They say we are in a K-Shaped economy. This describes a situation where different parts of the economy recover from a downturn—like the Global Financial Crisis or the COVID-19 pandemic—at starkly different rates, splitting into two diverging paths that resemble the letter "K."
One arm of the "K" shoots upward, representing the winners as industries, businesses, or people bounce back and thrive. The downward arm is for losers. For the guys who don’t make it back and continue to sink deeper.
In many ways, the COVID crisis was created to kill off small business owners. The communist forces wanted to do away with those scrappy conservatives that vote against large government and high taxes – the modern day equivalent of Jefferson’s Yeoman farmer who thinks for himself and votes his interest. They want us all working for the collective.
In much the same way, the housing crash in the 2000s destroyed a tremendous amount of wealth for the little guy by turning homeowners into renters.
Rich Get Richer, and the Poor Get Drunk
You’ve all heard the stats where 1% of the population controls 50% of the wealth while the bottom 50% of the population controls 1% of the wealth. This seems to be true, and it is getting worse.
Studies from Pew Research show that savings haven’t increased since the dollar went off the gold standard in 1972.
They even went down more in the decade after 1972 because inflation accelerated. You’ll notice a double hump in the green line in the 1970s. That shows the effect of inflation, which came in two waves.
There is a great fear of inflation these days. They say Trump’s tariffs will add $8,000 to the price of a Pickup truck, for example. Eggs are hard to find. Eating out has gotten ridiculous.
On the flip side, the bond market says that inflation is not a concern. The yield curve has just inverted, which is deflationary and points to a recession. Layoffs are deflationary, but this is countered by the expulsion of illegal immigrants, which could drive wages higher.
Then again, the bond market has been wrong for the past three years.
The point of all of this: to be on the top arm of the “K” you have to own assets. People who have owned houses and stocks for the past 15 years have done very well. The number of real estate and 401k millionaires increases every day.
That said, you don’t want your money to stagnate. If you own tech stocks, you should consider rotating some money into the undervalued segments of the market, which are Energy (10% undervalued) and Healthcare (8% undervalued).
The oil and gas sector seems to be capped by a global slowdown and the Saudis playing their normal production games. Healthcare, however, is starting to percolate after taking a beating from RFK Jr.
Gilead Sciences (GILD) looks like a banger. The company has a forward P/E of 11, a PEG of 0.58 with a nice uptrend on the chart.
Gilead’s HIV franchise (Biktarvy) keeps humming, with 2024 sales up 15% to $18 billion, and the company thinks that its oncology push—Trodelvy and cell therapies—could double cancer revenue to $5 billion by 2030. Q4 2024 earnings beat estimates at $1.73 EPS vs. $1.65 expected, this gave it a short-term boost. And it has a 3.1% dividend yield which is good if you like to get paid to own stocks.
All the best,
Christian DeHaemer
Outsider Club
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