week. In an unusual move designed to promote the company’s motto of “democratizing finance for all,” Robinhood is reserving up to one-third of its stock for its own clients. So, should you download the app and place your order?
 
Impressive Growth vs. Regulatory Hot Water
Robinhood’s revenue growth is very impressive at 309% year over year in the most recent quarter (1Q 2021), rising from $128 million to $525 million. Put into perspective, this should add up to over $2 billion in 2021 revenue. The 2nd quarter 2021 revenue is expected to be $546-574 million, an increase of 129% year over year, and 6.7% sequentially in the midpoint range. 2020 revenues were $959 million, with $7 million in net income.
 
The company lost $1.4 billion dollars in 1Q 2021, mostly due to a one-time fair value write-down of its convertible notes and warrants. 2Q 2021 earnings will be hit with the $70 million fine imposed by FINRA on June 30, 2021, as well as reserves set aside to settle a money laundering matter with the New York State Department of Financial Services. Robinhood is expecting a 2Q 2021 net loss of $487 to $537 million, according to the S-1 filing. There will also be a one billion-dollar one-time charge in the 3rd quarter related to the IPO’s share-based compensation. With $4.8 billion in cash, and another $2 billion raised in the IPO, Robinhood should have enough capital to pay the fines and keep operating, even if 2021 remains in the red – unless something terrible happens. (With all of the Robinhood outages, trade halts, customer complaints, boycotts and regulators looking into everything, it does indeed seem as if something terrible is always happening. However, the company is savvy about SEO, which helps these stories to stay buried in searches.)  
 
Gamification: Memes, Emojis, Fractional Shares, Free Trading & Gold Margin Accounts
About 50% of Robinhood clients are new to investing. Robinhood makes trading like a game, using emojis, lotteries, confetti, gifts and free stock to lure in retail investors. Unlike other brokerages, Robinhood offers fractional shares and crypto, but hasn’t yet entered into the retirement space. You’ll still have to rollover your IRAs and 401Ks elsewhere, although this is an area that Robinhood is looking to expand into.
 
Robinhood’s gamification is an effective marketing ploy. However, it’s problematic in the financial services industry. Fiduciaries and regulators are constantly trying to figure out ways to educate and empower professionals and their clients to use risk tolerance and strategy, rather than emotions, to manage their wealth and future. Everything is sunny in a bull market. There are many heartbreaking examples of what happens when stocks head south, particularly with young, less-experienced investors.
 
FINRA Fines Robinhood $70 Million
On June 30th, 2021, FINRA (the financial services regulatory authority) levied the highest fine in its history on Robinhood. FINRA found multiple violations with Robinhood, including “millions of customers who received false or misleading information from the firm, millions of customers affected by the firm’s systems outages in March 2020, and thousands of customers the firm approved to trade options even when it was not appropriate for the customers to do so.” The false and misleading information included how much cash was in an account, downplaying the risk of trading options and approving margin trades for customers who didn’t understand the risk of a margin call. One Robinhood customer who had turned margin “off,” tragically took his own life in June 2020. According to FINRA, Robinhood had (allegedly) displayed an inaccurate negative cash balance in this investor’s account (and to other customers as well).
 
There are strict regulations in place for determining whether or not a trader is experienced enough for options and margins trading. Robinhood assigned that task to bots that aren’t the Einsteins of the artificial intelligence industry. Apparently, the bots approved inexperienced traders who did not satisfy eligibility criteria or had other red flags in their accounts.
 
Halted Trading on GameStop
Other massive problems with Robinhood, which haven’t been problems at other brokerages, are power outages and restrictions on trading. Reddit’s Wall Street Bets traders are still infuriated about the GameStop trading fiasco, when Robinhood suspended trading of the stock during the height of the meme stock Short Squeeze. On March 2nd and 3rd, 2020, at the height of the volatility of the pandemic, Robinhood‘s website and app shut down. $12.6 million of FINRA’s fine is for restitution to “harmed” customers.

Robinhood wrote in a blog on June 30, 2021 that the company is committed to enhanced customer support. Improvements include: more customer service support staff, better education, improved customer alerts and enhanced anti-fraud measures. Part of these measures were mandatory in the deal Robinhood made with FINRA. 
 
Reddit Boycott
Robinhood is receiving a lot of negative publicity on Reddit‘s Wall Street Bets platform which is home to almost 11 million investors and traders. There you’ll find plenty of posts on “Robbing Hood,” comparing the company’s lack of customer service to having Beavis and Butthead as the call-center operators. There are posts with instructions on how to rollover your holdings to another brokerage and delete the app from your phone before the company’s IPO.


​

​No Lockup Period & Minimal Voting Rights
New investors will have minimal voting rights. Existing employees and board members, with the exception of the founders and CFO, can sell up to 15% of their stock in the first day of trading. (The founders and CFO are limited to 5%.) Since Robinhood was founded in 2013, there is likely to be more than a few insiders who are ready to cash in their paper gains for dollars.
 
In previous IPO insider liquidity events, the stock hits the board and then sinks the first day. Snap’s stock was underwater for 3 years. Zynga has never recovered to its IPO prices. Like Robinhood, Snap enjoyed amazing year-over-year revenue growth at its IPO, but struggled with multi-billion-dollar losses.
 
Bottom Line
There are 17.7 million monthly active users on Robinhood, according to the company’s S-1 filing. There are almost 11 million traders on Wall Street Bets. Will insider selling and the social media boycott doom Thursday’s Robinhood IPO? Should a company that only made $7 million last year be valued at $35 billion?
 
When new investors rush in, while insiders sell sell sell, it can feel like trying to catch a falling knife. This is an unusual trading year, with an elevated appetite for risk. So, anything is possible. However, I’ll be looking for greener pastures in non-financial services industries for my investments in 2021.
 

If you'd like to learn how to learn how to invest in great companies and manage volatile industries, like crypto, then join me for our 3-day Investor Educational Retreat. Our Company of the Year doubled in just two months, and we've had many Shoot the Moon stock picks in 2020 and 2021. You will also learn how to protect your wealth., while earning money while you sleep with a time-proven, 21st Century plan. Wisdom is the cure. It's time to become the boss of your money. Call 310-430-2397 or email info@NataliePace.com to learn more now.
​

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

For the purposes of this blog, I am focusing on a few of the companies that benefitted from the crypto rally in the first quarter, and how those companies will be impacted by the crypto crash of the second quarter. Square, Tesla and Coinbase will all announce results over the next few weeks.
 
Tesla
Tesla earnings: July 26, 2021 2:30 PT
In the first quarter 2021 earnings call on April 27, 2021, Tesla CFO Zachary Kirkhorn talked up Bitcoin’s “liquidity,” and Tesla’s long-term commitment to the coin (although they’d captured gains in March on 10% of their $1.5 billion in holdings). The sale offered a “small gain” to the 1st quarter financials, according to Kirkhorn.

Suddenly, an about-face occurred on May 12, 2021, when Elon Musk tweeted that Tesla would no longer accept Bitcoin, citing concerns over the amount of power used in mining and transacting with the cryptocurrency. Why was this an issue suddenly, when clearly any C-level should have known about the energy problem before plunking down a billion dollars? Did it have to do with the regulatory credits that Tesla receives for manufacturing electric vehicles. In the 1st quarter of 2021, credits offered a boost of $518 million to Tesla’s revenue. Can Tesla sell carbon credits to gas guzzling manufacturers when its currency is forged with coal emissions? Was it a moral or a financial incentive that set Tesla’s executives straight? Did regulators knock on the door, or was it investor activists, Grimes, a plummet in the price of Bitcoin or EARTHDAY.ORG that sobered Tesla’s leadership up?

By the date of Elon’s Bitcoin Exit tweet, Bitcoins were trading down significantly from the high of $64,899 (hit on April 13, 2021), at $49,499/coin. Anything purchased with cryptocurrency before the Bitcoin suspension would have lost money. Tesla’s $1.5 billion in Bitcoin at the end of the 1st quarter would be worth about $895 million on June 30, 2021. Since cash and cash equivalents have to be recorded at fair value, this should have a negative impact on Tesla’s income.

From a revenue perspective, however, Tesla will have a spectacular 2nd quarter. For the first time in the company’s history, more than 200,000 vehicles were produced and delivered (206,421 and 201,250, respectively). Deliveries are up 121% year over year, with production up 151%. That could put revenue in the range of $13.34 billion, which would be more than enough to absorb the drop in Bitcoin value, unless there were quite a large number of cars purchased with Bitcoin (unlikely?). We’ll know the details on July 26, 2021, when Tesla announces earnings.  
 
Square
Square earnings: August 5, 2021 2 pm PT
Square’s net income in the first quarter of 2021 was $39 million, with net revenue of $5.06 billion. Square’s net revenue included $3.51 billion of Bitcoin revenue (which was up 11X year over year). Square acknowledges that Bitcoin’s volume and price fluctuates, which will affect their bitcoin revenue. The question is, “How much?”
 
Assuming Square’s Bitcoin revenue dropped 40% in the 2nd quarter due to the price correction, and Square’s other revenue remained constant, Square’s 2Q 2021 revenue could be in the range of $3.656 billion. That would still be impressive year-over-year growth of about 90%.
 
Is that enough to justify a price-earnings ratio of 382? Should a company with under $200 million in annual net income be worth $111 billion?
 
Coinbase
Coinbase earnings August 13, 2021 (ish?)
On April 13, 2021, Bitcoin’s market capitalization was over a trillion. Today, Bitcoin is worth $556.6 billion. While Coinbase forecasted in the 1st quarter earnings release that the 2nd quarter revenue was looking to meet or exceed the 1st quarter, that didn’t pan out. The crypto crash will materially impact Coinbase earnings.
​
However, Bitcoin prices were in the $9,000/coin range in June of 2020. So, even though the 2nd quarter 2021 crash has been substantial (down by more than half from the high in April), prices are still 3X higher than a year ago. If Coinbase revenue drops by 40% to the $1 billion range (from $1.8 billion total revenue in the 1st quarter), it would still be up 5.4 times on a year-over-year basis. That kind of growth in today’s world is astonishing (outside of the COVID-19 vaccine manufacturers). However, when a company boosts a price-earnings ratio of 84.60, investors are looking for forward momentum. Having a 40% contraction on revenue quarter over quarter will concern investors.
 
Bottom Line
The crypto crash has caught many retail investors on the wrong side of the trade. (Downturns tend to be initiated by hedge funds and institutional investors.) But it will also impact the platforms and early adopters, such as Coinbase, Square and Tesla. Those three companies are trading at intergalactic multiples. When lofty valuations meet a crash in fundamentals, repricing and losses can occur. Investors have had a gluttonous appetite for risk, and 2021 GDP growth of 7.0% is the best in decades. Investors have become so forward-thinking -- looking beyond pandemics and crashes -- that a drop in share price is not a given, even with outlandish price-earnings ratios. 

I don’t expect crypto impairments to impact Tesla's earnings as much as Coinbase and Square, due to the impressively strong 2nd quarter deliveries of Tesla. Tesla’s income will be impacted by Bitcoin’s volatility, but the company should have room in the revenue growth to report solid earnings nonetheless.   
 
Both Coinbase and Square look solid compared to last year. But the plunge in quarter-over-quarter revenue might be too volatile for investors’ appetites, particularly since the revenue of both companies is highly dependent on Bitcoin and Ethereum. If the crypto executive exodus continues, cryptocurrency runs the risk of a continued rout, taking the revenue of these two companies down the drain with it.


Learn more about Tesla, Coinbase and cryptocurrency in my previous blogs. (Click to access.)



 
If you'd like to learn how to learn how to invest in great companies and manage volatile industries, like crypto,, then join me for our 3-day Investor Educational Retreat. You will also learn how to protect your wealth., while earning money while you sleep with a time-proven, 21st Century plan. Wisdom is the cure. It's time to become the boss of your money. Call 310-430-2397 or email info@NataliePace.com to learn more now.

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

​Other Blogs of Interest
China: GDP Soars. Share Prices Sink. 
The Competition Heats Up for Tesla & Nio. 
How Green in Your Love for the Planet?
S&P500 Hits a New High. GDP Should  be 7% in 2021!
2021 Financial Freedom Sweepstakes
Will Work-From-Home and EVs Destroy the Oil Industry?
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe? 
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
​Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
​Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
​Beyond Meat, Oatly & The Very Good Food Co. 
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away? 
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors. 
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999. 
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October. 
​Investor IQ Test 2021.
Investor IQ Test Answers
​Shoot the Moon Stock Picks
​2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
​Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
​Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
​Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
​Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
​Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
​Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich. 
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%. 
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.

​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

The United States is in the middle of one of the best recovery years it has seen in decades, with a predicted GDP growth this year of up to 7%. (Click to read that blog.) That GDP growth has saved us from a credit downgrade by Fitch Ratings, although the outlook does remain negative. If we get the Debt Ceiling raised in time (hopefully before August 1 and definitely before we run out of money), it’s very likely that the U.S. will keep its AAA rating from Fitch for the rest of 2021.
 
However, if you think the U.S. is having a gangbuster year, China is “off the charts,” to quote Sebastian Eckardt, the World Bank’s Lead Economist for China, in his podcast interview with Fitch Ratings on July 12, 2021. It’s rare when economists use language like that. They didn’t even bother mentioning the number, which was 18.3% GDP growth in the first quarter of 2021 for China.
 
Economic Growth
2Q 2021 economic growth for China should be reported next week. In a Reuters’ poll of economists, the median forecast was 8.1% GDP growth year-on-year. The full year should be around 8.6%, which would be the highest GDP in a decade for China.
 
Share Prices
Before we jump all in, it’s important to remember that this is a recovery year. Companies have taken on a lot of debt to stay alive during the pandemic. Some companies and industries are in the middle of a structural shift and are unlikely to have the revenue they need to recover without restructuring. As just one example, be sure to read my report on office buildings in San Francisco and NYC.
 
In many industries that are enjoying impressive revenue growth, such as technology and electric vehicles, the recovery is already priced into U.S. equities. If you look at the chart below, which came from the Federal Reserve Board, you can see that the forward PEs of the S&P 500 are as high now as they were in the Dot Com Recession. There was a wipe-out of up to 78% in the NASDAQ Composite Index between the high of March 2000 and the low of October 2002. It took 15 years to recover. So, it’s important to be mindful of price and valuation, even in an unprecedented year of GDP growth.

Valuations
Share prices on many Chinese companies have dropped dramatically. Alibaba is trading at $213/share. Last October, before Jack Ma went radio silent, Alibaba was trading at $319/share. Beijing scuttled Ma’s Ant Group IPO and fined Alibaba $2.8 billion in April. According to Alibaba’s co-founder and vice-chairman Joe Tsai (speaking on CNBC on June 15, 2021), the company is looking forward under the leadership of CEO Daniel Zhang. Jack Ma is now more focused on his charities and hobbies, and is no longer on the board of Alibaba.
 
Even with all of the scrutiny and fines, Alibaba hit a new milestone of one billion annual active global consumers, with year-over-year revenue growth of 64% in the 1st quarter of 2021. The company swallowed the fine and reported a net loss of $836 million in the quarter, due to that one-time event. Alibaba is forecasting $144 billion in revenue in the 2022 fiscal year, representing an increase of almost 30%. Alibaba’s forward PE is 21. With 64% year-over-year sales growth, a 19% net profit margin, continued robust growth predicted in 2022 and a gangbuster GDP year for China, that’s very reasonable (unless the pandemic surges with a vengeance).
 
By comparison, Amazon’s forward PE is 77. Amazon is boasting a respectable 44% year-over-year sales growth. However, the company’s price-earnings ratio is dramatically higher than Alibaba’s, with lower growth in the trailing earnings quarter.

An ESG Star of the Stock Report Card
Daqo Energy, which provides high purity polysilicon for the global solar PV industry, has a forward PE of just 9. Daqo Energy saw revenue growth of 52% in the first quarter. Since then, the average selling price of their product has gone from $11.90 per kilogram in the 1st quarter to $23-$25 per kilogram. In the 2nd quarter of 2020, during the pandemic, polysilicon prices dropped to just $7.5/kg.
 
Even with a silicon supply chain bottleneck, Daqo is managing to stay on track for their deliveries without much increase in costs. So having their ASP double, without a meaningful escalation of expenses, should make for a pretty stunning earnings report in mid-August.
 
Oddly, though investors rallied after the May earnings report, the price is lower today than it was when the report came out. Since hitting a high back in February of this year of $130 a share, Daqo has mostly been on a downtrend. The company is currently trading at $68 a share.
 
Bottom Line
As the author of Put Your Money Where Your Heart Is, I strongly believe in ESG investing. However, price is always something to factor in. That is why it is so exciting to find a solar company that is trading at half the price it was earlier this year, with an impressively low forward PE, right at the time that average selling price of their main product has doubled.
 

If you'd like to learn how to learn how to pick and invest in great companies like Daqo, Alibaba, Nio, Tesla, XPeng and more, then join me for our 3-day Investor Educational Retreat. You will also learn how to properly diversify your 401k, IRA, insurance and pension, so that you can earn money while you sleep while protecting your wealth. Wisdom is the cure. It's time to become the boss of your money. Call 310-430-2397 or email info@NataliePace.com to learn more now.

For the first time in Tesla’s history , the company delivered over 200,000 cars in the second quarter of 2021. The total delivery 201,250 vehicles, more than doubles the deliveries of last year in the same quarter (up 121%). GM and Ford remain the largest US-based auto manufactures with 688,236 and 475,327 vehicles sold in the US alone in the 2nd quarter, respectively.
 
The greatest growth is being achieved by the Chinese electric vehicle manufacturers, however. Li Auto increased deliveries by 166%. XPeng’s year-over-year auto sales soared by 439%. Nio’s deliveries were 116% higher than last year.
 

Nio specializes in the premium EV space, while XPeng is making a play for the Tesla 3 market. In April of this year, Nio became the top-selling  brand in the electric SUV space in China, beating out Tesla’s 17% market share (Model Y) with 23%. Tesla’s Model Y was the top-selling EV in China in April with 5,520 cars sold.
 
The new electric vehicle manufacturers are leaving Ford in the dust in terms of sales growth. Ford achieved a mere 9.6% increase in auto sales over last year’s pandemic-plagued 2nd quarter.
 
General Motors is making a big play to transform their entire fleet to electric. GM has made it clear that the future is one of “zero crashes, zero emissions and zero congestion.” The company will release two EVs within the next 18 months, with the goal of 20 new EVs by 2023. GM has also made investments in lithium mining and batteries.
 
The real question, however, is can American manufacturers compete with China’s ability to produce things at such a lower cost? Will American manufacturers lose the Chinese market to Chinese-based EV companies? How soon will Chinese auto manufacturers invade the European market?
 
For now, the Chinese manufacturers are limited to the Chinese consumer, which is the largest vehicle market in the world. However, Nio is planning to expand into Europe within the next five years. XPeng received a 4-star review from a UK’s auto website, which said that its performance fares well with higher-priced competitors.
 
Safety
The Tesla S scored the highest safety ratings the NHTSA has ever given. XPeng has that honor In China. Nio’s safety was ranked even higher than Tesla’s by the Chinese.
 
What Semiconductor Shortage?
Auto industry experts have warned that inventory levels of the lowest they’ve ever seen. So far, the semiconductor shortage seems to be impacting the legacy car companies more. It may well be that the 3rd quarter is where the semiconductor shortage will have an even deeper negative impact. We should learn more about this in the second quarter earnings calls of each of the companies. The earnings season will likely start with Tesla, Nio, Ford and General Motors reporting at the end of July, followed by XPeng and Li Auto in August.
 
Valuations on EVs are Astronomical
As with many equities, the valuations on all the electric vehicle companies are astronomical. The excellent news of electric vehicles being on fire is already priced in. Tesla’s $602 billion market cap is larger than Nio, XPeng, Li Auto, Ford and General Motors combined, with a forward P/E of 152. The Chinese manufacturers are all still cash negative.
 
When valuations are so high, the plunge can be rapid and steep, like trying to catch a falling knife. The drop can happen faster than you can protect your gains. Of course, the prices can also go higher, particularly since the U.S. and China are expected to have a gangbuster year of GDP growth, with 7.0% in the U.S. and 8.4% predicted in China.
 
Trying to time when to jump in and out can be perilous to your profits. Regular rebalancing and capturing gains affords you the opportunity (and the cash) to buy low in the event of an unexpected downturn. As examples, both Nio and Tesla hit highs of $67 and $900 in January of this year, respectively, and dropped as low as $35 and $563 within three months of their summits.
 
Both Tesla and Ford are Junk Bonds
According to S&P Global, there is a one-in-three chance that Ford Motor Company will receive a downgrade from BB+ to BB in 2021. Tesla is at BB currently. Both of these are speculative ratings. However, the difference is that one company is growing rapidly and borrowing to build factories to keep up with demand. Ford will be using the profits from its recent $2 billion in senior unsecured convertible notes to pay off prior debts.
 
Bottom Line
Stocks are on fire hitting new highs every day. Electric vehicles are one of the fastest growing industries. Semiconductor shortages didn’t slow down EV sales in the second quarter, but could impact the third quarter. Investors tend to be forward thinking. There will be a mix of euphoria over amazing GDP growth, combined with concern over the semiconductor shortage and valuations, in the remaining months of 2021. Your best strategy will be to be properly diversified and to rebalance your investments on a regular basis.
 

​If you'd like to learn how to learn how to pick and invest in great companies like Nio, Tesla and XPeng, then join me for our 3-day Investor Educational Retreat. You will also learn how to properly diversify your 401k, IRA, insurance and pension, so that you can earn money while you sleep while protecting your wealth. Wisdom is the cure. It's time to become the boss of your money. Call 310-430-2397 or email info@NataliePace.com to learn more now.
 ​

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

What would happen if we put nature at the heart of every choice we make? Is it possible that we can Restore Our Home Planet? Take the 10-question quiz below to see just how green your love for Mother Earth is.
 
1. Do you use recycled toilet paper?
Are you wiping your bottom with an ancient tree? The singing bears might be wining advertising awards, but they are failing the grade of sustainability. Many of us are purchasing toilet paper from companies that are denuding our forests. Trees and plants are one of the most important sources of carbon removal from the atmosphere. They also clean the air we breathe, moderate temperatures, provide shade and keep the soil moist and rich in nutrients.
 
Check out the NRDC’s toilet paper report card below.
 

2. Do you take the stairs?
Every button we push is connected to a power source. Imagine how expensive our electric bill would be if we installed an elevator in our home, instead of stairs. If we take the stairs in government buildings, there will be more civic funds for education, planting trees and other endeavors that create a better tomorrow.
 
In many states, fossil fuels are still the primary power source for electricity. Every time we push a button, a coal power plant, or fracking company, or a nuclear power plant is firing up. Using less contributes to a more sustainable world, and it also leaves more money in our budget for things we might enjoy even more. Taking the stairs also promotes physical health.
 

3. Are you still working from home?
In many cities across the developed world, 2020 offered the bluest skies we’ve seen in our lifetime. Carbon emissions were down 7% globally in 2020. The reduction contributed from nobody driving or flying anywhere was profound. During the height of the lockdowns, road transportation was down by half. In December of 2020, aviation travel was still reduced by 40%. If everyone returns to their normal commute, emissions will increase with the population growth. If we embrace working from home and videoconferencing for meetings, we can continue the transportation emissions reductions.
 
4. Are you purchasing organic food?
Protecting our pollinators is key to survival. Many of the pesticides used by conventional farming are harmful to bees and butterflies. Organic food is rich in antioxidants, vitamins and is free of residue that can be unhealthful for humans as well. Just as importantly, however, it contributes to the preservation of the mini beasts that are essential for planetary plant health.
 
5. Have you done an air test on your home, school and office to see just how energy efficient your dwelling is?
When you turn on the cooling in your home are you actually cooling the outside air? Do you have so many leaks that your unit has to stay on constantly in order to keep the inside cool or hot? A well-insulated home, combined with smart choices like curtains in the summer, can save you thousands of dollars every year. Typically, the investment will be minimal, and often it is tax deductible. There are still energy efficiency tax credits available In the United States and many other countries around the world. The money saved at school can be used for the arts, updated technology hardware and software and school gardens. Savings at the office are essential to profitability, which helps you to keep your job and receive raises. Of course, a reduction in fossil fuels and energy usage is a great way to show our love for the planet that nourishes and sustains us.
 
6. Do you bike or walk for local errands?
A lot of people do large shopping trips by car. However, a backpack and a walk to the store can mean that you don’t have to get into a car at all (particularly if you’re working from home). For most people giving up their car adds up to thousands saved annually, when you factor in the car payment, the insurance, vehicle maintenance and gasoline. Foot and pedal power are clean energy that promote heart health. With obesity rates at 1/3 in the U.S., the value of a trend toward walking and biking cannot be overstated (source: CDC).

If your city has not yet put in bike lanes, then becoming more active in your community plans will contribute to making your streets friendly to pedestrians and micro mobility.
 
7. Are you conserving water?
Do you live in a desert with green grass in the front lawn? Does your yard reflect the natural habitat? Fresh water is something we all have an interest in preserving. Other ways to conserve water include grey water systems for plant watering. Smart landscaping techniques will keep the soil moist. In rural areas, you might even consider reed beds and other vegetation that offer natural filtration. Mark Nelson, one of the original Biospherians, has a book called The Wastewater Gardener.

8. Are you composting food waste?
Up to 40% of food that is purchased is never eaten. Even if you are pretty efficient about buying only what you eat, there are still avocado pits, orange peels, egg shells and coffee grounds. Composting saves energy, protects the climate and returns valuable nutrients to the soil. Food waste can be up to 1/3 of a city’s garbage (source: Seattle.gov). In a landfill, it produces methane, which is harmful to the atmosphere. Many cities already allow composting in the yard bin. Again, if yours doesn’t, then it’s time to become more involved.
 
9. Do you live by the 7 Rs of sustainability?

​10. Is your community powering with clean energy, or are you being deceived by marketing ads?
Know the source of your power! Santa Monica, California, powers 100% with clean energy. Poundbury, England, installed their own anaerobic digester, which provides heating for their township and the surrounding community. Meanwhile, 60% of the U.S. power grid is powered by fossil fuels. Some states are greener than others, with California taking the lead at 44% renewable energy. Florida is one of the biggest polluters, with 83% fossil fuels (76% natural gas and 7% coal). Sometimes the utilities will brag that they’ve doubled their solar. In the case of Florida, that would be going from 1.3% to 2.6% solar. Remember that the cleanest energy source is the energy you don’t use, by taking the stairs, riding a bike, insulating your home and working from home.

11. Do your local schools and community have gardens?
You can lower the temperature and increase the humidity in a neighborhood that is blighted by concrete by planting trees and gardens. Ron Finley transformed his home in a food desert into his own private Eden. School gardens offer fun ways for kids to learn about science and math, and to experience where their food comes from. It also promotes healthy eating. At the Edible Schoolyard, a garden project begun in 1995 by Alice Waters in Berkeley, California, one of the students told me her favorite snack was kale pesto!

12. Has your community dispensed with plastic bags and straws?
In Poundbury, England, the children at Damers First School (with the help of their eco-teacher extraordinaire Edd Moore) wrote to the food distributors asking them to deliver their food without plastic coverings. They then went on to encourage a local shop to offer plastic-free produce. You can dispense your own milk at the shop, in addition to the fresh produce and bulk goods that are available. Individuals took it upon themselves to create Boomerang Bags – reusable cloth bags that anyone can use free of charge. (Many grocers sell canvas bags for a nominal fee.)
 
13. Are you still using single-use products and containers?
Cloth diapers can be swapped out for disposable plastic ones. (They feel better on the baby’s bottom, too.) Diaper services make this easy and mess-free. Opt for drinking your coffee at home, or at cafes that serve in cups rather than disposable paper and plastic. Purchase stackable food storage containers which create more space in your refrigerator (particularly useful now that so many of us are eating at home more). EARTHDAY.ORG has a plastic calculator so that you can add up just how wasteful your habits truly are (or are not).

Can you think of things I’ve forgotten? Do you wish to share something you’ve shifted in your own life? Please tag us on social media (links below) using the hashtag #EarthGratitude, so that we can like and reshare.

The Earth Gratitude Project
Earth Gratitude on YouTube
Earth Gratitude on Instagram
Earth Gratitude on Twitter
Earth Gratitude on Facebook
 
Please share this quiz with your community. Together, we can be the change we wish to see.
 
Final Thoughts on: Financial Independence. Sustainability Independence.
 
What is the true value of money, if not to offer us greater freedom to live the life of our dreams? What is the true value of life? Plants, animals, trees, rivers, oceans and mountains offer us our sustenance, but also joy and adventure. Everything is intertwined in a divine and sacred braid. There is not wealth without freedom. There is no life without biodiversity. They haven’t done a great job of preserving wealth and life for us. We must believe, achieve and create for ourselves. If we do this on a planetary scale, our climate anxiety can be exchanged for the hope of restoring our home planet for our children and grandchildren. This is worth taking a look at our habits and making our love for our planetary home more apparent. The blessings will be many and unexpected, and will include more money in your budget for the things you truly cherish and love doing, rather than the multitude of quite unsustainable traps that we’ve fallen collectively into.
 
 
If you'd like to learn how to put your money where your heart is, and make sure that you're not profiting from polluters, then join me for our 3-day Investor Educational Retreat. If you don't know what you own in your 401k, IRA, insurance and pension, chances are quite high that you invest in the same companies that are destroying our planet. Wisdom is the cure. It's time to become the boss of your money. 

​Other Blogs of Interest
S&P500 Hits a New High. GDP Should  be 7% in 2021!
2021 Financial Freedom Sweepstakes
Will Work-From-Home and EVs Destroy the Oil Industry?
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe? 
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
​Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
​Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
​Beyond Meat, Oatly & The Very Good Food Co. 
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away? 
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors. 
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999. 
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October. 
​Investor IQ Test 2021.
Investor IQ Test Answers
​Shoot the Moon Stock Picks
​2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
​Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
​Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
​Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
​Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
​Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
​Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich. 
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%. 
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.

​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
​

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

The S&P 500 hit another high today of 4302. Yesterday was a high for the NASDAQ Composite Index, with intraday trading soaring to 14,536. 2021 is predicted to be a gangbuster year for the U.S. economy, with GDP growth of up to 7.0%, according to the Federal Reserve Board. Only China’s 8.4% predicted GDP growth is higher. 7.0% growth is a level that the U.S. hasn’t seen in decades. So, does that mean that stocks will continue to hit all-time highs? There are a few hurdles along the way. However, since April 2021, when the amazing GDP predictions were first unveiled, we've removed the overweight safe from our sample pie charts. (That doesn't prevent you from overweighting safe, if you are worried about the hurdles outlined below.) 
 
 
Fitch Ratings Has the U.S. AAA Credit Rating on a Negative Outlook
The Debt Ceiling Suspension Ends July 31, 2021
Stocks and Real Estate Are Very Expensive
Not All Industries Are Created Equal
We Live in a Debt World
Student Loans, Rent and Mortgages Are Not Being Paid
 
And here is a little more color on each point.
 
Fitch Ratings Has the U.S. AAA Credit Rating on a Negative Outlook
This is of concern. When the U.S. credit was downgraded to AA+ by Standard & Poor’s, on August 5, 2011, gold and silver soared to all-time highs. Stocks stumbled (but recovered).
 
Will Fitch downgrade the U.S.? The rating agency does not have the USA listed on its 2021 sovereign ratings calendar. Yesterday, Fitch issued a press release stating that negative outlooks were not likely to be downgraded as much in 2021 as they were in 2020. So, there’s less risk of a downgrade this year, unless we have a crisis around the Debt Ceiling at the end of July, or the pandemic rages again.
 
The Debt Ceiling Suspension Ends July 31, 2021
Treasury Secretary Janet Yellen has urged Congress to raise or suspend the Debt Ceiling immediately. Traditionally when the Debt Ceiling is not raised in a timely manner, the Treasury Secretary can use extraordinary measures to pay bills until Congress comes back from their summer break. Yellen has warned Congress that this strategy would be a disaster this year. She can’t assure them that the Treasury Department can scrape by. Funds might run out in August, if the Debt Ceiling is not raised. Under the Trump Administration’s Debt Ceiling crisis in 2017, Treasury Secretary Steven Mnuchin complained that he had to run the U.S. like a piggy bank.

​There is no real question as to whether or not raising the Debt Ceiling should be done. Without borrowing, the U.S. would default on paying the bills that we have promised to pay. That would result in a downgrade from Fitch, and likely Moody’s, as well. It would also mean that we would have to borrow money at a much higher interest-rate, which would toss the amazing projections of 7.0% GDP growth into the trash.
 
At the same time, we need a plan to start reducing our debt and deficits. The current debt levels are understandable, given the pandemic, but unsustainable. (Debt was a problem before the pandemic. The 45th Administration promised to put the U.S. spending on a sustainable path, but added over a trillion a year between 2017 and 2020.)
 
Stocks and Real Estate Are Very Expensive
The recovery is already priced in. The only two times when stock prices have been higher than they are today was before the Dot Com Recession in 2000, and before the Great Depression in 1929.

Real estate prices are booming. This is largely because there has been a shift toward larger homes for multi-generational housing. More expensive homes are skewing the average prices upward, even though not all homeowners are enjoying the equity gains that are revealed in the percentages.
 
One must be very cautious and strategic about stock and real estate purchases, even though it’s very tempting to just jump in and join the party. Having a well-balanced, diversified plan for your retirement and brokerage accounts is essential. Now is the time to know exactly what you own. With regard to housing, even if you are equity-rich, it’s a good idea to review our 8-Point Real Estate Checklist.
 
If you’re interested in cryptocurrency or cannabis, click to learn more about these industries in my blog.
 
Not All Industries Are Created Equal
As I indicated in my oil blog of this week, some industries are suffering from very high debt, very slim profit margins and negative revenue growth. The wild swings in oil prices wiped out a large number of oil and gas companies in 2020. Those that didn’t restructure their debt are still pretty beleaguered by the volatility.
 
The commercial real estate industry, particularly retail and office buildings, are going through a structural shift that could create financial instability in our banking system. In the May 6, 2021 Financial Stability Report, the Federal Reserve Board noted that low transaction volumes may be masking declines in commercial property values. They also warned that delinquency rates on commercial mortgage-backed securities are elevated.
 
A review of one’s portfolio should include an understanding of how exposed you are to the riskier industries. Many of these pay a high dividend (relatively speaking) in order to keep investors interested. However, if your principal is at risk of significant losses, a small dividend is hardly worth the risk.
 
We Live in a Debt World
There is so much borrowing in the corporate sector, that over half of the S&P 500 is at or near junk-bond status. In March of 2020, the Feds bought up over 1200 individual bonds and took sizable positions in many junk-bond ETFs in order to prevent a meltdown in the marketplace. There weren’t any buyers and the market had become illiquid. On June 2, 2021, the Federal Reserve Board notified everyone that they are going to begin selling their holdings.
 
The distress in the bond industry is a reminder that, sadly, the safe side of your portfolio is carrying far greater risk than many people realize. Bonds are not safe in today’s Debt World. There a risk of illiquidity and negative yield in the bond portfolio. There is also a risk of redemption gates and liquidity fees in money market funds.
 
Again, it is essential to know what you own now. Fix the roof while the sun is still shining. You do not want to wait until the economic storms arrive to discover that your financial house has major leaks. If it leaked in March 2020, that’s a sign that you need to do some repairs now.
 
Student Loans, Rent and Mortgages Are Not Being Paid
Almost five million renters and homeowners didn’t make their payments in March 2021 (source: MBA.org). 41.4% of student loans weren’t paid, as well. Consumer debt is at an all-time high. Unemployment rates remain elevated.
 
Bottom Line
You want to be invested the year that the US economy grows 7%. However, many people already have too much at risk in equities, with the safe side of the portfolio carrying greater risk than is prudent, as well. The higher the dividend, the higher the risk. Know what you want and why. Fix the roof while the sun is still shining.



Join us for our Oct. 9-11, 2021 Financial Empowerment Retreat. (Click to learn more.) In 3 days, you'll learn how to evaluate your funds, including dividend and value funds, what's safe in a Debt World, how to make a smart investment in real estate, pick hot funds and companies (like crypto, cannabis and our 2021 Company of the Year), and how to incorporate hard assets and safe havens into a well-diversified wealth plan. You'll discover how to protect your wealth and save thousands annually in your budget with smarter big-ticket choices. The retreat is a complete Money Makeover that will transform your life forever. Bring your friends, family and teens for an unbelievably low group rate. Call 310-430-2397 or email info@NataliePace.com to learn more now. Register with your friends and family to receive the lowest price. 
 
 

Other Blogs of Interest
2021 Financial Freedom Sweepstakes
Will Work-From-Home and EVs Destroy the Oil Industry?
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe? 
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
​Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
​Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
​Beyond Meat, Oatly & The Very Good Food Co. 
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away? 
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors. 
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999. 
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October. 
​Investor IQ Test 2021.
Investor IQ Test Answers
​Shoot the Moon Stock Picks
​2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
​Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
​Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
​Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
​Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
​Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
​Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich. 
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%. 
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.

​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.
​

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

​Everyone is a winner in our 2021 Financial Freedom Sweepstakes. (See the full list of prizes below.) The Grand Prize is a complimentary seat at an Online Financial Empowerment Retreat, valued at $895. Two Grand Prizes will be awarded.
 
Simply email info@NataliePace.com with the subject line Financial Freedom Sweepstakes! You will automatically be entered to win, provided you email us before July 11, 2021. There is no purchase or other action required. However…
 
3 Ways to Have Better Odds of Winning
 
1. If you’d like to up your odds, then write a review of Natalie Pace’s books, The ABCs of Money and/or The ABCs of Money for College. Send us a link to your review on Amazon, and we’ll enter you five more times in the Sweepstakes for each review that you write. The Kindle versions are available for under $5.00. Do this now. The entry period closes on July 11, 2021.
 

2. Anyone who attends Natalie Pace’s Financial Freedom Videoconference this Thursday (July 1, 2021) will also receive 5 additional chances to win. Natalie Pace will discuss important Debt Reduction and Thrive Budget strategies on that videoconference. If you’d like to attend this videoconference live, then you must be sure that you are on a VIDEOCON list. (Send an email to info@NataliePace.com with VIDEOCON in the subject line if you are not already on the list.)
 
3. If you like the recording of the Videoconference, which will be posted on https://www.youtube.com/nataliepace after the event, then we will also enter 5 additional chances for you to win. Be sure to include your name in the comments so we know who to award the tickets to.
 
Act now. Entries must be received by July 11, 2021. The drawing will be held, and winners will be notified, on or before July 21, 2021.
 
Tell Your Friends! If you know anyone who has children, has a job, rents or owns a home or is interested in investing, why not notify them of this sweepstakes? Who doesn’t want to protect their wealth, get a better degree for half of the cost, adopt a Thrive Budget, save thousands annually with smarter big ticket choices and earn money while you sleep?
 
List of Prizes
Admission to an Online Retreat (value up to $895)
½ off Retreat Seat (value $450)
2nd opinion on your current budgeting and investing plan (value up to $1795)
6-pack of coaching (value up to $1495)
50-minute private prosperity coaching session (value $300).
 
Everyone is a Winner
Every person who enters the sweepstakes will receive a complimentary 21-day prosperity video coaching series. This series is updated annually.
 
Thank You!
Your presence in our community, with a dedication to financial literacy and sustainability, means the world to us. We work hard to keep you informed and empowered, and you help us to spread the word of this important information. Thank you so much for your reviews and your presence at our retreats, videoconferences and on social media! We need your help in spreading the word about how important it is to learn the ABCs of Money that we all should have received in high school.
 
The Retreat Sweepstakes entry period expires July 11, 2021. Anyone who has emailed us on or before July 11, 2021will be entered in the drawing. Winners will be chosen and notified on or before July 21, 2021. There is no cash value for the prizes. 2021 Sweepstakes prizes are good through Dec. 31, 2022 only. You must use your prize within 12 months.
 
Testimonials

"Many people, including educated men and women, often get into trouble when they 

neglect to follow simple and fundamental rules of the type provided [by Natalie]. 

This is why I recommend them with enthusiasm." 

Professor Gary S. Becker. Dr. Becker won the 1992 Nobel Prize in economics for his theories on human 

"College students need this information before they get their first credit card. Young adults need it before they buy their first home. Empty nesters can use the information to downsize to a sustainable lifestyle, before they get into trouble." 
Joe Moglia, Chairman, TD AMERITRADE.

"We asked Natalie Pace for a second opinion on our investment portfolio. She researched and reviewed each stock and fund. She then explained to us in plain English how we were positioned in the market and how high our risk exposure was. Her knowledge was so profound that we decided to take her retreat in Arizona. My husband was still quite skeptical, but 20 minutes into the retreat he turned to me and said "Thank you." Stocks and investing are no longer rocket science. We give thanks just about every day that we met Natalie. I feel like I live on a different planet. I'm so grateful. Thank you for changing our lives, our peace of mind, our future and our vision of what is possible. We made a tectonic shift with you."
AC & AM 



"Ten minutes into the first day I was already much smarter about investing than I ever thought I would be in my life and I knew I was in exactly the right place at this retreat. I am amazed at how EASY and FUN it is to make my money work for me and those I love. I think this kind of information should be compulsory in schools. I wish I'd learned this sooner." CM

"Thank you Natalie for saving my retirement," Nilo Bolden. 

Other Blogs of Interest
Will Work-From-Home and EVs Destroy the Oil Industry?
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe? 
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
​Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
​Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
​Beyond Meat, Oatly & The Very Good Food Co. 
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away? 
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors. 
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999. 
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October. 
​Investor IQ Test 2021.
Investor IQ Test Answers
​Shoot the Moon Stock Picks
​2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
​Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
​Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
​Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
​Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
​Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
​Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich. 
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%. 
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.

​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

A recent survey by Citrix revealed that 90% of Gen Z and Millennials do not want to return to the office full-time. While some are okay with flex work, over half prefer to work at home full-time. Add in the popularity of electric vehicles, and you might think that the oil industry is doomed. Fortunately for the industry, and sadly for anyone who is concerned about the environment, oil and gas consumption is expected to reach pre-pandemic levels in the fourth quarter of 2021 (source: EIA.org). Before you race to your brokerage account to purchase some oil and gas stock, there is a lot more to the story to consider.
 

With so many people working from home or switching to hybrids and electric vehicles, how in the world is consumption expected to be even higher in 2022 than it was in 2019? The answer is population growth, particularly in developing countries like China and India.
 
Saudi Arabia actually burns oil for its electrical needs. Oil, followed by natural gas, make up most of the power generation in the country.
 

About 40% of the US power generation is natural gas. 60% of U.S. power is sourced from fossil fuels (natural gas & coal). Less than 1% of the power generation in the U.S. is sourced from petroleum.
 

​

Strong Demand Does Not Equal Strong Profits
 
The oil industry has been plagued with wild swings in prices, low or negative profit margins and catastrophes for most of the 21st century.

​

Massive Losses & Debt
The industry was already on the ropes before the pandemic – so much so that by mid-2000, there was a wave of bankruptcies. Chesapeake Energy, Extraction Oil and Gas, Whiting Petroleum, Noble Corporation, Diamond Offshore and Valaris are but a few of the bankruptcies in the industry. Occidental teetered very close to the tip, as did Transocean. Neither company is out of the woods on having to restructure their debt. Both are junk bonds.
 
All oil and gas companies lost a massive amount of money in 2020. BP lost over $20 billion. Exxon Mobil lost over $22 billion. Occidental lost over $15 billion. Meanwhile, Occidental’s market value is only $31 billion.
 
A number of companies in this industry received a downgrade from S&P Global recently. Exxon Mobil and Chevron were downgraded to AA- this year. Exxon Mobil was removed from the Dow Jones Industrial Average on August 31, 2021. In a research report on May 25, 2021, S&P Global described the issues facing the oil and gas industry, writing that “energy transition, price volatility, and weaker profitability are increasing risks for the oil and gas producers.” The Secretary General of OPEC admits as much, noting in a press release on May 31, 2021, “There are many moving parts when it comes to factors affecting the global oil market, such as the pace of change during the COVID-19 pandemic.”
 
Price Stability?
The EIA is projecting that oil prices will remain near current levels, averaging about $68 a barrel through the end of 2021. In 2022, they are projecting that Brent will average $60 a barrel. It is unclear whether these projections are factoring in a meaningful shift towards electric vehicles and working from home. Many business and government leaders are trying to push everyone to return to a pre-pandemic lifestyle, while consumers and workers are recalcitrant to get sucked back into the office and long commutes. Additionally, as the pandemic schooled all of us in 2020, Acts of God can change the game entirely overnight. No one predicted that oil would drop into negative territory, as it did in April 2020.
 
Clean Skies, Healthy Air and Climate Change
In 2020 when the world stopped driving and flying, the skies were bluer than they had been in my lifetime. There was a 7% in global carbon emissions. If the projections are right, however, the gains will all be reversed in a few short months.
 
The oil industry is trying to promote a circular carbon economy as its solution for climate change. The rest of the world is leaning into renewable clean energy rather than fossil fuels. Even in more “normal” years, fossil fuels have all kinds of costs and damage associated with the industry. There are oil spills, many of which never make the headlines. Combustion engines pollute our air. Respiratory illnesses plague our population in far greater percentages than ever before. And that is not even taking into consideration the climate change that has occurred from putting too much carbon into our atmosphere.
 
Last Century Products
I’m sure all of us are very happy that we don’t have to ride our horse to go on a vacation or to get to work. A century ago, even though electric vehicles were better back then, too, the choice was made to manufacture gas guzzlers. Today, electric vehicles are the future. General Motors has promised to take its fleet 100% electric for a future of “zero crashes, zero emissions and zero congestion.” Tesla Motors has been the leader for over a decade, but has many all-electric Chinese challengers, such as Nio.

Put Your Money Where Your Heart Is. Invest in the World of Tomorrow.
Successful investing is about gazing into the future and imagining, investing and creating the products and services to get us there. None of us are that interested in investing in typewriters these days. There will come a time when oil goes the way of the typewriter. It doesn’t look like it’s going to happen in 2021 or 2022, unless an unexpected catastrophe occurs. However, the very high debt levels, combined with very slim profit margins, are indicative of an industry that is over-leveraged and on the ropes. No one wants more pollution, climate change and dirty energy (outside of the oil industry and its lobbyists).
 
The Higher the Dividend, the Higher the Risk
The companies paying the highest dividends are also those with the greatest losses, the slowest revenue growth and the most debt. This is important to realize not only for your individual holdings but also for your dividend or value funds. If your principal is at risk of capital loss, 4-5% annual yield is not adequate compensation to take on the risk. So be aware that dividend-paying companies today are not the darlings they were a couple of decades ago.
 
Bottom Line
With stock prices in most of the oil and gas companies trading near their 52-week highs, now is a great time to evaluate whether this industry is right for you. Make sure your portfolio analysis also includes a look at your dividend and value funds.
 
 
Join us for our Oct. 9-11, 2021 Financial Empowerment Retreat. (Click to learn more.) In 3 days, you'll learn how to evaluate your funds, including dividend and value funds, what's safe in a Debt World, how to make a smart investment in real estate, pick hot funds and companies (like crypto, cannabis and our 2021 Company of the Year), and how to incorporate hard assets and safe havens into a well-diversified wealth plan. You'll discover how to protect your wealth and save thousands annually in your budget with smarter big-ticket choices. The retreat is a complete Money Makeover that will transform your life forever. Bring your friends, family and teens for an unbelievably low group rate. Call 310-430-2397 or email info@NataliePace.com to learn more now. Register by June 30, 2021 to receive the lowest price. 
​

Other Blogs of Interest
Insurance and Hedge Funds are at Risk and Over-Leveraged.
Office Buildings are Still Ghost Towns.
Money Market Funds, FDIC, SIPC: Are Any of Them Safe? 
My 24-Year-Old is Itching to Buy a Condo. Should I Help Him?
Will Cannabis be Decriminalized This Summer?
The 12-Step Guide to Successful Investing.
​Gardeners Creating Sanctuary & Solutions in Food Deserts.
2021 Company of the Year
​Almost 5 Million Americans are Behind on Rent & Mortgage. Real Estate Hits All-Time High.
​Beyond Meat, Oatly & The Very Good Food Co. 
Is Cryptocurrency the New Gold?
Rebalancing Your Nest Egg IQ Test.
Answers to the Rebalancing Your Nest Egg IQ Test.
Tesla & Nio Will Report Spectacular Earnings.
The Coinbase IPO.
Restore Our Earth on April 22nd (and Every Earth Day).
Should You Sell in May and Go Away? 
Adding Shoot the Moon Performance to Your Nest Egg.
Videoconferencing in a Post-Pandemic World (featuring Zoom & Teladoc).
Sanctuary Sandwich Home. Multigenerational Housing. Interview with Lawrence Yun, the chief economist of the National Association of Realtors. 
10 Budget Leaks That Cost $10,000 or More Each Year.
The Stimulus Check. Party Like It's 1999. 
Kushner's Times Square Building Plunges 80% in Value.
Will There be a Spring Rally?
Cannabis and the Road to Decriminalization in the U.S.
Hot ETFs Return Up to 50% Since October. 
​Investor IQ Test 2021.
Investor IQ Test Answers
​Shoot the Moon Stock Picks
​2021 Crystal Ball.
Would You Pay $50 for a Cafe Latte? Is Your Tesla Stock Overpriced?
Can Medmen Avoid Bankruptcy?
​Bitcoin is Back, Baby!
Real Estate Prices are Going Up. And Down.
​Cannabis is Decriminalized. Stocks Triple.
Thanksgiving in a Pandemic. The Sustainability Silver Lining.
Money Stress Killed My Friend
Real Estate and Housing 2021. Challenges & Opportunities
​Real Estate in a Pandemic. Interview with Mike Fratantoni, the Chief Economist of the Mortgage Bankers Association.
​Bonds are Illiquid & Negative-Yielding.
Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot.
​Is Your Bank a Junk Bond
Put Your Money Where Your Heart Is.
Schwab's Chief Fixed Income Strategist on What's Safe.
China's Tesla (Nio). 2Q Sales Soar.
Why Are You Still Renting? (Errr. There is More Than This to Consider!)
​Wealth Myths That Keep You Poor. Prosperity Truths That Make You Rich. 
Technology and Silver are Golden.
Real Estate: Feeling Equity Rich? Make Sure That Feeling Isn't Fleeting.
Airline Revenue Plunges 86%. 
10 Questions for College Success.
Is FDIC-Insured Cash at Risk of a Bank Bail-in Plan?
8 Money Myths, Money Pits, Scams and Conspiracy Theories.
Why Are My Bonds Losing Money?
The Bank Bail-in Plan on Your Dime.

​
Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

About Natalie Pace
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 4th edition of The ABCs of Money was released on October 17, 2020. 

Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. ​

​Bank Stress Tests. Fed Bond Sales. Debt Ceiling. Credit Downgrade? All Happening This Summer.
 
The Federal Reserve Board will release the results from their bank stress tests this Thursday, June 24, 2021. This is expected to be a routine release. Since the last test showed strength in the banks and the stock market has been on a roar, there is unlikely to be any surprises. On June 30, 2021, banks may start repurchasing their own stock again – something that has fueled market gains for the past decade. That’s a tailwind for stocks, as is the great news that the U.S. economy is predicted to grow 7.0% in 2021 – the highest GDP growth in decades. The only country scoring higher is China (at 8.4%).

​Economic Storm Clouds
The skies are blue for the economy this summer, with a few economic storm clouds on the horizon. Debt, asset valuations, structural shifts in a few industries, the Debt Ceiling, inflation and other bugaboos threaten to scuttle the smooth sailing into YOLO Shoot the Moon Eden. Below are a few economic storm clouds to watch out for, and a few reasons why you always want to be properly protected and diversified. (Call our office at 310-430-2397 or email info@NataliePace.com, if you’d like an unbiased 2nd opinion whether your plan is properly diversified and protected.)

Insurance Companies & Hedge Funds are “Highly Leveraged”
Banks Are at the Lowest Rungs of Investment Grade
Asset Prices are “Elevated”
Feds Selling Bonds
Margin Trading
Debt Ceiling
 
Insurance Companies & Hedge Funds are “Highly Leveraged”
It is the nonregulated financial services industries, particularly insurance companies and hedge funds, that are of the greatest concern to financial stability. According to the Federal Reserve Board’s Financial Stability Report, which was released on May 6, 2021, “The leverage of some NBFIs [nonbank financial institutions], such as life insurance companies and some hedge funds, is high, exposing them to sharp drops in asset prices and funding risks.” Money market funds, bond and bank loan mutual funds are also at risk of “funding strains and sudden redemptions.”
 
Life insurance companies tend to invest in corporate bonds, Collateralized Loan Obligations and commercial real estate. CRE is experiencing a structural shift (empty office buildings), and corporations are highly leveraged. (Over half of the S&P500 is at or near speculative status, at the lowest rung of investment grade.)
 
Hedge funds are pretty opaque with regards to regulatory oversight. Meltdowns, such as happened with Archegos Capital Management in March of 2021, rarely come with any warning and can drag down stocks.
 
Banks Are at the Lowest Rungs of Investment Grade
Perhaps a better peak into the health of the banks is to look at their credit scores. Surprisingly, even though they are passing stress tests, many are at the lowest rung of investment grade.

Revenue is down, risk is up and valuations are pretty pricey in the banking industry. Many banks have risk exposure to empty office buildings, vacant fashion malls and consumer debt. Companies and consumers borrowed to get through the pandemic, pushing debt levels to astronomical status. With the wind-down of the eviction and foreclosure moratoria, and with less unemployment benefits and easy money showing up in consumers’ checking accounts, stress could start showing up in housing, commercial real estate and credit card debt. In March of 2021, almost 5 million Americans didn’t make a housing payment, and over 26 million people skipped their student loan payment. Consumer debt keeps hitting new highs each month (source MBA.org). According to the Financial Stability Report, “Shares of commercial and industrial (C&I), CRE, and residential mortgage loans in loss mitigation have remained elevated.”

Office buildings are still empty, even with the Return to Normal protocol happening across the U.S., and some (mostly banking) CEOs demanding their employees return to the office. Since bankers and REIT owners are smart enough not to flood the marketplace with empty buildings for sale, low transaction volumes are masking declines in property values, except in isolated incidents. (Read my article on the Times Square building that plunged 80% in value.) The Feds acknowledged this in their report. When the funding runs out and the business has to restructure, the value plunges overnight. 

Asset Prices are “Elevated”
The markets have already priced in an amazing recovery year for 2021. According to the Federal Reserve’s Financial Stability Report, “Valuations are generally high.” As the report warns, “Asset prices may be vulnerable to significant declines should investor risk appetite fall, progress on containing the virus disappoint, or the recovery stall.”

Between February 19, 2020 and March 23, 2021, the Dow Jones Industrial Average plunged 35% -- before most investors knew we were in a pandemic. Wall Street zips faster than Main Street and retail investors can respond, particularly when there is this much leverage in the system.
 
Feds Selling Bonds
One of the biggest problems during the dramatic drop and economic crisis of March 2020 was that bonds froze up. (So did money market funds, and even Treasury bills.) Bonds became illiquid. The Feds initiated a bond purchase program where they scooped up more than 1,200 distressed individual bonds and numerous junk bond ETFs. As of June 2, 2021, the Feds will now begin selling the bonds they purchased. The market is perceived to be functioning well enough for this to occur without any hiccups. It’s also a red flag for retail investors that you need to know what you own on the safe side of your nest egg. Illiquid, negative-yielding assets are not as safe as you believe.

​Margin Trading
Retail investors are more leveraged today than ever (source: FINRA). When stocks are in the money, this is less of a problem than when things head south. The amount of leverage in margin trading provides fuel for a rapid, robust reverse of direction, if any bad news should make investors more risk-averse. Those trading on margin will be the most vulnerable. However, all investors could be impacted.
 
Debt Ceiling
The current U.S. Treasury borrowing authority ends on July 31, 2021. Congress will have to raise the Debt Ceiling (again) before that time to prevent a government shutdown. The fact that Fitch Ratings currently has the U.S. AAA credit rating on a negative outlook is yet another threat to smooth sailing to the land of endless market gains. This will become more problematic if the Debt Ceiling is not raised in a timely manner.

​Bottom Line
2021 should be an extraordinary recovery year for the U.S. However, it could also be rife with hurricanes. Have fun. But, also make sure that your financial home is secure enough to withstand any economic storms that might hit.


​Join us for our Oct. 9-11, 2021 Financial Empowerment Retreat. (Click to learn more.) In 3 days, you'll learn what's safe in a Debt World, how to make a smart investment in real estate, pick hot funds and companies (like crypto, cannabis and our 2021 Company of the Year), and how to incorporate hard assets and safe havens into a well-diversified wealth plan. You'll discover how to protect your wealth and save thousands annually in your budget with smarter big-ticket choices. The retreat is a complete Money Makeover that will transform your life forever. Bring your friends, family and teens for an unbelievably low group rate. Call 310-430-2397 or email info@NataliePace.com to learn more now. Register by June 30, 2021 to receive the lowest price.