The gap between the rich and poor is growing in the United States. This topic mostly concerns the wealth gap between the Baby Boomer and Millennial generations. However, this gap looks different when you compare the baby boomer generation to the millennial generation. The wealthiest baby boomers are richer than the average baby boomer. But the gap is even bigger for millennials - the richest millennials are way wealthier than the typical millennial. This essay will explore why the wealth gap is so much larger within the millennial generation compared to the baby boomers.

When you compare the millennials vs baby boomers discourse, you’ll find the discourse to center around issues with translating their income into home ownership, having to worry less about retirement due to access to pensions, not having student debt, and being able to buy investments at a time when valuations were lower.

The issue with valuations is a bigger deal than many think. When someone invests in an asset, the valuation metrics determine whether someone is getting a great deal on their purchase. As many will say, riches are made when people are buying assets for cheap, and that usually happens in recessionary times. For the Boomers, they got to buy assets for cheap during the 1970s and early 1980s when the US economy was in turmoil. For Gen Xers, they had the opportunity to buy assets for cheap during the 2008 financial crisis. Millennials were supposed to have the COVID crisis be their opportunity to buy assets for cheap, but the actions of both the federal government and the Federal Reserve made the dip buying opportunity small, and asset prices went from being less expensive to super expensive.

With millennials being stuck with a lack of opportunity to buy assets for cheap, it’s understandable why millennials have a harder time translating their incomes into homeownership and have more anxiety about retirement. Looking at the chart below by the Financial Times, we can understand why people are concerned with the wealth gap between the average boomer and the average millennial. But when you compare the top 10% of millennials and the top 10% of boomers and compare the gap between their average peers, we will find that the wealth gap is larger among the millennial generation.

Learn more about the wealth gap conundrum between the top 10% of millennials and the average millennial in this article: https://dissectingthemarkets.substack.com/p/the-millennial-wealth-conundrum-exploring

I give credit to the crypto maximalists and gold bugs for pointing out that fiat currencies are not perfect. But when accounting for the interest generated, they prove to be remarkably resilient stores of value. Gold, crypto, and other alternative assets have their place, but the narrative that they are vastly superior to the dollar as a long-term store of value is simply not supported by historical data.

I credit the zero-interest rate environment for sparking this discussion. Before the era of zero interest rates, people got a good rate of return on their savings accounts and because of this, they did not worry about their money getting eroded by inflation. Because of the zero-interest rate environment, households got essentially nothing on their savings and meanwhile, prices for goods kept going higher and higher.

When interest rates start to rebound higher and households start getting better returns on their savings accounts, I’m curious to see if more people will still think the dollar is a bad store of value.

Learn more on why the US Dollar is a better store of value than what the common opinion of it is in this article: https://dissectingthemarkets.substack.com/p/the-us-dollar-is-better-at-holding

Since the Russian invasion of Ukraine, the economic and financial community has been bearish on the European economy. They’ve been pointing out all the flaws it has, the disastrous policymaking, and how the US has been stealing all the factories from Europe. While there is truth in the issues that are pointed out, Europe has been able to grow despite everything. Europeans are living better lives today than they were back in 2006.

All media commentary on Europe stagnating economically compared to the US has all been based on GDP numbers indexed in USD. As you can see in the image below, when comparing the US and European GDP per capita, you’ll find that the US has continued to grow despite the 2008 financial crisis while the European economies haven’t recovered from the same crisis. That’s because the numbers are based on dollars, which have appreciated considerably when compared to the Euro.

Learn more about the European economic miracle here: https://dissectingthemarkets.substack.com/p/europe-is-an-economic-miracle

The Congressional Budget Office projects the US debt-to-GDP ratio to grow from 97% in 2023 to 116% by 2034. For perspective, the US debt-to-GDP ratio during World War 2 was 116%, the highest debt-to-GDP ratio that the US has experienced. While the chart below is from 2012, add the tax cuts, the new wars that occurred, and the pandemic and the chart will look worse.

Since forecasting the US debt-to-GDP ratio comes with many variables, Bloomberg Economics ran a million simulations to predict the likelihood that this ratio will increase. As Bloomberg noted, “[i]n 88% of the simulations, the results show the debt-to-GDP ratio is on an unsustainable path - defined as an increase over the next decade.” From that, I wondered why 12% of the simulations showed the debt-to-GDP ratio on a sustainable path.

You can learn about the 12% of simulations that show how the US debt-to-GDP ratio is on a sustainable path in my Substack article in the link below:

The Congressional Budget Office projects the US debt-to-GDP ratio to grow from 97% in 2023 to 116% by 2034. For perspective, the US debt-to-GDP ratio during World War 2 was 116%, the highest debt-to-GDP ratio that the US has experienced. While the chart below is from 2012, add the tax cuts, the new wars that occurred, and the pandemic and the chart will look worse.

Since forecasting the US debt-to-GDP ratio comes with many variables, Bloomberg Economics ran a million simulations to predict the likelihood that this ratio will increase. As Bloomberg noted, “[i]n 88% of the simulations, the results show the debt-to-GDP ratio is on an unsustainable path - defined as an increase over the next decade.” From that, I wondered why 12% of the simulations showed the debt-to-GDP ratio on a sustainable path.

To learn more about the 12% of simulations that showed the US debt-to-GDP ratio being on a sustainable path, click here to learn more.

One of the bull cases for Alibaba is seeing Cainiao, their logistics business, go public on the Hong Kong stock exchange. Recently, Alibaba chose to scrap their IPO plans and instead decided to take full ownership of the business by buying out the remaining 36% of Cainiao it didn't own. While this move doesn't unlock shareholder value and won't give Alibaba the cash injection it needs to expand their share buyback program, I think the move to own Cainiao is smart.

To understand why the move is smart, consider the story of $AMZN logistics. For a long time, Amazon relied on third parties like UPS and FedEx to deliver their packages to customers. Then overtime, they created their own logistics business to reduce their logistics costs and eventually started offering their logistics services to other companies. Amazon Logistics is now the largest parcel shipping company in the world.

With the Chinese and Hong Kong stock markets trading at dirt cheap levels, taking Cainiao public would be a mistake. Alibaba and Cainiao's minority stake investors want to maximize the money they can cash out through an IPO and the current environment is unfavorable for that behavior. With that, Cainiao's minority investors find that they can get the most money by selling their stake to Alibaba, who is already cash rich as a business. Through this acquisition, Alibaba no longer has to pay a premium for Cainiao's logistics services and can save immensely on shipping. Also, Alibaba's chairman, Joe Tsai, said that this move to acquire Cainiao is Alibaba's way of doubling down on the logistics business.

From a macro perspective, the picture of China is mixed. You have a real estate bubble burst that is taking up most of the coverage on China's economy. Then you have the booming electric vehicle industry where Xiaomi sold their entire production lineup for 2024 and other players are seeing their exports soar by over 300%. Then you have manufacturing, which recently saw an uptick in activity. Speaking of manufacturing, Chinese businesses are offshoring their low value manufacturing activities to Africa and Latin America and are dedicating their production capacity in China on higher value manufacturing like semiconductors and electric vehicles. With the CCP telling households to stop speculating/hoarding properties, Chinese households will either look to spend their dry powder on dirt cheap Chinese equities or start spending on consumer discretionary items. Then you have American fast food companies looking to open more stores in China at an accelerated pace.

By being a part of Alibaba, Cainiao will miss out on the opportunity of being able to capitalize on the rapid growth of Temu by PDD Holdings, a competitor of Alibaba, along with Alibaba's other competitors. But that's alright because Alibaba's biggest competitors have their own logistics businesses. Like Amazon, Alibaba can provide logistics services to smaller retail business in China and to other retail businesses globally. The synergies that Alibaba will reap from owning all of Cainiao will be similar to what happened when Amazon took full control of its logistics operations. $BABA bulls have more to look forward to.

Xiaomi recently unveiled their first electric vehicle, the SU7. This car, which looks like a Porsche Taycan, cost $29,900. Within 27 minutes, it got 50,000 pre-orders. For a country that has most of their wealth tied to real estate or just sitting on cash or gold, clearly there is spending fever.

If that's enough to convince you that Chinese households are ready to spend, then consider that American fast food giants like McDonald's, Starbucks, and Yum Brands are all eager to open more stores in China. McDonald's knows how irresistible the opportunity in China is that it bought out Carlyle's stake in their China business.

The real estate collapse that's happening in China will only redirect Chinese household spending from wanting more real estate to other things like stocks, which are dirt cheap at the moment, and on consumer discretionary items like new cars, luxury handbags, and traveling.

Whether it's emerging markets or developed nations, China has been exporting electric vehicles globally and have seen an explosion in demand for the past few years. While the sales success of Chinese EVs in Europe and developed nations in Asia is no surprise, in emerging markets, Chinese EV companies have seen instant success within their first year of selling vehicles there. While established automakers like $TSLA look to halt the expansion of factory construction in other nations, BYD is looking to build factories in Thailand, Brazil, Indonesia, Hungary, Uzbekistan and even Mexico. In markets where Toyota use to dominate, BYD is now outselling Toyota. This is because BYD is able to produce cars for much cheaper than competitors. As the middle class in emerging markets continues to grow, we can rest assured that those newly minted middle class households will choose a Chinese EV over a Japanese or even an American EV.

Since the US already imposes a 27.5% tariff on Chinese-made vehicles, Chinese automakers are avoiding the US markets. With the USMCA trade deal and the nearshoring trend, Chinese companies have been eager to offshore their factories in Mexico and take advantage of the terms of the trade deal and avoid tariffs from there. With the Chinese government offering large scale subsidies to their auto industry, Chinese automakers are able to price themselves affordably to households in Latin America. Chinese consumer companies that are already exploiting this loophole are benefiting from the trend where the US imports more goods from Mexico than from China.

While the US, Europe, and Japan find the rise in Chinese EVs to be concerning, for all other nations that don't have an auto industry, they are fond of China's rise in the automotive industry. Their people get better vehicles at affordable prices and those automakers create jobs by offering to build factories in their country. Non-westerners are not concerned with the growing influence that China will have in their country as a result of flooding their market with cheap electric vehicles as their countries are not in a military competition with China. Also, people in general would care more about advancing their financial well-being and upgrade their standard of living.

In terms of economy, China's real estate troubles and manufacturing exodus are providing a shadow over the economy's bright spots, with electric vehicles being one of the biggest bright spots. As international manufacturers leave China, Chinese automakers are filling those empty factories. As international companies demand fewer cargo services from Chinese cargo providers, Chinese automakers are requesting for more cargo ships to transport their vehicles into Europe and Latin America. Many higher paying jobs are created as a result of China's growing automotive industry. As households in China shift from hoarding their wealth in real estate to either investing it in the stock market or splurging it on consumption, we can see households owning more vehicles and thus creating more demand for electric vehicles at home. BYD making luxury SUVs and super cars is a sign that households in China are looking to splurge big on consumer discretionary items. Why else would BYD makes those vehicles when those vehicles wouldn't sell well in Europe nor the emerging markets?

When taking a macro historical view of China, you'll find that China has and continues to upgrade in the economic value chain. It rose from basic manufacturing to producing electronics to now producing cars and later, airplanes. As economists worry about China entering the middle income trap, seeing the country rise in the economic value chain debunks those worries. Japan, which had issues with population growth, became a developed nation simply by growing in the economic value chain. China going from being a recipient of manufacturing to then offshore manufacturing to Latin America and Africa is all part of the process with growing its influence in the developing world as well as creating room for higher value activities within its borders. This is the same roadmap that other developed nations have seen. The high influence of China in the developing world will help China's electric vehicle industry grow as the industry will simply ride the growing wave of new middle class households in those nations. As for the subsidies, I'm unsure when the CCP will stop subsidizing the industry but I believe it will stop subsidizing it sooner rather than later as the electric vehicle industry is already profitable.

Electric vehicles look to create a new wave of economic growth for China.

The two leaders in AI development are OpenAI and Anthropic. OpenAI embodies the Silicon Valley mindset of "move fast, break things, and keep going until you get to your destination". Anthropic embodies a different mindset that can be summed up as "slow and steady wins the race". While OpenAI was first to create an AI chatbot, an AI image creation service, and an AI app store, Anthropic was slow to release their Claude AI chatbot to the public and hasn't dabbled into AI image creation or other AI applications.

The recent unveiling of Claude 3 is proof that slow and steady wins the race. As you can see, all three Claude 3 AI models have capabilities that surpass both OpenAI's GPT-4 and Google's Gemini 1.0 Ultra AI models. Even if Anthropic's emphasis on AI safety slows its development, they've been able to create better AI models than anyone else. Outsiders observing this will say that Anthropic has nailed the sweet spot strategy when it comes to AI development.

Source: Anthropic

$AMZN first invested $1.25 billion in Anthropic in September 2023 as $MSFT, $GOOGL, and OpenAI have already unveiled their chatbots and have seen immense success from launching them. While Amazon wasn't interested in creating a chatbot, it was interested in being the primary cloud services and semiconductors provider to the AI research firm. After the release of Claude 3, Amazon then invested $2.75 billion more in Anthropic. Before Anthropic, Amazon's biggest venture bet was its $1.3 billion investment in $RIVN. Clearly Amazon is more optimistic on Anthropic than on Rivian and for good reason. Unlike the investment in Rivian, Amazon's investment in Anthropic will allow Amazon to build anything they want by leveraging Anthropic's technology.

As for Anthropic, since they already have the sweet spot strategy in AI development, their partnership with Amazon ensures it will have enough computing resources to compete with OpenAI and $GOOGL Gemini. Without Amazon, Anthropic will either have to acquire those computing resources from $MSFT, who has already dedicated a significant portion of their computing resources to OpenAI, or to Google, who already dedicated a significant portion of their computing resources to DeepMind. Amazon was the best choice as they don't have partnerships with any other AI research firms.

Importantly, if the battle is only about computing resources, then Google would beat both OpenAI and Anthropic. However, the battle is bigger as there are other factors to think about, like research efficiency, focus, and execution. And both OpenAI and Anthropic thrive in those areas.

Overall, Amazon is smart to double down on Anthropic. It will be exciting to see what innovations Amazon creates with Anthropic's technology and I am optimistic that Anthropic will be key to Amazon's new era of growth. Imagine the new wave of products and services Amazon will create because it was able to leverage Anthropic's technology. All the ads that they can put on Alexa to monetize the Alexa devices. All the other AI companies that it can attract to AWS. And all the new AWS features it can create and offer to current customers. Amazon is smart to double down on Anthropic.

BlackRock CEO Larry Fink recently stated that India's cultural affinity for gold has hindered economic progress, claiming it has "done little for its economy and investors." However, this categorical dismissal fails to account for the multifaceted role gold plays in India's economic and cultural fabric.

For centuries, gold has been deeply woven into Indian traditions, viewed as a symbol of wealth, prosperity, and auspicious beginnings. This intrinsic connection has fostered a massive domestic demand for gold, making India one of the world's largest consumers of the precious metal. Far from being an economic deadweight, this enthusiasm for gold has yielded tangible benefits.

First, India's gold industry is a significant employment generator, with millions deriving their livelihoods from mining, refining, manufacturing, and retailing gold products. This labor-intensive sector contributes substantially to the nation's GDP and acts as an economic stabilizer during turbulent times when other industries falter. Moreover, the robust domestic demand for gold has nurtured a thriving ecosystem of jewelers, artisans, and craftspeople, preserving India's rich cultural heritage and traditional skills. This vibrant industry not only caters to local appetites but also fuels exports, earning precious foreign exchange reserves for the nation.

From an investment standpoint, gold has long been regarded as a reliable store of value and a hedge against inflation and economic uncertainties. For countless Indian households, especially in rural areas with limited access to formal financial instruments, gold represents a crucial savings vehicle and a form of private wealth transfer across generations.

Notably, India's gold reserves have played a strategic role in shoring up the nation's economic resilience during times of crisis. In the early 1990s, when India faced a severe balance of payments crisis, the government's gold holdings were pivotal in securing emergency loans from international agencies, averting an economic collapse. Furthermore, the demand for gold has spurred innovation and technological advancements in the Indian jewelry industry. Manufacturers have embraced modern techniques, such as computer-aided design and 3D printing, to cater to evolving consumer tastes and tap into global markets.

While Fink's concern about the opportunity cost of gold consumption is valid, it overlooks the broader economic and cultural context. India's love for gold is not merely a frivolous indulgence but a deep-rooted tradition that has fostered employment, preserved heritage, facilitated savings, and bolstered economic security. Rather than dismissing this cultural affinity, a more balanced approach would be to harness its potential through responsible policies and financial literacy initiatives. By encouraging investment in more productive assets while respecting traditional values, India can strike a harmonious balance between its golden legacy and its aspirations for economic growth.

Source: https://www.cnbc.com/2024/03/27/larry-fink-says-indias-love-for-gold-has-done-little-for-its-economy-.html