BALTIMORE – Who’s the biggest winner so far? “Government Sachs!”

Fortune magazine reports that the winningest person since Trump’s election is Goldman Sachs CEO Lloyd Blankfein.

Goldman’s stock price is back to where it was just before the last crash in 2008. And Blankfein is back in high cotton, too; his holdings in the firm have gained $140 million in the last four weeks.

Trump Bump

Donald Trump pledged to take the elite down a notch. So far, they’re going in the opposite direction. 

Worldwide, they’re up about $4.4 trillion, as their stocks have soared in the “Trump Bump.”

Many of America’s best investors – including Carl Icahn and Ray Dalio – think this is just the beginning.

And with some of the nation’s most successful moneymen at his side, including a former Goldman guy in the Treasury, many people are betting that Trump will bring a sustained boom.

We’ve been looking at crony capitalism. Our hypothesis is that it is funded by the feds’ fake money and enabled by their regulations.  

So far, we’ve looked at ex-Goldman banker Steven Mnuchin, Trump’s pick for secretary of the Treasury. 

While he was making a fortune at Goldman, a major Main Street company, Sears was turned into a Wall Street victim. Its stock is down 90%. And it is expected to declare bankruptcy in a few months.  

Wilbur Ross, Trump’s new man for the Department of Commerce, used federal regulation of imports to make a billion dollars in the steel industry

Jack Welch, a member of Trump’s financial advisory team, used the credit-fueled boom of the 1980s and 1990s to turn Main Street manufacturer General Electric into a leveraged, go-go finance company. Its stock has been cut in half in the last 15 years.

Today, we look at two more of Trump’s advisers, Blackstone Group CEO Stephen Schwarzman and BlackRock CEO Larry Fink. If nothing else can be said about these two, they have stones!

Schwarzman and Fink are two of Wall Street’s most powerful CEOs. Both know how to play the game.

But what sort of game is this? Who wrote the rules? Who wins and how?

Poison Ivy

Regulations generally give an advantage to one or more cronies.

One industry is favored. Another is punished. Costs, delays, and burdens are imposed. Often, there is little analysis or public discussion.

And then, the regulations grow like poison ivy, choking startup competitors and wasting time and money; soon, people all over the country are itching for a change.

Several of Trump’s cabinet picks say they are determined to trim these vines. And “The Donald” has proposed a new rule… cutting rules:

I will formulate a rule which says that for every one new regulation, two old regulations must be eliminated. So important.

Fewer rules would be good for the public – improving efficiency and competition. But cronies would suffer. Which makes us wonder…

The Reagan administration managed to spray some Roundup around the D.C. swamp. Regulatory growth slowed. Temporarily. But the evil weeds were soon growing again, faster than ever.

Only the public has an interest in cutting back the rules and keeping the system honest. And the public doesn’t control the process – the swamp critters do.

How the Rich Got Richer

News comes that investment management behemoth BlackRock is moving into new digs in Hudson Yards, in Lower Manhattan.

The company has some $5 trillion in assets, making it perhaps the most successful capitalist business in history.

The feds’ cheap financing caused a bubble in the housing, mortgage, and finance sectors. In our daily e-letters, we tracked that bubble, day by day, from around 2004 until it blew up in 2008.

BlackRock’s role was significant. It created $5.5 trillion in mortgage-backed derivatives, which blew up in 2008. Housing prices crashed, leaving 20 million Americans underwater and 4 million in foreclosure.

Meanwhile, up on Park Avenue, Stephen Schwarzman was taking the other side of the trade. His private equity outfit, the Blackstone Group, bet against subprime mortgages and sold off most of its real estate in 2006 and 2007, getting rid of about $60 billion worth of property investments.

Then, after the crash, Blackstone made another sharp move. It bought up houses… at bargain prices. It spent $10 billion and acquired 50,000 homes.

Fake Money, Fake System

The elegance and chutzpah of it were breathtaking.

The financial industry created the bubble, lending the feds’ fake money… money that no one ever earned or saved… to people who had no business borrowing it… so they could buy overpriced houses they couldn’t afford.

Then, after the inevitable blow-up, Blackstone bought houses that had been heavily discounted by the accident its dark, lithic brethren had helped to cause. 

A bold move by Blackstone? Yes. Risky? Maybe not.

The fix was in. The Fed brought forth another big round of financing. This time, interest rates went into the cellar and stayed there until the sector was fully reflated. 

The Case-Shiller Home Price Indices show house prices up about 30% over the last six years. Assuming the boys at Blackstone operated efficiently – covering their costs with rents – they would have about a $3 billion unrealized capital gain.

And now, they are taking the whole kit and caboodle public, selling their real estate investment trusts to mom-and-pop investors who have been forced into stocks by the Fed’s ultra-low interest rate policy.

Thus did the financial industry use its preferential access to the Fed’s EZ credit to create the housing bubble… and then use it to convert private property – people’s homes – into a tradable asset owned by Wall Street.

Left-wingers will say Fink and Schwarzman are “greedy capitalists.” But money makes people in its own image. Fake money has created a false financial system and turned capitalists into cronies. 

Sad. 

Regards,

Signature

Bill

Technology Insight


By Chris Wood, Editor, Extraordinary Technology


Today, you can travel the world without ever leaving your living room…

Using a headset and computer or smartphone, virtual reality (VR) can transport people all over the world and let them experience things they never would have otherwise.

This summer, I attended the Silicon Valley Virtual Reality (SVVR) Conference and Expo in San Jose, California. I spoke to top experts and tried the latest technologies. And let me tell you… today’s VR technology is amazing. I could hardly believe how real it felt and how fun it was.

After trying out the latest gadgets and mingling with the top VR minds, I’m convinced VR is on its way to becoming a huge industry. In time, it could claim a big share of billion-dollar industries like tourism, real estate, medicine, education, and sports.

Like many technologies, virtual reality can mean different things to different people.

To some, simply holding a screen up to your eyes that allows you to see a 360-degree, three-dimensional video is a VR experience.

Others say you have to be able to interact with that environment in some way to call it true VR.

To me, both of these are VR.

The key with VR is that you feel immersed in an imaginary or replicated virtual world by using some sort of screen and headset. Some examples of VR technology are the Google Cardboard, Samsung Gear VR, Oculus Rift, HTC Vive, and Sony PSVR.

Video games are the most obvious use of VR today.

But the technology is also being used in tourism. VR lets you visit places without leaving home. And in the medical field, it’s helping treat phobias and anxiety disorders like post-traumatic stress disorder (PTSD).

Soon, VR will be used to let you experience live events from your couch… let prospective buyers tour houses from anywhere… and help students visualize complex concepts in science and technology.

In short, VR is poised to penetrate numerous multibillion-dollar industries. So its growth opportunity is massive. This will create ample opportunities for investors.

But despite all the potential for VR, there are some challenges it needs to overcome to reach real mass market adoption.

Cyber sickness has always been one of the main complaints of VR users. It occurs when there’s a gap between what you think you should be seeing and your actual VR field of view. After I spent about an hour taking in different VR experiences with different headsets at SVVR, I definitely started to feel a little nauseated. The good news is that the problem is close to being solved with the high-end VR headsets like the Oculus Rift and HTC Vive.

Another issue today is cost. Good VR is still pretty expensive. So I don’t think mass adoption will take place until costs come down somewhat.

But I expect VR to overcome these and other challenges over the next few years. So we won’t have to wait long.

I look forward to investing in several companies in the industry in the near future. I recommend keeping the industry on your radar.

P.S. I recently put together a report about another technology trend with big potential: drones. In my report, I detail three of the most promising companies in this space. These companies will benefit from growth in the market… Each of these stocks has at least 50% upside potential over the next two years. And much more upside potential than that a little further out. You can learn more about getting this report right here


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