Market on Sugar High: Where Are The Opportunities?

Nearly one million people filed for unemployment benefits last week. Yes. In seven days times, nearly one million Americans filed to secure their government checks because they’re out of work — and, investors don’t care.


Money apparently now grows on trees. The government has fired up its printing press and, given that the incoming administration will soon have free rein, it’s about to go into high gear.

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Let me be clear, while government should be there to help workers in times of real need, there is reasonable debate as to whether we should be opening-up our economy now instead of printing dollars and providing handouts. I, personally, am always in favor of trying to create real growth as opposed to offering handouts.

Nonetheless, markets like handouts.

That’s because when you give out dollars (and promise even more dollars through liquidity injections and low interest rates at the Federal Reserve) two things happen:

First, to be fair, there is the real promise of a real economic boost. The hope is people will stop saving their pennies and begin spending their stimulus checks. That, in turn, pumps liquidity into the system…and, gaming companies are some of the first in line to benefit.

Which Companies Benefit From Stimulus Checks?

Indeed, we’re already seeing evidence that Americans are willing to spend on discretionary items like apps and video games. Shares of Gamestop have nearly doubled since the start of the year from $15 dollars a share to $34.90 a share in today’s trading. And, this is from $4.61 a share a year ago! The stock has also surged since yesterday in part on the announcement that Chewy Inc. co-founder Ryan Cohen and two of his former colleagues would join Gamestop’s board of directors. The news is acting as a short squeeze on the stock, driving the price higher. Nonetheless, there are the fundamental reasons investors believe this company is well positioned for the future. Selling games increasingly online (it’s shuttered a record number of stores) is a viable business opportunity in the stay-at-home era.

Zynga is another gaming company that has seen an impressive gain in the last year, from $6 a share in late April to nearly $10 today. The maker of FarmVille is focused primarily on games for the mobile market.

Meanwhile, Roblox, which has seen massive growth among the 8-10 year set, announced this week that had opted for a direct listing as opposed to an IPO. In doing so, Roblox is following a path similar to companies like Slack, Spotify and Palantir — all of which chose direct listings. Roblox has already raised $520 million through Altimeter Capital and Dragoneer Ivestment Group and the company is valued at just under $30 billion. Heads up: if you are not familiar with this company, start reading up now (including this piece I wrote last month.) Roblox will surely be a player in our new economy and has a group of very loyal, young users.

Will Leisure Companies Grow In Value?

There’s also hope that once the nation benefits from the vaccines, people will have pent up demand and will begin going out and traveling again.


That said, I’m not sure the market is buying that.

Shares of Marriott International, for example, saw some upside in November as the nation got positive news about a coronavirus vaccine, nonetheless, it’s unclear there will be a surge in travel activity in the next year.

Meanwhile, it’s quite possible that certain jobs and sectors may not fully recover. There are people that have grown increasingly used to working from home. In addition, will a democrat run administration be able to properly incentivize individuals to return to work? There are real economic questions and there are unintended consequences of stimulus that some are failing to recognize.

Money Printing Ultimately Hurts the Middle Class

Money printing from the Fed or via Uncle Sam ultimately hurts the American people. This is because it causes inflation through an artificial depression of the dollar. If there are many more dollars coming off the printing press? Then, a dollar won’t mean what it used to mean. Instead, it will take that many more dollars to create value.

Consider the current valuations in the stock market. Despite a worldwide pandemic and news of nearly a million new unemployment claims in last week, the market is is trading above 31k on the Dow. Price to Earnings ratio and all normal metrics used to attribute valuations to stocks are seemingly no longer relevant. On the one hand, that’s great. It tells us that the markets are foreseeing a better future. On the other hand, it also tells us investors know it will takeĀ many more dollarsĀ to value these markets.

The challenge for average Americans now is: how do they save and plan for the future if the value of their currency will be worth less? In some ways, Americans have few options other than to be in the markets. This will continue for the foreseeable future as lawmakers move increasingly towards programs like basic income and a $2k stimulus check, as soon-to-be Senate majority leader Chuck Schumer (D-NY) has proposed.

Though we haven’t seen inflation in wages in the last decade or so, we have seen inflation in the stock market and, in real estate. Investors are smart to position themselves accordingly.

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