Are you an avid reader? Today with The Invested Dads, we’re taking a step back from the podcast world and hitting the books! Josh and Austin have created a new series called “What We’re Reading” where they will be diving into current news along with some articles they have been reading. A few highlights include discussion about ESG Companies, TikTok, and China’s battle with Cryptocurrency! This is one you don’t want to miss – listen now!
Main Talking Points
[2:17] – Josh’s First Read – Taxing the Rich: Biden Backs Levy on Billionaire’s Unrealized Investment Gains
[2:54] – Appreciation Tax
[3:54] – Wealth Tax
[11:06] – Austin’s First Read – The ESG Movement: The “Goodness” Gravy Train Rolls on!
[12:09] – ESG Companies
[14:06] – Spectrum of ESG
[16:20] – Josh’s Second Read – TikTok Reaches 1 Billion Monthly Users
[19:30] – TikTok Statistics
[20:36] – TikTok’s Backlash
[23:11] – Dad Joke of the Week
[24:04] – Austin’s Second Read – China Cryptocurrency Kibosh
[25:29] – Why Did China Ban Bitcoin?
[27:50] – What Should US Investors Think About This?
[29:21] – Josh’s Third Read – Panic Sellers During Stock Market Dips are Often Married Men with Kids
[30:19] – Participants in Stock Sell Offs
[34:53] – Austin’s Third Read – China Evergrande
[37:25] – How Does This Impact US Investors?
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Taxing the Rich: Biden Backs Levy on Billionaire’s Unrealized Investment Gains
The ESG Movement: The “Goodness” Gravy Train Rolls on!
TikTok Reaches 1 Billion Monthly Users
China is Cracking Down on Crypto Again
Panic Sellers During Stock Market Dips are Often Married Men with Kids
Social Media
Full Transcript
Intro:
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better, helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to The Invested Dads Podcast, a podcast where we take you on a journey to better your financial future. Today, we are starting a new series where Josh and I will be discussing some current news and some things we’re reading.
Josh Robb:
That’s right. Reading? Wait a minute, is that supposed to stop once you finish school?
Austin Wilson:
You know, I was going to say I really do talk real good, but-
Josh Robb:
You don’t talk really good.
Austin Wilson:
I don’t talk real good which is a funny thing as I make a podcast. But yeah, reading, writing, arithmetic, contrary to popular belief, something that continues even after school. Because as professionals, it’s important to always read and have an understanding of the markets, industry and current events. Warren Buffett is an example of this. He’s 1000 years old and he still reads 300 and some pages a day.
Josh Robb:
I think he’d read it all.
Austin Wilson:
It’s all he does. You’d think there wouldn’t be anything left.
Josh Robb:
Even when he had papyrus papers to read on. Because he’s that old. We should make a disclaimer though. This is our work-related reading …
Austin Wilson:
True.
Josh Robb:
… for this episode. We may talk about things we’re reading outside, but a lot of books I read with my kids, that does not count.
Austin Wilson:
The Jesus Storybook Bible.
Josh Robb:
That’s a good one.
Austin Wilson:
That’s a good one.
Josh Robb:
I will say my favorite book to read with the kids is Fox in Socks. It’s a tongue-twister book. If you ever want to be entertained, Google Fox in Socks fast reading. There’s this young girl, I think she did it for talent show or something, but she read as fast as she could, reading Fox in Socks. It’s a real tongue twister.
Austin Wilson:
So that is what we are talking about is what we’re reading things that are going on right now. So each of us are going to talk briefly. We’re not going to go into crazy detail, but briefly about three important things we’re reading right now and then we’re going to discuss them. So Josh, why don’t you start us off? What is one thing you’re reading right now.
Josh Robb:
And these will all be linked in our show notes when it comes to the access to the articles. Some you may have to have a subscription for, but we will let you know where these-
Austin Wilson:
Absolutely.
[2:17] – Josh’s First Read – Taxing the Rich: Biden Backs Levy on Billionaire’s Unrealized Investment Gains
Josh Robb:
All right, the first one is a proposal.
Austin Wilson:
So it’s really nothing?
Josh Robb:
It’s not yet, but the proposal for one way of helping to offset the $3.5 trillion bill that they’re working through in Congress is they want to offset some of that spending. And so there’s been some articles written about some of those proposals on how they’re going to do it because most of those involve taxes. That’s how you’re going to offset the spending, is revenue collection taxes. And so everybody wants to know, “Hey, if my taxes are changing, what is it going to be? Can I do anything now to prepare for that? So one of the proposals is for billionaires having an annual appreciation tax.
[2:54] – Appreciation Tax
Austin Wilson:
Meaning appreciate the billionaires. You’re appreciated.
Josh Robb:
So what this is an annual tax on the appreciation or growth on their assets. And right now, they’re just targeting billionaires. Again this is all in proposal, so there’s not a lot of fine details, but I want to talk about this higher concept and what this article notes. In this article, by the way, what I’m referencing, there’s a bunch out there because this has been a big topic, but Bloomberg is the one that had this article I’m referencing.
Austin Wilson:
And by they, we’re really generally talking about the democratic side of Congress, who is … They maintain control of both Houses of Congress. So this is legislation, the $3.5 trillion spending bill is their bill that they’re pushing through as well, but it’s their responsibility then to figure out how do we pay for this and this is the answer to that question.
Josh Robb:
In fact, this proposal though is not new. It’s been floated around by different senators through different over the last decade-
[3:54] – Wealth Tax
Austin Wilson:
And generally what it’s called is a wealth tax, is what they’re talking.
Josh Robb:
Let’s see. During one of the debates, I’m trying remember which one it was, but Senator Warren proposed this as … Warren became very well known-
Austin Wilson:
This has been one of her …
Josh Robb:
Big things is wealth tax.
Austin Wilson:
… big things.
Josh Robb:
So this is an offshoot of that. So the wealth tax was just an actual tax based on your income. If you earn a certain amount, they can charge you an additional tax. This is really not looking at income at all. It’s looking at assets. So it’s similar, but a little bit of an offshoot to that, but it’s saying, “Okay, if you have X amount in assets, billions of dollars, if you’re a billionaire, what we’re going to do is at the end of the year, we’re going to assess a tax on your assets or on the growth of those assets,” right now, what this proposal is on the growth of those assets. And so normally, you don’t owe tax into you have realized a gain on an investment.
Austin Wilson:
It all goes back to income. That would be a form of income if your asset appreciated and it’s worth more than it was when you bought it, you had income on it.
Josh Robb:
Right.
Austin Wilson:
And when you sold it, you did. And it’d be the same thing as if you’re going to a job and you’re earning income for your time.
Josh Robb:
Right.
Austin Wilson:
They’re both income base, but this is a whole different side of the discussion on something that really hasn’t been instituted before.
Josh Robb:
And the reason why is, when it comes to income, you have received something and they’re taking a portion of that as a benefit for living here in United States to cover all the things that they offer, the protection, security, all that stuff that they offer, that’s where the tax is, right? The difference here, like you said, is at this point in time, you’ve not realized any income or any growth, return, gain, whatever word you want to use. It’s been unrealized at this point. And so that’s a big switch from how they’ve historically taxed. Now, in the article, there was a quote from President Biden. He said, “I support a lot of these proposals,” which again, there’s a lot of different tax proposals here. “We don’t need all the things,” this is the quote, “We don’t need all the things. I support to pay for this, but I do support that in reference to this billionaire tax.” And continuing his quote, “I just think that it’s just paying your fair share, for Lord’s sake.” That’s his quote in the Bloomberg article. And so I know you and I have talked about this in past, but fair share, I want to define-
Austin Wilson:
There’s no number.
Josh Robb:
Please define it. Somebody say it’s X amount.
Austin Wilson:
Because he says fair share, Warren says fair share.
Josh Robb:
And it’s an open ended if you keep saying that.
Austin Wilson:
And the other side of the aisle is they’re asking the question which is a good question. We just want clarity on what fair share is. I don’t know what fair share is.
Josh Robb:
I like to analyze something and I need to know all the parameters within that.
Austin Wilson:
Right.
Josh Robb:
And so if that’s an open-ended phrase, it’s hard to know, “Well, okay, does this justify what you’re trying to achieve?” And so that’s just one of the frustrating pieces that just in general is when you use open concepts like that’s hard.
Austin Wilson:
All right, because we should clarify, is fair share a dollar amount target or is fair share a percentage target? As long as you quantify it, we can at least start having discussions, but until there’s actual numbers, it’s really hard.
Josh Robb:
You look at the tax brackets, right? If you’re in this much income, you owe this much tax. That’s what they’ve defined as their fair share of that, but that’s been defined and you could change it, right? You could change the tax code which is fine. And then if they agree on it, then that’s where it goes, but this is an open-ended argument that frustrates me. But where that matters is, there’s assets that are hard to value. If you have a stock at the close of any day, you know what that value is. Throughout the day, it may fluctuate, but when the markets close, it stops that value for that day and then it opens the next day. That gives you a value, and so on 1231, they can value those assets. And if they are charging this tax, they could say, “Here’s your tax owed.” The problem is, there’s also assets that don’t have a daily value to it, property being a very easy one to understand. If you own a home, your home’s value actually fluctuates daily throughout the day, but no one sees that because there isn’t a stock ticker floating on the bottom that says your home’s price.
Austin Wilson:
That would be nice.
Josh Robb:
It would be. But that’s hard, so how do you value that? Is there a cost associated with, at the end of the year, you have to hire an appraisal to come and appraise all your property? What goes on there? Farmland?
Austin Wilson:
Business ownership.
Josh Robb:
Business ownership. There’s a lot of assets that are little bit harder to put a value.
Austin Wilson:
The less liquid the asset, the more difficulty you’re going to have quantifying it.
Josh Robb:
And then speaking of less liquid, the other impact on this is we’re going to owe tax, so you’re going to have to pay the government. Well, normally, you sell your business, that’s when the tax is owed. “Well, I have some money because I sold my business.”
Austin Wilson:
So pay the tax.
Josh Robb:
So I pay the tax with some of that money. If I still own the business, but I owe tax-
Austin Wilson:
Where’s the money coming from?
Josh Robb:
I think there could be some forced liquidation of assets to cover the tax on assets you weren’t planning on selling.
Austin Wilson:
Where’s that going to come from?
Josh Robb:
Will come from the most liquid-
Austin Wilson:
Which is going to be cash or stock.
Josh Robb:
Or investments.
Austin Wilson:
Right.
Josh Robb:
And so you’re going to actually cause more volatility by forcing this and then the volatility will cause price fluctuation which will then cause people to buy or sell. It could cause some problems.
Austin Wilson:
I guess one of the worries that a lot of people are having is if this is a slippery slope, where does it go? So like, “Yeah, we’re talking about billionaires now and we’re going to make them pay their fair share,” which is air quotes because we don’t know what the crap fair share means and then great, does that where it stops or at what point does the continued additional spending requirements cause us to trickle that down? That’s the reverse trickle economic, right? Trickle down economics. We’re saying, “Okay, well, now, if you’re a 100 millionaire, we’re going to do the same thing. And now if you’re a 10 millionaire and now if you are a one millionaire,” where does it stop?
Josh Robb:
And then along with, in the past historically, income is what the IRS was using as a reference point. So if you think of the last COVID bills, they were based on income. “If you earn under this amount of income, these are what you could get,” right? Because you can have billionaires earning zero income, right? And so that’s sometimes how they escape by some of these tax codes is, “Well, my income is not very high. I just have all these assets.”
Austin Wilson:
Right.
Josh Robb:
Well, this one’s bypassing income and looking at assets. And so you could have large farms, things like that that you wouldn’t normally associate. And I don’t know if farmers are billionaires, but depending on where this ends, you could have large family farms starting to get caught into these nets of saying, “Okay, now you owe us additional tax,” and they’re saying, “Well, it’s all tied up in the land. I don’t have that ability.” So there’s some issues there. That’s what I’m reading. Something I’m keeping an eye on. It’s not finalized. Necessarily, it’s going to have to be in there. It’s still all being negotiated.
Austin Wilson:
And when that gets finalized and get signed into law, we are planning on putting a dedicated episode for that bill and the payment requirements that go into it.
Josh Robb:
It’s going to be a lot, couple hundred of pages of the bill.
[11:06] – Austin’s First Read – The ESG Movement: The “Goodness” Gravy Train Rolls on!
Austin Wilson:
I’ll have Josh read that in advance and give me the spark notes. What am I reading? Number one, so there’s a keyword, a buzzword in the industry right now or phrase ESG. So that stands for environmental, social, and governance. And we are again also going-
Josh Robb:
Eggs, sausage and gravy. That is great. That’s a breakfast, ESG breakfast.
Austin Wilson:
It’s delicious. I would eat that right now actually. We always record this when I’m hungry.
Josh Robb:
You’re always hungry.
Austin Wilson:
I’m always hungry. So we are going to have a dedicated ESG episode.
Josh Robb:
Yes, we are.
Austin Wilson:
Very important theme that people are watching and talking about, but I was reading about this theme and there’s an author, he’s really an NYU professor at the Stern School of Business at NYU, his name is Aswath Damodaran and he’s the evaluation guru of higher education around the world. People look up to him a lot. He’s a smart, smart guy. The articles that he wrote that I was reading have 23 million page views.
Josh Robb:
Oh, wow.
Austin Wilson:
He’s a pretty popular guy, right? He was just on-
Josh Robb:
Catching up to our podcast views-
Austin Wilson:
He’s almost there. If he keeps his foot on the gas, he probably will get-
Josh Robb:
If he added a dad joke, he may catch us.
[12:09] – ESG Companies
Austin Wilson:
That’s true. That’s true. Because valuation isn’t known as being very funny. So anyway, he starts by saying, So this ESG in general is saying you want a company that is run in a manner that is ethical and that is doing well for the planet and taking care of not only shareholders, but their employees and the good of society in general. That is the 50,000 foot definition of ESG. Well, he is critiquing this discussion by saying, “Goodness is difficult to measure because if you’re investing in a company because it’s ‘good’, what does that even mean? And how the heck do you measure that? How do you value that?” So essentially, companies know what investors or fund managers are looking for to check those ESG boxes and they can publish data or verbiage in their reports or whatever that checks those boxes without actually doing much or causing any change or any good.
So it’s really hard to quantify, that’s a tough thing that he’s pointing out. And he then points out that being “good” will add value to some companies, but only some companies. Making changes desired in the ESG space will actually help their profits, their business, the people’s view of the company, but others really aren’t going to even be affected, despite spending lots of time and money on ESG initiatives that are actually going to hurt shareholder returns because the company could have gone and invested that to grow the company and then enhance shareholder returns. Some are actually just going to be unaffected. There’s going to be a wash where they’re spending money and it is going to do some good, but is it going to offset what they could have done?
Josh Robb:
So along with that, and I know you and I have looked at this before, what you talked about is hard to define good. Well, now it’s hard to define it, but people have different scales where they’ll say, “This company is good,” and the next person say, “That company is okay,” and another one says, “No, that company is bad.” And so while ESG has some standards across the industry, when it comes to investors themselves valuing it, like you said, there’s all these different standards.
[14:06] – Spectrum of ESG
Austin Wilson:
There’s a spectrum of ESG and it can go from very, very stringent, where people will exclude companies in the alcohol and gambling industries, things that are involved with pornography. Things that are involved with marijuana would be one. Weapons, that would be one, all the way to very specific religious other groups. So Jewish or Muslim groups have different codes of different requirements as well. So it’s a broad, broad term that isn’t really well defined and I think that a lot of investors are, I don’t really want to say duped but I’m going to say it. They’re duped into putting money into an ESG fund to think they’re doing a good thing, even though essentially it’s like outsourcing their conscience. Like you want to feel good about investing your money in an ethical way, but you’re not putting in the time or the effort to know what that really is. You just want to check a box there.
He also mentions that the ESG sales pitch to investors is completely inconsistent and fundamentally incoherent. Basically, what’s good to some people isn’t good to others. That was one thing you pointed out. His quote, he calls ESG, “A flawed concept and perhaps fatally so,” and I’ll end the quote there. Because it all depends on who it benefits. So companies aren’t going to do things from the goodness of their heart, publicly traded companies. They will only do it if it helps their perception which is then going to help turn profits into stock price. So that’s how that works.
My thoughts are, if people pile into ESG-favored companies and the companies that everyone thinks are doing the right thing on ESG basis, these stocks are going to go up for a period because when there’s more buyers and seller, stocks go up, but eventually if you’re not investing companies that are doing the right things fundamentally, on their financials, then you’re just going to increase the valuation and cause volatility again and corrections because the price had gone up further than the fundamentals had just because on paper it sounded like a good ESG play. So my advice, do your own research. That’s probably the best way.
[16:20] – Josh’s Second Read – TikTok Reaches 1 Billion Monthly Users
Josh Robb:
That’s a good advice in general. Good. So my next article I’m reading is exciting news, and Austin, I know you are a fan of TikTok.
Austin Wilson:
I am. TikTok gets a lot of hate.
Josh Robb:
It does. We’ll talk a little bit about that.
Austin Wilson:
Good because I have some thoughts.
Josh Robb:
But it passed 1 billion monthly users.
Austin Wilson:
Monthly active users.
Josh Robb:
The active users, which is a big deal because they launched in 2018.
Austin Wilson:
It’s pretty new.
Josh Robb:
That’s pretty new compared to … Their growth chart has been pretty impressive. And despite some government pushbacks, especially here in United States, it has not only maintained its growth, it has become very popular.
Austin Wilson:
I was a late adopter.
Josh Robb:
So TikTok is an app that you have on phone.
Austin Wilson:
Social media.
Josh Robb:
It’s social media. It’s designed for short video clips, usually accompanied with music, but they’re not long videos.
Austin Wilson:
They did increase the limit. It used to be really short. Now, it’s up to three minutes.
Josh Robb:
But you think three minutes compared to YouTube-
Austin Wilson:
You get hours.
Josh Robb:
You can have hours on there. So they’re designed for short, digestible clips there on TikTok. Now, with this success comes competition.
Austin Wilson:
Of course.
Josh Robb:
So Instagram launched theirs, it’s called Reels, I believe. YouTube has YouTube Shorts and then Snapchat-
Austin Wilson:
As opposed to pants.
Josh Robb:
I guess, only in the summary, they can only do it in the summary.
Austin Wilson:
That’s right.
Josh Robb:
And then Snapchat has their version which I’m not sure exactly what that one’s called, but they all launched competing apps because they saw this popularity. Despite that, it continues to grow. So TikTok users, this was a different research, they did just recently, TikTok users spend more time watching than YouTube users do.
Austin Wilson:
Wow.
Josh Robb:
Which again, going back to length, that means they’re watching a lot more clips than a YouTube user because he may watch one clip, he or she may watch one clip and it’s 30 minutes long. Well, that’s 10 different YouTube clips if you had the whole three minutes used into it. So that’s just crazy to think, a couple pieces of stats. So in 2020, most recent full year, they had revenue of $32.3 billion dollars, which was almost double from the 2019 revenue. So again, as they’re growing, they’re really seeing that they’ve had a total 3.2 billion downloads.
Austin Wilson:
That’s half the world’s population.
Josh Robb:
Is it?
Austin Wilson:
6 billion people, six or seven.
Josh Robb:
Oh, man.
Austin Wilson:
So there’s a lot.
Josh Robb:
I guess you could have maybe download more unless they needed to.
Austin Wilson:
That’s a lot.
Josh Robb:
That’s a lot of people. And then I saw this I did. I was not aware of this, but to talk about the platform and that connectedness, they actually had a full musical they put together called Ratatouille, The TikTok Musical. And what it was is a bunch of users combined together, their little clips and they pretty much did a Broadway musical of the cartoon, that movie, Ratatouille, which is hilarious, but they raised till they had a one-night showing of this where people could log in and view this. And it raised over a million dollars and all that money went to the Actors Fund which was to support workers in the industry that were out of work because of COVID and stuff. But it was just a really interesting thing.
Austin Wilson:
You got to watch those multimillionaire actors.
Josh Robb:
There’s a lot of supplemental jobs that are all in there, but you’re right. There’s probably-
Austin Wilson:
Daniel Craig gets a stipend.
[19:30] – TikTok Statistics
Josh Robb:
That was just interesting to me when I saw that, but here’s some stats. Again, they launched in 2018, January of 2018. They had 55 million global users. 55 million that grew more than 271 million in 2018.
Austin Wilson:
In a year, it quadrupled.
Josh Robb:
And then 507 at the end of 2019.
Austin Wilson:
Doubled again.
Josh Robb:
And it doubled there because we’re midway through 2021, but then we hit 700 million …
Austin Wilson:
In 2020.
Josh Robb:
… active users last year in 2020. And then from there, we’re at a billion.
Austin Wilson:
Wow.
Josh Robb:
And you can see that growth rate. Now, let’s put that in perspective, okay? Facebook, at the second quarter of this year, had 3.5 billion monthly users.
Austin Wilson:
Three and a half times as big.
Josh Robb:
People-wise. So still in comparison but this is one app, Facebook has Instagram. It has Facebook the main app and they own I don’t know what else they own.
Austin Wilson:
The chat.
Josh Robb:
The Facebook Messenger.
Austin Wilson:
WhatsApp.
Josh Robb:
And so this is just TikTok, but they’re still three and a half smaller.
[20:36] – TikTok’s Backlash
Austin Wilson:
So TikTok has, especially in the US, faced a lot of scrutiny. I’m going to take the national security concerns aside because a lot of people can try and understand that because a Chinese company put together the algorithm for all of this. That makes … Okay, we can get behind it. That was the issue part one, but now, just like a lot of social media, TikTok’s getting a lot of hate for how much …
Josh Robb:
Time.
Austin Wilson:
… time people spend on it and how easily it is. I know that specifically in faith-related circles, it’s not a favorite social media platform because of how quickly swiping through videos can get to something inappropriate. I found a solution for this.
Josh Robb:
It’s your likes.
Austin Wilson:
Well, I think the algorithm really goes by, maybe how fast you swipe to a different video and how quickly you like it or follow the channel or whatever, I only watch food videos and cute dog videos and I only see that food and cute dog videos. It knows to only show me what I want. So if you only just take my advice-
Josh Robb:
And you need to start adding a dad joke video.
Austin Wilson:
There are good ones. Reine sends me dad joke videos on TikTok. So, my solution to seeing bad things on TikTok is to only watch food and dogs.
Josh Robb:
There you go.
Austin Wilson:
It’s pretty good.
Josh Robb:
Can’t go wrong there.
Austin Wilson:
So anyway, that’s good.
Josh Robb:
You mentioned that, so a couple years ago, as they were starting … The worry was it’s a Chinese app, it’s a Chinese company, it’s developed there, the algorithm is there. All the data goes to there, so that user’s data gets transferred over there. So the worry was, “What kind of information is this Chinese company getting and probably the government because of how they run things over there in China?” And so there was an incident where they were going to be bought or needed to be bought by US company or at least have a majority stake in order to continue to be used here in the US.
Austin Wilson:
Oracle was on the hook for that.
Josh Robb:
Oracle was going to do that. And then when President Biden was elected, that got pushed to the side and now I think Oracle said, “Indefinitely. It’s on the backburner. It’s not happening.” And so it’s not the only tech company that’s in China. It’s not the only one. They were actually going to go public as well and that’s been put on hold.
Austin Wilson:
China has put the kibosh on public anything.
Josh Robb:
So there’s been some issues there, but they continue to grow and it’s again, like you mentioned, the other concern too is for that younger generation, some of that impacts. There’s issues of bullying, things like that online. Is this being a contributor to that?
Austin Wilson:
Online bowling?
Josh Robb:
Yes, bowling like with bowl and pins, but being bullied.
Austin Wilson:
Ohhhh, that’s a little different.
Josh Robb:
For a company that’s only a couple years old to have a billion monthly active users.
Austin Wilson:
It’s a big number.
Josh Robb:
It is.
[23:11] – Dad Joke of the Week
Austin Wilson:
Billion with a B. So Josh, we’ve talked about half of our things that we’ve been reading. I think I need to lighten the mood a little bit okay. Give me a dad joke.
Josh Robb:
All right.
Austin Wilson:
My daily dose.
Josh Robb:
The unemployment rate is pretty high right now.
Austin Wilson:
It’s was 5.2-ish.
Josh Robb:
It’s pretty high. And so when you’re looking at bringing on employees, you want those that have a lot to offer your company, right?
Austin Wilson:
This is just a fact. Are you going on to a joke?
Josh Robb:
I’m setting this up because you got to understand. So when you’re looking to hire, one of the best people to hire are waiters. I don’t know if you knew this, because they bring a lot to the table.
Austin Wilson:
They bring a lot to the table.
Josh Robb:
That’s it. There’s a lot to set that up, but I needed to.
Austin Wilson:
Thank you.
Josh Robb:
Just for fun.
[24:04] – Austin’s Second Read – China Cryptocurrency Kibosh
Austin Wilson:
To tie it into current events, we have to tie into current events, all right, what is Austin reading number two? There’s a lot to China. We’re talking about China a lot. We talked about it with TikTok. I’m going to talk about it with crypto.
Josh Robb:
All right.
Austin Wilson:
Because China has, I’m going to use it again, China has put the kibosh …
Josh Robb:
Kibosh.
Austin Wilson:
… on crypto. They said, “Crypto no mo.” On Friday, 09/24, the People’s Bank of China, the PBOC announced that all, keyword there-
Josh Robb:
Is it really the People’s Bank?
Austin Wilson:
Yeah, right? The People’s as in the Government’s Bank of China, they announced that all crypto related activities in China are illegal. All.
Josh Robb:
And they probably gave everybody enough time to liquidate.
Austin Wilson:
I’m sure, in a more efficient orderly fashion. So that would mean trading, order matching, issuing of tokens and derivatives, mining, NFTs, all illegal.
Josh Robb:
NFT.
Austin Wilson:
NFTs, NFT is going on? Actually that’s an episode we did a long time ago.
Josh Robb:
We did. That’s a fun one.
Austin Wilson:
Non-fungible tokens. Check it out. We’ll link that in the show notes, but all of those things are now illegal in China. That sounds dramatic. It’s illegal. There’s $2 trillion in market cap in crypto around the world and a billion people in China, they can’t use crypto. So how dramatic is this really? Well, it caused a 5 to 10% crypto sell off after the news broke, which in the grand scheme of things for crypto isn’t that big.
Josh Robb:
5 to 10% drop in crypto, is that a big price?
[25:29] – Why Did China Ban Bitcoin?
Austin Wilson:
Exactly. It’s like it’s volatile or something, but the impact is rather limited. This is the 20th, it’s really 20th time that Bitcoin specifically has been banned in China, 20th.
Josh Robb:
They unban it and then reban it or-
Austin Wilson:
I think they just keep banning it.
Josh Robb:
And it doesn’t stop.
Austin Wilson:
And it doesn’t stop it because can you turn off the internet is really … If you can have-
Josh Robb:
They can.
Austin Wilson:
If you can have the internet, you can have cryptocurrencies at this point. So yes, that is why. So CNBC’s Meltem Demirors, I think is his name. Sorry, if you’re listening, and I mispronounced your name, but his quote from an article on CNBC we’ll link below, “There’s always something different about the bans, but this happens all the time and it’s never really dramatic in the larger scheme of things.”
Josh Robb:
In other words-
Austin Wilson:
Because if they did it 19 other times, how does this time really that much different? But the real question, Josh, is why. Why the heck would China do this? This is innovation. This is great technology. This is a good thing … One of the bull cases of it is that it puts the power in people’s hands financially, right?
Josh Robb:
Now I know you have reasons why. I have a reason.
Austin Wilson:
Tell me why.
Josh Robb:
They are preempting their launch of ChinaCoin, which is a new-
Austin Wilson:
I’m getting there Josh. Stop.
Josh Robb:
I didn’t see you had that on there.
Austin Wilson:
Well, it all goes back to control.
Josh Robb:
It is.
Austin Wilson:
That’s why. So if Chinese people, specifically are using or exchanging their RMB, that’s their currency, the Chinese government has some control over how much that’s worth and what it’s used for, right?
Josh Robb:
And they can keep it in-
Austin Wilson:
Or whatever they want. They can control where it goes, even if it goes outside the country. And if they use the newly issued, here’s where I’m going there, digital RMB-
Josh Robb:
Oh they have one?
Austin Wilson:
They do. It’s already there.
Josh Robb:
I didn’t not know that.
Austin Wilson:
They have even more transparency and control because if they have an internet connection, they could take all your money tomorrow.
Josh Robb:
Yeah, it’s theirs.
Austin Wilson:
It’s theirs really, so it’s really all about control. And with decentralized currencies, as cryptocurrencies are, they have little to no control and that makes them scared. It makes them uncomfortable because the Chinese government is communist. They want to control every facet of everyone’s life and they also don’t want people to become wealthy.
Josh Robb:
They want them to rely on the government.
Austin Wilson:
Exactly. So that is why-
Josh Robb:
I just thought they’d just have ChinaCoin. “Hey, DogeCoin’s out. ChinaCoin in.”
[27:50] – What Should US Investors Think About This?
Austin Wilson:
“ChinaCoin in, to the moon, to the moon.” So we should also put this in the US perspective here because that’s where we’re sitting here. So what should US crypto investors or someone say speculators, what should they think about this? Well, number one, really, it’s more caution not about what China’s doing, but it’s what about the US regulation could do. Because on the table now is crypto regulation. We don’t know what that’s going to look like exactly or when, but SEC chair, Gary Gensler, Janet Yellen, the treasury secretary and Jerome Powell, the fed chair, have all talked about many times and are looking into what regulation in the crypto space is going to look like, not if or not … If it’s going to happen, what it is going to look like when it happens. We don’t know what that looks like. But many US crypto advocates actually think this is a net bullish thing because some regulation will make the technology in the crypto space more palatable, more appealing to a broader investor base, although-
Josh Robb:
There’s a lot of people waiting to say, “Okay, let’s get some regulation in here and maybe we will then”-
Austin Wilson:
And the ability that’s coming up to eventually invest in crypto ETFs and things like that will also make things a little easier for people with traditional brokerage accounts. That’s one facet. It could limit … One of the downsides is that things like regulation usually limit crazy upside. So Bitcoin may be not be able to jump 20% in the day.
Josh Robb:
Maybe just halfway to the moon.
Austin Wilson:
Maybe just halfway to the moon if you’ve got this more regulated, more stable and safe market environment. So that’s where we are as far as China cracking down on crypto. Josh, what are you reading …
Josh Robb:
Number three.
Austin Wilson:
… in your third article?
[29:21] – Josh’s Third Read – Panic Sellers During Stock Market Dips are Often Married Men with Kids
Josh Robb:
My third and final article-
Austin Wilson:
The last one you’ll ever read.
Josh Robb:
Ever read, this is it. I’m done.
Austin Wilson:
Until next episode.
Josh Robb:
It was actually an article on CNBC, but they had an article and-
Austin Wilson:
The Canadian News Broadcasting Company.
Josh Robb:
No, I don’t know what it stands for.
Austin Wilson:
It’s Comcast.
Josh Robb:
Comcast. They had an article and it was talking about the recent dip we’ve seen in the stock market the last couple years, they found that there was actually … When they did a poll and did some research, there was a pattern or a group of people that were more likely to be the ones participating in the selling of stocks during market dips.
Austin Wilson:
That would be doges.
Josh Robb:
That would be doges.
Austin Wilson:
Doges.
Josh Robb:
Now you’d seen this article, so you already know the answer, but if you were to think through, who is the most likely people, this is not who I would have picked actually.
Austin Wilson:
Right. I would have said young, inexperienced investors. That’s really-
[30:19] – Participants in Stock Sell Offs
Josh Robb:
New investors. Young new investors, that’s where I would have landed, but it’s actually the highest probability of people selling when the market goes down are married men with children, typically over the age of 45. So that’s pretty-
Austin Wilson:
So these people may be experienced investor.
Josh Robb:
So in fact, here’s the quote, “Men over age 45 who are married with children, and have self-described excellent investment experience are more prone to sell offs.”
Austin Wilson:
See, that is counterintuitive to me. Because if you’re 45, you have 20 years probably of investment experience and you’ve been through at least probably two bear markets. So my thought is that you would have been panic buying.
Josh Robb:
You would think and they are even self-described excellent investment experience. So it’s not even you’re assuming that. They’re actually describing themselves as having-
Austin Wilson:
Well, don’t we all describe ourselves more favorably than-
Josh Robb:
I would say average.
Austin Wilson:
You have average investment experience.
Josh Robb:
I like to outperform, but underdeliver, how do you say that?
Austin Wilson:
Underpromise and overdeliver?
Josh Robb:
Yeah, that’s the word I’m looking for to put it into my mouth and then spit out. That’s it right there. So that’s interesting. They also found women are not as likely to take huge decisive action. They think this is because they’re not quite sure that their impulse or their feelings are correct in that situation. In other words, they’re not so overconfident in their ability to do that. They’re willing to wait or seek somebody else’s advice.
Austin Wilson:
Which really works in their favor.
Josh Robb:
Which is to their advantage. Another reason why women are way better than men.
Austin Wilson:
I was just thinking they’re so much smarter.
Josh Robb:
It is. Men are 35% more likely to trade investments than women are.
Austin Wilson:
So actually, due to trading-
Josh Robb:
And that’s from Fidelity, who did that set up and trying to time the market often leads to lower performance, which we all know.
Austin Wilson:
Of course.
Josh Robb:
And so it tends to be … And they had a couple in the article talking through about why male figures necessarily when they’re younger age are prone to feel pressure to figure it out themselves or the idea that they need to solve the problem.
Austin Wilson:
Right.
Josh Robb:
And so that triggers what they describe as a control bias. In other words, “I have influence on this. I’m the one that needs to make the decision. I’m the one that has the biggest impact.” And so this control bias then leads them to think that they’re the ones have to make the decision.
Austin Wilson:
I just feel like these people, these people, this is everyone, but people need to let … Warren Buffett’s no dummy. He got to become a billionaire-
Josh Robb:
He’s a 1000 years old, right?
Austin Wilson:
He’s a 1000 years old and he’s seen a lot of crap. And if everyone would live by the, “Be greedy.”
Josh Robb:
“Drink Coke. Eat McDonald’s every day.”
Austin Wilson:
“Be greedy when others are fearful and be fearful when everyone is greedy,” that mantra, this would be not a problem. That leads to my panic buying jokes.
Josh Robb:
And it leads to this. If you know you are the type of person or have the personality to have those reactions, your best option is to put in checks and balances. One of the best ones is-
Austin Wilson:
Work for the government.
Josh Robb:
No.
Austin Wilson:
That’s checks and balances.
Josh Robb:
Checks and balances, but this is have a check and balance stopping you from making decisions. Have a financial advisor. Have someone you trust that you can talk with and say, “Hey, here’s what I’m taking. Here’s what I’m feeling.” Have them work through with you. To me, it makes a lot of sense. It tends to be that you’re adding more and more layer to remove that emotion from causing that decision.
Austin Wilson:
Right.
Josh Robb:
We always say you want to avoid those big mistakes and the biggest mistake you can make is selling and getting out of the market while it’s down and eliminating all chances of recovering.
Austin Wilson:
Right.
Josh Robb:
Because when you sell and pick out of the market, there’s really no chance of recovering at that point.
Austin Wilson:
So what’s the Nick Murray-ism that I’m thinking? When do you buy stocks?
Josh Robb:
When you have money.
Austin Wilson:
When do you sell stocks?
Josh Robb:
When you need money.
Austin Wilson:
What’s the rest?
Josh Robb:
You hold it.
Austin Wilson:
The rest is market timing if you do anything else, so don’t try and time the market. Invest periodically is what we would say consistently…
Josh Robb:
Put money in.
Austin Wilson:
… and set it automatic. You’ll never have to worry about these things. But also, go, ladies.
Josh Robb:
You got really risk tolerance is key too, is understanding how much risk you can tolerate and not taking excess risk. So interesting article. Again, it was not the people I would have thought, but it is what it is.
Austin Wilson:
Maybe it’s because all the young people have been trading Dogecoin.
Josh Robb:
That might be it. That volatility is just booming.
[34:53] – Austin’s Third Read – China Evergrande
Austin Wilson:
And they used to drop 20% everyday or whatever. So what’s Austin reading number three? The last one. It’s another story about China. So that’s the theme of-
Josh Robb:
Do you get a Chinese magazine?
Austin Wilson:
I must. I must. So there was a good explanation of the China Evergrande situation in the Bespoke report recently. And unfortunately, this is going to be a paid subscription, so you probably won’t able to find it, but I got some good information from it. Here’s the explanation at a high level. So Evergrande is one of the world’s largest property developers. It’s big. It’s a big company. It’s-
Josh Robb:
It’s grand.
Austin Wilson:
It’s Evergrande and it’s a Chinese company. So let’s just put the lens on here. And China has been expanding their real estate development footprint at 100 mile an hour for decades now, so much so that there are actually ghost towns of unused built real estate.
Josh Robb:
It’s whole cities-
Austin Wilson:
Ready to move in, but no one there. Exactly. So as is the case with most real estate developers, the company has used debt to fund the vast majority of its operations for a long, long time, especially as global yields have been really low, making their borrowing costs really low. So Evergrande has accumulated debt of around $300 billion which may or may not sound like a lot, but when you consider that the company only has a market cap of around $34 billion, that’s 10 times
Josh Robb:
Wow.
Austin Wilson:
And that’s due to a sharp selloff, so still-
Josh Robb:
I don’t think they sold off 300 billion though.
Austin Wilson:
No. It’s huge. It’s a huge debt load for the company. So the Chinese economic growth in their recovery from COVID, it slowed down as has a lot of the world and the Chinese government has clamped down on innovation like we talked about crypto. And any thoughts of a free market, they are kind of really putting the kibosh on. I’m using it again.
Josh Robb:
Oh, man.
Austin Wilson:
It’s that kibosh. So the company got into a pinch. And that pinch led to them to begin to having troubles paying their interest payments lately, most notably some 2022 dollar denominated bonds, although most of their debt is denominated in onshore RMB. They got into a pinch and were not able to pay their 2022 US dollar denominated bonds. That’s not good. When you default, that’s a default. When you’re unable to make your payment, that’s very bad for the way the world views your company and that caused their stock price to go bad. It’s also bad for the bondholders. Now every bond holder knows you’re taking some risks when they buy a bond. We talked about debt rating.
Josh Robb:
Yep. That’s why you have insurance risk.
[37:25] – How Does This Impact US Investors?
Austin Wilson:
Exactly. But overall, not a good deal. Not a good deal at all. So why does this matter? Well, many people think this is like Lehman Brothers 2.0, ’07, ’08 and that the Chinese financial system is about to fall apart due to over leveraging. The good news is that this current situation with Evergrande seems pretty well contained to this one company at this point. And it doesn’t seem to be a systematic problem. The bad news is that this news sent further shocks through emerging markets in general which China’s the largest component of, emerging market stocks have already been doing pretty poorly. This also could be viewed as a buying opportunity. It’s not a recommendation, but emerging market stocks have tanked because of this.
So that’s why it matters. Because we would recommend most investors to have a balanced allocation, globally diversified. It’s good to have some emerging market exposure. It’s good to have some developed international market exposure, it’s good to have some US stock exposure, but this would have been a drag on the emerging market exposure specifically there. So that’s what’s been going on at a really high level with Evergrande and despite it sounding like a Spanish company, Evergrande, it’s Chinese.
Josh Robb:
Interesting.
Austin Wilson:
Chinese news 3.0.
Josh Robb:
That’s a China real estate fund.
Austin Wilson:
It’s a real estate fund.
Josh Robb:
So interesting and you mentioned the Lehman Brothers, what you’re referencing there was during the global financial crisis, they also were having trouble with their debt. They had bundled certain things and their debt load was just too heavy for them to manage, which caused a ripple effect and caused a lot of issues throughout our economy.
Austin Wilson:
Exactly.
Josh Robb:
There was underlying issues there anyways that doesn’t appear to be the same with China.
Austin Wilson:
But also we have to put a Band-Aid on and say the Chinese government could do whatever they want with this company. They could write off the debt and fix it all tomorrow. Pay the debtors.
Josh Robb:
I saw a nice theory that said that they were going to convert the debt to Bitcoin and then ban Bitcoin and then their debt was gone because they couldn’t trade anymore.
Austin Wilson:
Oh that’s so smart.
Josh Robb:
Maybe that’s the whole plan. Maybe your two articles are more-
Austin Wilson:
They’re tied together. It’s the same.
Josh Robb:
We’ll find out that they just eliminated all their Bitcoin debt.
Austin Wilson:
Well, everyone this is a new format that we’re going to try once in a while. I think it’s a change up, just shows some current events that we’re thinking about and maybe you’re hearing about and reading about as well and hopefully we were able to put a little bit of a light spin on some of these thoughts and explain it a little bit. So hopefully you liked this. Let us know if you did. We’re always open to feedback. So email us at hello@theinvesteddads.com if you have any feedback about this type of episode. Two things for me, number one, it’s not too late to enter our second half stock draft competition and you can really enter all the way through the end of the year and you might be beating some people at that point. Who knows? You get a fresh 100 grand of fake dollars.
Josh Robb:
Not real money.
Austin Wilson:
You could buy Evergrande.
Josh Robb:
Can you?
Austin Wilson:
Yeah, it’s Chinese. You can buy Chinese traded stocks, I think. I don’t think it’s just US stocks.
Josh Robb:
All right.
Austin Wilson:
I’m not 100% sure on that.
Josh Robb:
Sure.
Austin Wilson:
So anyway, that’s number one. Number two. As always, check out our free gift to you. It’s a brief list of eight principles of timeless investing. Overarching investment themes meant to keep you on track to meet your long-term goals. It’s free on our website. Josh, how can people help us grow this podcast?
Josh Robb:
Make sure you subscribe. That way, every Thursday, you get our newest episode. And leave us a review on Apple podcasts. That helps us rate and rank, so hopefully we can reach more people and help more people. Like Austin said, if you have any thoughts about this, the way we did this with our articles, shoot us an email at hello@theinvesteddads.com or if you have any subject or topic you’d like us to talk about, we’d always love talking about those. Then if you know somebody who reads articles, make sure you share this … see I knew he was taking a drink right when I said that.
Austin Wilson:
If you know someone who reads articles.
Josh Robb:
Share this episode with them, but if one of these topics was interesting, do share with them and-
Austin Wilson:
So until next Thursday, have a great week.
Josh Robb:
Talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
