How I see the World (or Winter is Coming)

One of my side-obsessions is investing. I actively manage an IRA and investment account with my personal money in it, so I’m always trying to look into the future and figure out where we’re headed. Good investing is akin to be a good fortune teller (and has about the same level of accuracy). So I’m writing up my thoughts to increase my personal discipline when it comes to thinking through investments. This is just a start and the big picture view:

Right now the world is awash in debt. Over the past few decades we’ve seen an enormous increase in global money supply and in debt. At the same time, we’ve developed this faith in central banks to remove any negatives from the business cycle and constantly fix any problem that pops up. The world is not okay. I see three big problems all starting to collide in 2015 and I’m still reconciling where the fallout lies.

PROBLEM 1: DEMOGRAPHICS

My marketing work lies in demographic analysis, so this is close to my experience. People drive the economy. This is very visible in the US, but look at Japan as the prototypical example of this issue. When your population stops growing (e.g. people aren’t reproducing above the 2.1 kids necessary to grow the population), then the population ages. As people, we spend money in very similar patterns over our life. Young people buy much more stuff than old people, generally speaking. Young people create inflation, old people create deflation. There’s a lot more behind this assertion, but at a high level it is true (mainly because young people take on debt, old people pay it off). Japan has had to print money like a counterfeiter at Rio’s Carnival to keep their economy afloat. In normal times, this would have resulted in massive inflation. Because of their demographics, it hasn’t. But that leads us to the second problem (which Japan has) …

PROBLEM 2: SOVEREIGN DEBT

The latest numbers I’ve seen show the world debt levels (not just sovereign) at around $200 trillion dollars. Way, way above just 10 years ago. In the U.S., we admit to around $18 trillion dollars in debt (the last two presidents have both doubled the debt while in office), but that’s ignoring our implied commitments (social security, etc) that are likely two times this. Across the world, debt levels are out of control. I don’t have an economics background (which seems to be an advantage), but I’m not sure how countries can continue piling up debt with no remote plans to slow down or start paying it off. Japan is interesting to watch as they, seemingly without any concern, print money as fast as they possibly can. When does Japan become the next Greece? And how long will people continue believing that sovereign debt is risk free? There’s a Lehman moment coming and that concerns me. Also, I believe that the first two problems lead to the bigger issue, which is problem number three.

PROBLEM 3: SLOWING WORLDWIDE DEMAND

Debt slows an economy when it hits a certain GDP level, which I believe we have achieved in the US. In addition, too few young people reduce the need for things. Combined they result in a slowing demand for goods and services that has a rolling impact on the economy. I believe the disaster in commodities is the first place you are seeing this lowering of worldwide demand. This issue is tightly tied into the two problems above and leads to deflation. That’s where I think we’re going: deflation. Because of China’s massive building spree, we have too much production capacity across the world and not enough demand for products. The hope was that China would convert to a consumption economy and pick up the slack from slowing US growth. Clearly that hasn’t happened and I still believe China is essentially hitting a hard, hard landing. There is no country (I see) that has the growth to potentially pick up the baton. And I think the US is borderline recession at this point.

CONCLUSION: DEFLATION

In the end, I think we’re headed for tough times worldwide. This is a global debt hangover that makes our 2008 mortgage disaster look like a mild cold. In terms of investing, I’m long on the dollar (safe haven), short the Chinese market, short the Yen and actually short gold and silver (deflation pull is stronger than their safe haven pull). I also expect the S&P, NASDAQ and Dow to have significant corrections this year, so I’m waiting for a good chance to short those markets (only corporate buybacks are holding them up at this point).

So this is a summary of where my head is at this point. For the past two months I’ve done extremely well with my investments and I think the short-term outlook is good. Long-term I’m still trying to figure it out. But I’m worried. I can’t help but think: Winter is Coming.

Other random predictions:

  • Oil will be below $30 in 2016. Might hit $30 by the end of this year.  And won’t hit $100 a barrel for at least two years.
  • Telsa, Amazon, Twitter and other companies that have huge valuations but virtually no profit (social media) are great short opportunities. But so far I haven’t jumped in.
  • Europe is in worse shape than it appears. I think the Euro falls below parity with the dollar in early 2016.
  • Bonds are a disaster. I think we’re already seeing a move to quality investments and junk bonds are going down fast. I keep thinking I should short Spanish and Italian sovereign bonds, but I haven’t done it yet.

I’m curious as to your thoughts. Feel free to comment below.

Memories of ringing the NYSE Bell

My grandfather was as blue collar as you get. He worked in an Atlanta Ford plant his entire working career – and not in an office. A good man who worked hard and took the lessons of the depression seriously. He saved a lot and invested over and over in one company (Southern Company) which had a cyclical stock. When he died he left his children a sum far above that expected from a blue collar guy. When I think of ringing the bell at the NYSE, I can’t help but think of my grandfather who probably never imagined me being there. He would have loved these memories.

Professionally, this is probably one of the things I get asked about the most. Mainly people wonder what the exchange floor is like (small). Or how the pomp and circumstance plays out (more casual than you think). I have a few extremely distinct memories: standing by the bull (you know the one), being amazed by the technology throughout the exchange, having a huge breakfast, and the moment when we (by that, I mean Teavana’s CEO) rang the bell to open the NYSE. But it was more than that and this is my attempt to detail what happened and how I remember it. This is a personal recollection and I’m not sure it’s valuable for anything more.Our Ritz hotel room

Teavana went public on July 28, 2011. The prior day we flew up and stayed at the Ritz Carlton Battery Park with rooms overlooking the Statue of Liberty. Each room included a telescope for a better look at Lady Liberty – and New Jersey, of course. That night we had a great dinner in a private, second-story room at Megu in Tribeca. The food was good and the restaurant seemed perfect for an Asian-themed retailer to go public. They had a cool ice Buddha sculpture that was changed daily. I particularly remember the Sake and enjoying a fun night with co-workers. That night our CEO announced the higher-than-expected price we were going to launch TEA at. It was fun all around.Megu Ice Sculpture

The next morning everyone woke early and headed over to the NYSE. I walked over with David Staels, our VP of HR, and we made a point to walk directly past the bull. I remember being energized and very excited. The NYSE was adorned with Teavana banners and featured a geisha out front performing the Japanese Tea Ceremony and serving many cups of Teavana matcha.NYSE Teavana launch

One funny story: early in the history of Teavana, we used a specific Japanese model as a geisha in what became an iconic Teavana image. Our CEO tracked down the model to use as the geisha in our NYSE activities. We assumed she knew how to make matcha (it’s not that difficult!). However, when she arrived we found out fast that she wasn’t a tea drinker at all. So she was given a quick lesson in matcha and the Japanese tea service on the morning of our public launch. It worked out great, but you’re never prepared for every eventuality.

Once inside the NYSE, the technology is what struck me. Walls were covered with screens that branded the NYSE and offered information to guests. It’s an old building, but the rebirth of the NYSE as a technology-first company, where the technology is maybe the only thing that matters, really came across. We still think of the NYSE floor as the center of the financial world, but it’s the servers that do the actual work. The floor isn’t pure drama and acting at this point, but it’s also not a necessary component of the NYSE’s trading. That revelation stuck with me going forward and has become more true over the years. How long will people continue coming to ring the bell?NYSE from Bell Ringing Balcony

We started the day with a great breakfast deep inside the NYSE. The room featured a mock Teavana tea wall along with a massive breakfast table. It was a nice meal that ended with the president of the NYSE offering a plaque to our CEO as a reminder of the day. Then, right on cue, we all walked up a hallway to the small balcony where the button to ring the bell is located. It is an actual button that theoretically kicks off the market activities for the day. CNBC was broadcast into our offices back in Atlanta so the rest of the gang could celebrate with us. I stood on the left side of the balcony right behind our SVP of Stores and we were told when our CEO was supposed to push the button. We stayed for a few minutes after and then walked down to the floor.NYSE Small Floor

I’m sure you’ve heard this before, but the floor of the NYSE is very small. It seemed smaller than the room we had breakfast in, but of course it wasn’t. It was much smaller than it looks to me on tv. I was told this repeatedly before going, but I can’t emphasize it enough: that floor is small. We walked down stairs onto the floor and waited near a terminal to hear where TEA (our ticker symbol) would begin trading. It took longer than I expected for us to get the first price, but it was interesting watching the guys in the blue jackets do their thing. It made me think of the old market makers on the floor actually conducting the business in a crazy environment. The floor activities still seem the same: guys yelling what sounds like prices and participating in an event that has driven the world for a long, long time.Trading TEA

Eventually, the floor trader looking at our position turned and announced TEA’s opening price. It was significantly up from where we priced the stock (everybody prices too low these days). Good news all around and a hell of a way to start a day. I think at this point I was half giddy, half dazed and maybe a little amazed at the overall event. We walked out of the relatively dim floor into bright, sunny daylight in lower Manhattan. After ringing the bell, we took pictures in front of the NYSE and walked over to the bull. We also took pictures there, but found out later that the enterprising artist expects a payment if those pictures are used in public way. So I’m not sure where they ended up.bull

It was a pretty amazing twenty four hours in NYC that I’m not likely to forget. And going from a private company to a public one is a pretty significant shift in all things; it was transformational not just personally, but professionally as well.

Afterwards, we enjoyed NYC for a bit and then headed back to the airport towards Atlanta. My grandfather had passed away, obviously, before my voyage to the NYSE. But what I wouldn’t give to have a conversation with him about it. It would have meant so much to me.

Hope you enjoyed my thoughts. Not too detailed, but fun to remember!

Life as a Juggling Act

Presented without comment:

“Imagine life as a game in which you are juggling some five balls in the air. You name them — work, family, health, friends and spirit … and you’re keeping all of these in the air.

You will soon understand that work is a rubber ball. If you drop it, it will bounce back. But the other four balls — family, health, friends and spirit — are made of glass. If you drop one of these, they will be irrevocably scuffed, marked, nicked, damaged or even shattered. They will never be the same. You must understand that and strive for Balance in your life.

How?

Don’t undermine your worth by comparing yourself with others. It is because we are different that each of us is special.

Don’t set your goals by what other people deem important. Only you know what is best for you.

Don’t take for granted the things closest to your heart. Cling to them as you would your life, for without them, life is meaningless.

Don’t let your life slip through your fingers by living in the past or for the future. By living your life one day at a time, you live all the days of your life.

Don’t give up when you still have something to give. Nothing is really over until the moment you stop trying.

Don’t be afraid to admit that you are less than perfect. It is this fragile thread that binds us to each together.

Don’t be afraid to encounter risks. It is by taking chances that we learn how to be pave.

Don’t shut love out of your life by saying it’s impossible to find time. The quickest way to receive love is to give; the fastest way to lose love is to hold it too tightly; and the best way to keep love is to give it wings!

Don’t run through life so fast that you forget not only where you’ve been, but also where you are going.

Don’t forget, a person’s greatest emotional need is to feel appreciated.

Don’t be afraid to learn. Knowledge is weightless, a treasure you can always carry easily.

Don’t use time or words carelessly. Neither can be retrieved. Life is not a race, but a journey to be savoured each step of the way…”

–Brian G. Dyson
Coca-Cola Enterprises President and CEO, during a speech at the Georgia Tech