🗞 Freedom in Disguise

WHILE YOU POUR THE JOE… ☕️
再见

That’s Chinese for “goodbye,” by the way.

And that’s what Starbucks is saying in China right now, as it has considered closing its Chinese region locations due to underperformance.

That got me thinking, okay, that makes sense, but isn’t everyone in China underperforming right now? 👀 

No reason to just ditch operations in the world’s fastest-growing middle-class, a population that will likely have enough disposable income soon to start spending more on the occasional (sometimes daily) Starbucks trip.

It would be a mistake, but there might be some politics behind it.

Speaking of mistakes, let’s get on with today’s email 📧…

HERD BEHAVIOR
Sheep Get Slaughtered

Everyone told you that owning a home and signing up for a mortgage is just the thing to do, right?

Well, it turns out it’s not anymore; maybe in the '80s and '90s, but the economy and income prospects aren’t the same as they were back then. There are a lot of things changing in the world, and I think housing and education are two main themes.

Anyway, here’s some logic to back it up.

Back when our parents and grandparents owned a home, they could pay it off with only 3 to 4 years of the average salary. Back then, the average salary didn’t require you to have hundreds of thousands in student loan debt to get it.

Today, the story has changed drastically. Now, it takes up to 5.8 years of salary to pay off a home, and that’s assuming the average American makes $74,600 a year, which we know is not the case.

People are closer to the $50,000 to $70,000 mark in most states, so let’s assume that with the cost of insurance and other maintenance required by the property, it takes the average person over 15 years to pay off a home. ⌛️ 

Oh, and that’s IF you save and put away 100% of your income, which is obviously not the case.

In fact, the average savings rate in the United States is less than 1% of take-home pay, so you tell me how buying a home is anything more than signing your freedom away.

I’m a big proponent of buying a home, but only if you can buy it cash or if the mortgage is not going to take 30 years of your life, as in some European nations and Asian regions.

With that worldview out of the way, I think that what’s left for the United States is being stuck with a nation of renters, and the numbers don’t lie right now.

Up to 36% of people in the United States have resorted to renting where they live. Data also shows that the 64% who own their home either got it passed down from their parents or are in the boomer generation. 🏘️ 

So there you go. It’s not as rosy as it might seem, right?

In fact, people over 35 years old have seen their net worth double on average due to fewer student loan and mortgage debts. Meanwhile, people 25 and younger have seen a negative 300% downfall in their net worth.

Why do you think this is? Starting life out in the hole from huge student loans and mortgages isn’t the way, my friend. 📉 

So, if more people are going to become renters, where does that leave the capital flow?

Price action on the day higher home sales came out can start to tell you, especially as we’ve covered the macro price action trends showing a high chance of an inflation theme coming back, making it worse for home prices.

When it comes to real estate services, think of mainly leasing, and that’s where our focus is going.

These are the residential real estate income trusts (REITs), and we have highlighted American Homes 4 Rent stock because of its portfolio.

It’s mostly single-family units, which is what every millennial wants to live in after being in a crowded apartment complex or a multi-family unit.

After all, if they can’t buy a home, they can at least make their parents proud by renting one, right?

The stock trades at the top three forward P/E valuations and calls for leading EPS growth today, but if you believe the broad thesis laid out today, then you’ll know this stock is going to show a premium for its portfolio.

And hey, even if we’re wrong, their communities will be bought out at massive premiums for Blackstone and BlackRock to build apartment complexes, right? ✅ 

 TRADE OF THE WEEK
Chemistry is In the Air

Let’s go for an honorable mention here, shall we?

Coinbase, the stock was down over 5% on the day Bitcoin nearly reached $100,000. So, naturally, we issued an opinion for a buy on Twitter at any price below $304.5.

Back to FMC stock now.

We might be getting ahead of ourselves by looking into the chemical sector; after all, there are no clear signs of any rebound in the manufacturing PMI so far. But that doesn’t mean the market is clueless.

Price action for agricultural inputs has been leading the way this week, and that tells us that maybe the whole tariff deal will benefit some companies more than others, even if it takes the manufacturing PMI a little while to catch up.

Given that the bullish action is focused on agricultural inputs, our first natural reaction was to go looking into fertilizers and other farming equipment.

And we landed in FMC for the following reasons:

When we spread out the fertilizer and specialty chemicals industry, we get this table sorted by forward P/Es.

While FMC might not be there to command the highest premium right now, it does stand near the top of the earnings per share (EPS) growth order, taking out Sociedad Quimica y Minera de Chile, as that’s a lithium play more than anything.

This leading EPS growth and the exposure to the fertilizer input for agricultural cycles got us thinking, and we might have to quote George Soros here.

“Invest first, research later”, that’s the attitude we need to have right now as the market is shifting very quickly on their views for tariffs and inflation, so quick we might miss the move if we wait for more data to come out. 👀 

And on that note, here’s the FMC chart, where we’re tempted to set our initial buy targets around $54.75 🎯, which should give us enough time to get up to speed in agricultural trends and where the demand for fertilizers might come from.

And while not the best looking set up, we think the market profile does show enough evidence to back a purchase around that price, if not lower near the $52 level, with an initial target to the year’s VPOC of $61-$62.

Now considering that the Wall Street consensus price target is set for $68 a share, we might be onto something good here.

Keep an eye our for updates when and if we justify this trade and do a deeper dive on FMC stock. 🫰 

NOW GO AND MAKE IT HAPPEN
Reflexivity

We quoted George Soros above, and we thought that it would only be fair to give you one of his most famous pieces of work.

In today’s book recommendation 📖, you’ll learn about the theory of reflexivity, which states that when the market as a whole is onto something, like a pendulum, you might as well start going with the flow, but when the pendulum loses momentum, you go the other way with force.

To your success,

G. 🥃